Common Commercial Disputes Queries – October 2023

By Gunjan Chhabra

Questions Answered in this month’s CCDQ:

 

1. 𝐈𝐬𝐬𝐮𝐞 𝐨𝐟 𝐄𝐧𝐟𝐨𝐫𝐜𝐞𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐨𝐟 𝐔𝐧𝐬𝐭𝐚𝐦𝐩𝐞𝐝 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐀𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭𝐬 𝐢𝐧 𝐍𝐍 𝐆𝐥𝐨𝐛𝐚𝐥, 𝐬𝐭𝐢𝐥𝐥 𝐯𝐚𝐥𝐢𝐝?
2. 𝐂𝐨𝐧𝐭𝐫𝐚𝐝𝐢𝐜𝐭𝐨𝐫𝐲 𝐬𝐞𝐚𝐭𝐬 𝐨𝐟 𝐚𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐈𝐧𝐯𝐨𝐢𝐜𝐞 𝐯𝐢𝐬-𝐚-𝐯𝐢𝐬 𝐏𝐮𝐫𝐜𝐡𝐚𝐬𝐞 𝐎𝐫𝐝𝐞𝐫: 𝐰𝐡𝐚𝐭 𝐩𝐫𝐞𝐯𝐚𝐢𝐥𝐬?
3. 𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐭𝐡𝐞 𝐏𝐫𝐢𝐧𝐜𝐢𝐩𝐥𝐞𝐬 𝐟𝐨𝐫 𝐀𝐩𝐩𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐇𝐮𝐝𝐬𝐨𝐧’𝐬 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 𝐢𝐧 𝐂𝐨𝐦𝐩𝐮𝐭𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐂𝐥𝐚𝐢𝐦𝐬 𝐨𝐟 𝐋𝐨𝐬𝐬 𝐨𝐟 𝐎𝐯𝐞𝐫𝐡𝐞𝐚𝐝𝐬 𝐚𝐧𝐝 𝐏𝐫𝐨𝐟𝐢𝐭𝐬?
4. 𝐈𝐬 𝐭𝐡𝐞𝐫𝐞 𝐚 𝐖𝐚𝐲 𝐭𝐨 𝐑𝐞𝐬𝐨𝐥𝐯𝐞 𝐃𝐢𝐬𝐩𝐮𝐭𝐞𝐬 𝐫𝐞𝐥𝐚𝐭𝐢𝐧𝐠 𝐭𝐨 𝐎𝐩𝐩𝐫𝐞𝐬𝐬𝐢𝐨𝐧 𝐚𝐧𝐝 𝐌𝐢𝐬𝐦𝐚𝐧𝐚𝐠𝐞𝐦𝐞𝐧𝐭 𝐭𝐡𝐫𝐨𝐮𝐠𝐡 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧?
5. 𝐇𝐨𝐰 𝐦𝐮𝐜𝐡 𝐒𝐢𝐦𝐢𝐥𝐚𝐫𝐢𝐭𝐲 𝐢𝐬 𝐒𝐢𝐦𝐢𝐥𝐚𝐫𝐢𝐭𝐲 𝐢𝐧 𝐌𝐮𝐬𝐢𝐜 𝐂𝐨𝐩𝐲𝐫𝐢𝐠𝐡𝐭?
6. 𝐀𝐰𝐚𝐫𝐝 𝐨𝐟 𝐋𝐨𝐬𝐬 𝐨𝐟 𝐏𝐫𝐨𝐟𝐢𝐭𝐬, 𝐨𝐧 𝐭𝐡𝐞 𝐛𝐚𝐬𝐢𝐬 𝐨𝐟 𝐖𝐡𝐚𝐭 𝐄𝐯𝐢𝐝𝐞𝐧𝐜𝐞: 𝐀𝐧𝐨𝐭𝐡𝐞𝐫 𝐛𝐥𝐨𝐰 𝐭𝐨 𝐭𝐡𝐞 𝐇𝐮𝐝𝐬𝐨𝐧𝐢𝐚𝐧 𝐂𝐚𝐦𝐞𝐥’𝐬 𝐛𝐚𝐜𝐤?

