Common Commercial Disputes Queries – January, 2023

By Gunjan Chhabra

Questions Answered in this Month’s CCDQ:

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2. ??? ?????????? ?????????????? ??????? ??? ???????, ??????? ? ???-????????? ??????????? ?????? ?? ? ????????? ????
3. ??? ?? ????? ?????? ????? ??????? 11 (??? ??????????? ?? ??????????) ?? ?????????
4. ??? ? ?????? ?? ? ????? ??????? ??????????? ?? ???? ?????????? ?????? ?? ?????? ?? ???-????????? ????????????????? ????? ????? ?? ??? ???????????
5. ?? ?? ?????????? ????????? ?? ?? ??????????? ????? ??? ?????, ????? ??? ?????? ??????????? ??????????? ???, 2006 ???????? ?? ???? ? ??????????? ?? ?????????????
6. ????? ??????? ???? ??????? 9: ??? ??? ????? ?????? ??????????? ??????? ?????
7. ??? ????????? ?? ?? ??????????? Agreement ????????????? ????? ???? ???? ???-??????????? ?? ???????? ?? ????????????

?? ?? ??????????’? ????? ????????? ??????????? ?? ? ????? ?????, ?? “??????? ?????”?

This question came up in the case of National Highway Authority Of IndiaÊ(Nhai) v. Lucknow Sitapur Expressways Ltd. Ltd. (Delhi High Court, decided on 22.12.2022)

In this case the parties had entered into a Concession Agreement (“CA”) for improvement, operation, maintenance, strengthening and widening of a National Highway in the state of Uttar Pradesh. Apart from the CA the parties also entered into another Tripartite Agreement, in which the State of UP was also a party.

When disputes arose between the aforementioned parties and arbitration was initiated, NHAI filed an application for impleadment of State of UP in the arbitration proceedings. This application came to be rejected by the Arbitral Tribunal (“AT”) as the State of UP was a party to the Tripartite Agreement and not the CA under which the arbitration had been invoked.

This order of the AT was challenged by NHAI before the High Court in a petition under Section 34 of the #Arbitration & Conciliation Act, 1996 contending that the order amounted to an interim award.

Apart from several issues relating to third parties in arbitration, a key issue which arose before Court was whether such an Order by the AT rejecting impleadment of State of UP, could be called an “interim award” and therefore whether it could be challenged under Section 34. (Read below note for elaboration)

The Court observed as below:

1. For an Order of the AT to be considered an award, it has to be established that it decides “matters of moment” or disposes of a substantive claim raised by the parties. It must conclude a fundamental dispute or question that is raised on merits, and not a mere procedural order. (Reliance placed on Rhiti Sports vs. Powerplay Sports 2018 SCC OnLine Del 8678).
2. On a perusal of the Order it became clear that it did not have any attributed of an award. It neither finally decided any merits of the respective claims, nor it concluded any substantive dispute between the parties.
3. The Order also did not determine any issue which could have a bearing on the ultimate reliefs sought by the parties.
4. Despite the said Order, the objection of “necessary party not having been arrayed” would still be open to be urged before AT.

In view of the above, the Court observed that the said Order did not amount to an “arbitral award” within the meaning of Section 2(1)(c) of the Arbitration & Conciliation Act, 1996 and therefore the petition was dismissed.

Note: Section 34 of the Arbitration & Conciliation Act, 1996 provides for recourse against an “arbitral award” and not against an order of an Arbitrator.

Section 2(1)(c) of the Act provides, “”arbitral award”” includes an interim award”.

This is why the meaning of an interim award becomes important.

There are other recourses available against other orders of the AT if they are covered within the ambit of Section 37, and if not, they can simply be dealt with at the time of filing an objection against the final award.

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This issue arose in the case of GTL Infrastructure Ltd. v. Vodafone Ltd. (Bombay High Court, decided on 02.12.2022)

The parties entered into a Master Services agreement as per which the Petitioner was to provide Telecom Infrastructure to the Respondent.

When disputes arose between the parties, the Petitioner filed two petitions, one under Section 9 (interim relief) and another under Section 11 (Appointment of Arbitrator) of the #Arbitration & Conciliation Act, 1996(“A&C” Act).