𝐈𝐬𝐬𝐮𝐞 𝐨𝐟 𝐄𝐧𝐟𝐨𝐫𝐜𝐞𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐨𝐟 𝐔𝐧𝐬𝐭𝐚𝐦𝐩𝐞𝐝 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐀𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭𝐬 𝐢𝐧 𝐍𝐍 𝐆𝐥𝐨𝐛𝐚𝐥, 𝐬𝐭𝐢𝐥𝐥 𝐯𝐚𝐥𝐢𝐝?

Bhaskar Raju & Brothers v. Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chatham (#Supreme Court of India, 3 judge bench 26.09.2023), is a curative petition under Article 142 of the Arbitration & Conciliation Act, 1996.

Various practical issues were raised which would be problematic if the judgment in NN Global Mercantile v. Indo Unique Flame(2023)7SCC 1 (“NN Global”) was given effect to including the fact that most section 9 Petitions would become inefficacious.

The Counsel of the Respondents however pointed out the limited nature of jurisdiction of Court in a curative petition.

Although the Court did deem it fit to refer the issue of enforceability of unstamped agreements to a larger bench of 7 judges, it also took due note of the submission that the case should not be reopened on facts, and noted that the same would be borne in mind while arriving at conclusion of proceedings before the 7 judge bench.

Regarding the referral the Court observed as follows:

“Having regard to the larger ramifications and consequences of the view of the majority in N N Global Mercantile Private Limited vs Indo Unique Flame Limited and Others1, we are of the considered view that the proceedings should be placed before a seven-Judge Bench to reconsider the correctness of the view of the five-Judge Bench”.

 

𝐂𝐨𝐧𝐭𝐫𝐚𝐝𝐢𝐜𝐭𝐨𝐫𝐲 𝐬𝐞𝐚𝐭𝐬 𝐨𝐟 𝐚𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐈𝐧𝐯𝐨𝐢𝐜𝐞 𝐯𝐢𝐬-𝐚-𝐯𝐢𝐬 𝐏𝐮𝐫𝐜𝐡𝐚𝐬𝐞 𝐎𝐫𝐝𝐞𝐫: 𝐰𝐡𝐚𝐭 𝐩𝐫𝐞𝐯𝐚𝐢𝐥𝐬?

Parekh Plastichem vs. Simplex Infrastructure Ltd. (Bombay HC, 14.09.2023), was an application under Section 11 of the #Arbitration & Conciliation Act, 1996 (“A&C Act”) for appointment of #arbitrator.

The Petitioner’s case was that it had been supplying Silica to the Respondent for its Metro Station Lines. The Respondent would raise purchase orders for these supplies, upon which the Petitioner would make supplies & then raise invoices. Certain payments were due to the Petitioner, owing to which disputes arose & the Petitioner filed the current Petition for appointment of arbitrator.

The dispute here was that the invoices provided, “the venue of arbitration shall be Mumbai & the courts at Mumbai would have exclusive jurisdiction in the matter.” The purchase orders on the other hand provided that the venue of arbitration would be Kolkata & all transactions would be subject to jurisdiction of Calcutta High Courts.

Placing reliance of purchase orders, the Respondent alleged that the Bombay High Court lacked jurisdiction to appoint an arbitrator.

The Court observed as follows:

1. In order to consider which court had jurisdiction, the intention of the parties needs to be gathered as arbitration is a consensual form of dispute resolution.
2. It needs to be considered whether parties intended to be bound by Arbitration clause contained in the purchase orders or the invoices.
3. It appears from a perusal of both, that the purchase orders contained the main agreement between the parties, terms & conditions, goods, quantities, rates, taxes, inspection, test certificate etc.
4. In light of this, if the parties intended that the arbitration clause in the invoices would supersede the clause in the main agreement between the parties, there would have been an express agreement, but there was not.
5. Therefore, once the purchase orders were issued first & also appears to be the main agreement between the parties, there is no reason why the parties would intend for the arbitration clause in the invoice to govern them.
6. In some cases where purchase orders were silent, then also an arbitration clause contained in the invoice was held not binding. In others, if the purchase orders were silent regarding mode of dispute resolution, then invoice arbitration clauses were held binding. However, in this case once the Purchase order, being main agreement provides for the venue, then there is no reason to discredit the same. (Alupro Building Systems Pvt. Ltd. V/s. Ozone Overseas Pvt. Ltd. (2017) 162 DRJ 412 & Bennett Coleman & Co. Ltd. V/s. MAD (India) Pvt. Ltd etc.).