The key question which was involved in the matters was whether a ‘mandatory’ arbitration clause existed between the parties or not to be able to invoke the same.

The salient features of the Dispute Resolution Clause between the parties were:

1. Any disputes “shall” be resolved by Coordination Committee.
2. If disputes are not resolved as above within 30 days, then matter “may, if mutually agreed upon by the parties”, be submitted for arbitration.

The Court observed as follows:

1. The use of the word ‘may’ at this particular position does not bring about an arbitration agreement, but it contemplates a future possibility of the choice available to the parties. Thus there is an option for the parties to agree for resolution of disputes by arbitration removing the elements of compulsion for disputes to be referred for arbitration.
2. Where there is a possibility of parties agreeing to arbitration, there can be no valid & binding arbitration agreement. This is in terms of essential attributes of an Arbitration Agreement under Section 2(b) read with Section 7 of the A&C Act.
3. The Petitioner had placed reliance on reply received from the Respondent to invocation of arbitration to highlight their understanding of the arbitration clause, by stating that even their interpretation was that the clause was mandatory in nature.
4. Regarding the Petitioner’s contention the Court observed that the correspondence exchanged between parties, or any contention raised before Court, AFTER dispute has arisen is of no consequence, if the clause in the agreement entered between the parties indicates otherwise.
5. Since the relevant clause in the Agreement does not amount to an arbitration clause (being non-mandatory in nature), there is no need to see the correspondence or contentions raised.

In view of the above the Court concluded that no #arbitrator could be appointed and no relief could be granted in favour of the Petition under Section 9, and both petitions were dismissed.

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This issue came up in the case of Mr. Kush Raj Bhatia v. M/s DLP Power & Services Ltd. (Delhi High Court, decided on 06.12.2022)

In this case, the Delhi High Court had dismissed a Petition filed for appointment of #arbitrator under Section 11 of the #Arbitration & Conciliation Act, 1996 (“A&C Act”), due to lack of territorial jurisdiction.

Against the Order of dismissal, the Petitioner had filed a Review Petition under Order XLVII Rule 1 Read with Section 114 of the Code of Civil Procedure, 1908.

The question which arose before Court was whether Court had power to review its own Order.

The Court observed as follows:

1. The power of review is not an inherent power and must be conferred by law. It cannot be exercised in absence of an express provision. (Reliance placed on Ram Chandra Pillai vs. Arunschalathammal & Ors. 1871 (3) SCC 847).
2. The powers exercised by Court under Section 11 of the A&C Act, are judicial in nature and specific power of Review against such an Order has been conferred only on the Supreme Court under Article 137 of the Constitution of India. High Court is not vested with any such similar powers. (Reliance placed on Jain Studios Ltd. Through its President vs. Shin Satellite Public Co. Ltd. (2006) 65 SCC 501 and Ankiteros Shipping Corporation vs. Adani Enterprises Ltd., Mumbai 2020 (3) Mh. L.J.)
3. Under Article 227 of the Constitution of India the High Court may exercise its powers to correct any patent perversity in its Order or Subordinate Court’s Order, but not to correct all orders of courts. (Reliance placed on Jai Singh v. MCD (2010) 9SCC 385).
4. The contentions raised in the present review revolve around which would be the correct seat of arbitration and whether the High Court has correctly decided that Delhi would not be the seat of arbitration. These issues are in the realm of Appeal and not in the scope of “error apparent on the face of the record”.
5. Once a case has been decided on merits, the application on ground of review cannot be permitted to argue the main matter afresh. Once prayer has been refused, re-hearing of original matter cannot take place in a review. If a prayer to appoint an arbitrator has been heard and rejected, the same relief cannot be sought by an indirect method by filing a review petition. There cannot be a “second innings” of a such a matter (Reliance placed on Jain Studios Ltd. Through its President vs. Shin Satellite Public Co. Ltd. (2006) 65 SCC 501).

In view of the above, the review petition was dismissed as it amounted to challenging the Order on merits which was beyond scope of review.

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This issue had arisen in M/s Osho G.S. & Co. v. M/s WAPCOS Limited (Delhi High Court, Decided on 22.12.2022).

The Parties had entered into a contract for construction project in Chandigarh. When disputes arose between parties, the Petitioner invoked arbitration.

Since the #Arbitration clause in the contract provided for unilateral appointment of arbitrator by the Respondent, the Respondent then unilaterally appointed an arbitrator. This was immediately objected to, by the Petitioner due to unilateral appointment. [Sections 12(5) of the Arbitration & Conciliation Act, 1996(“A&C Act”) and Perkins Eastman Architects DPC vs. HSCC (India) Ltd. (2020) 20 SCC 760].

When the Respondent paid no heed to the Petitioner’s above objection, the Petitioner approached Court under Sections 14 and 15 of the A&C Act seeking termination of mandate of sole arbitrator so appointed.

The Court observed as follows:

1. The nature of the arbitration clause in the present case is one where the right to appoint arbitrator lies only with one party. It is not a case where one party proposes a wide panel and the other party has a choice of selecting the arbitrator out of such a panel. In view of the same, the appointment in the present case was clearly unsustainable. (Distinguished Central Organization for Railway Electrification vs. ECI-SPIC-SMOMCML (JV) A Joint Venture Company (2020) 14 SCC 712).
2. It could not be accepted that because the Petitioner had requested the Respondent to appoint an #arbitratorby way of its letter of invocation, the Petitioner had waived the applicability of non-derogable disqualifications contained in Section 12(5).
3. Section 12(5) requires waiver “by an express agreement in writing”. A unilateral request by one party for setting the appointment procedure in motion clearly does not fulfil this requirement.

In view of the same the Court declared that the mandate of the Arbitrator stood terminated and made a fresh appointment of a sole arbitrator for the disputes between parties.

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In the case of Security Hitech Graphics Private Limited v. LMI India Private Limited (Calcutta High Court, Decided on 20.12.2022), during the arbitration proceedings between the parties, the #arbitrator appointed under the Micro, Small and Medium Enterprises Development Act, 2006 (“M.S.M.E.D. Act”), had passed an order making the 5th, 6th and 7th schedule of the #Arbitration & Conciliation Act, 1996(“A&C” Act) inapplicable to the arbitration proceeding.

This order had been passed in an application which the Respondent had filed before the arbitrator under Section 16 of the A&C Act challenging the jurisdiction of the Arbitrator.

This order came to be challenged by the Petitioner before the Calcutta High Court in a Revision Application under Article 227 of the Constitution of India, as being violative of Section 12(1)and 12(2) of the A&C Act.

Here the issue which arose was whether, an #Arbitrator appointed the MSMED Act, being a special legislation, is required to disclose his independence and impartiality to clear justifiable doubts of the parties, in adherence of the 6th Schedule or not.

The Court observed as follows:

1. As per Section 18(3) of the MSMED Act, when arbitration is conducted under the MSMED Act, the A&C Act shall apply to it as if the proceedings were in pursuance of an arbitration agreement referred to in Section 7(1) of the A&C Act.
2. The contention of the Respondent was that Section 24 of the MSMED Act provides that that Sections 15 to 23 of the MSMED Act shall have overriding affect over any other law for the time being in force, owing to which the arbitrator was not obliged to disclose his independence and impartiality to comply with Section 12 read with 6th Schedule of the A&C Act, 1996.
3. This contention could not be accepted because the appointment of an Arbitrator being subjected to disclosure under 6th schedule would not be construed to come in the way of Section 24 of the MSMED Act. Section 24 is not an absolute bar making section 12 of the A&C Act inapplicable.

With these observations the Revision Petition was disposed off directing the arbitrator to ensure declaration of his independence and impartiality as mentioned in Section 12 read with 6th Schedule of the A&C Act to eliminate doubts of parties regarding impartiality of the arbitrator.

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Deccan Paper Mills Co. Limited v. Regency Mahavir Properties (Bombay High Court, decided on 16.12.2022) was a petition filed under Section 11(6) of the #Arbitration & Conciliation Act, 1996(“A&C” Act) for appointment of Arbitrator.

The Petitioner & the Respondent no. 2 had entered into an agreement o develop the property of the Petitioner. The Respondent no. 2 then granted the development rights to Respondent no. 1 by an agreement, which was then confirmed by the Petitioner as well.

When disputes arose, the Petitioner filed a Petition under Section 9 seeking interim reliefs against the Respondents 1 to 3, during pendency of which the Petitioner stated that it did not wish to prosecute Respondents no. 2 and 3 owing to which they were then deleted. Thereafter the Petitioner also prepared a separate agreement styled as an arbitration agreement between all parties including the Petitioner and Respondents 1 to 3.

Thereafter the Petitioner then invoked arbitration by sending a notice to all three Respondents. Thereafter, the Petitioner filed the present petition under Section 11(6) of the A&C Act for appointment of #arbitrator.

One of the key questions which arose was that once the Respondent no. 3 had been deleted from the array of parties under Section 9 of the A&C Act, then could the Petitioner have invoked arbitration against it?

The Court observed as follows:

1. The purpose of Section 9 is to provide power to competent courts to pass interim measures.
2. If the above contention of Respondent no. 3 would be accepted, it would lead to incongruous results. It could lead to a situation where, despite existence of arbitration agreement between the parties, the Petitioner would not be able to invoke arbitration against one or more of the parties, merely because such a party stood deleted from a Section 9 proceedings.
3. Such an interpretation runs contrary to the objects and purpose of Section 9 of the A&C Act.

In view of the above, an arbitrator was appointed by the Court.

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In Hungama Digital Media Entertainment Pvt. Ltd. v. RBEP Consulting Entertainment Private Limited (Bombay High Court, Decided on 18.01.2023), two Intellectual Property suits had been filed. In one of them Super Cassettes Industries Private Limited (“Super Cassettes”) was the Plaintiff, and in the other Hungama Digital was the Plaintiff. The Defendant no. 1 in both suits was RBEP.

Super Cassettes, RBEP and Hungama had entered into a an Agreement under which RBEP was to assign certain proportionate shares of Intellectual Property Rights existing in music titles held by RBEP, to Super Cassettes and Hungama respectively. Thereafter the three parties were to become joint copyright holders in a certain ratio.

Apart from this, Super Cassettes had also entered into 6 assignment deeds with RBEP for 6 films.

Thereafter certain disputes arose between the parties, in relation to the different agreements owing to revenue sharing and the Agreement was purported to have been terminated.

There were two other Defendants in the suits who claimed that after termination of the main Agreement, those rights had been assigned to the said defendants.

Upon filing of suits by Super Cassettes and Hungama, RBEP filed Section 8 Applications under the #Arbitration & Conciliation Act, for referring parties to arbitration, citing the arbitration clause in the main Agreement. However, the fact was that the other Defendants were not party to the Arbitration clause.

Now the issue was whether all parties could be sent to a consolidated arbitration.

The Court observed as follows:

1. The position of law appears to have shifted post amendment of Section 8 by way of the Arbitration & Conciliation (Amendment Act), 2015.
2. Firstly the amended Section 8 provides for only a “prima facie” examination, and secondly, the amendment provides that not only signatories, but even non-signatories (if they are persons claiming through or under the main party) can be referred to arbitration. This is a significant departure from the earlier position. (Distinguished Sukanya Holdings (P) Ltd. Vs. Jayesh H. Pandya, (2003) 5 SCC 531).
3. Parties who are not signatories to arbitration agreement, cannot be mechanically referred to arbitration.
4. On Prima Facie Examination the Court found that such non-signatories, that is the other Defendants could not even be said to be parties claiming through or under the signatories to the arbitration agreement. Such parties cannot be forced to participate in arbitration proceedings. (Distinguished Vidya Drolia and others Vs. Durga Trading Corporation, (2021) 2 SCC 1).
5. This is because there were several works, in respect of which the Intellectual Property disputes had arisen, which were not part of the main Agreement, and so in respect of these disputes no arbitration agreement existed.
6. Therefore the present disputes were of a complex nature, and it would be against public policy to refer only signatories to arbitration, as it would inevitably lead to splitting of suits, where more than one proceeding would continue, resulting on contradictory findings before different fora.
7. The court observed that the nature of disputes and complexity of the matter warranted a centralised resolution of disputes before that Court, in order to pronounce upon rights of all parties by one fora (signatories and non-signatories).

In view of the above, section 8 applications by RBEP were rejected, all suits were allowed to be continued.