In light of the above, it was observed that Courts at Kolkata alone had jurisdiction to entertain an Application for appointment of arbitrator. The Present application was dismissed.

 

𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐭𝐡𝐞 𝐏𝐫𝐢𝐧𝐜𝐢𝐩𝐥𝐞𝐬 𝐟𝐨𝐫 𝐀𝐩𝐩𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐇𝐮𝐝𝐬𝐨𝐧’𝐬 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 𝐢𝐧 𝐂𝐨𝐦𝐩𝐮𝐭𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐂𝐥𝐚𝐢𝐦𝐬 𝐨𝐟 𝐋𝐨𝐬𝐬 𝐨𝐟 𝐎𝐯𝐞𝐫𝐡𝐞𝐚𝐝𝐬 𝐚𝐧𝐝 𝐏𝐫𝐨𝐟𝐢𝐭𝐬

Batliboy Environmental Engineers Ltd. V. Hindustan Petroleum Corporation Ltd. (#SupremeCourtofIndia, decided on 21.09.2023), was an Appeal filed challenging the High Court’s order under Section 37 of the #Arbitration & Conciliation Act, 1996 which set aside the Arbitral Award.

The Respondent had awarded a turnkey contract to the Appellant for the civil works of Sewage Water Reclamation Plant in Mahul Refinery area. When disputes arose between the parties, arbitration was conducted by a Sole Arbitrator, and the arbitration proceedings took place between 1998 and 1999, and a site inspection was also held in 1997 by the #arbitrator. The award was passed in March 1999 allowing certain claims of the Appellant.

The Supreme Court, while deciding the matter pointed out various errors of patent illegality in the award. While doing so, the Supreme Court also made some key findings on award of loss of profits and overheads in such cases. Certain key issues highlighted by Court were as under:

 

1. It is true that the method of computation of damages falls within the domain & decision of the arbitrator, but the same should not be whimsical & absurd resulting in a windfall bounty for one party at the expense of the other. The computation should not be disingenuous.
2. The principle is that the sum of money awarded to the party who has suffered injury, should be commensurate as to what s/he would have earned if s/he had not sustained the wrong complained of.
3. Where the breach by the employer is not fundamental, and does not entitle the contractor to cease work/repudiate the contract, then in such cases the compensation or damages is the loss of profit arising from reduced profitability or added expense of work carried out.
4. The usage of formulae such as Hudson’s, Emden’s or Eichleay’s formulae to ascertain loss of overheads or profits is certainly judicially approved, but these three are based on certain factual assumptions. Therefore while applying any equation, the assumptions need to be examined.
5. The Hudson’s formulae for instance, assumes that FIRST: the contractor is not habitually or otherwise underestimating the cost when pricing, SECOND: the profit element was realistic at that time, LASTLY: there was no fluctuation in the market conditions and the work of the same general level of profitability would be available to him/her at the end of contract period. Therefore satisfaction of these assumptions needs to be ascertained when applying the Hudson’s formulae.
6. The contractor has to prove these assumptions by showing for instance, that there was other work available which he would have secured, but for the delay (produce NITs etc). This can also be proven from books of accounts demonstrating a dip in turnover.
7. Hudson’s Formulae like any other formulae are rough approximations of the cost impact of unabsorbed overhead, and should be applied with great care and caution to ensure fair and just computations. (eg. to avert double recovery due to the profit already being subsumed in contract sum, the formula should be modified accordingly to make prior deduction of overhead and profit from the contract sum).
8. Hudson’s method should be taken as last resort, where no other way to compute damages is feasible or mathematically accurate.

 

In view of the above, and other findings, the Court came to the conclusion that there was patent illegalities present in the award, including complete absence of reasoning for grant of certain claims, and also it was a clear case of overlapping or part doubling of the loss of profit/damages.

Bombay High Court’s order was upheld and the Appeal was dismissed.

 

𝐈𝐬 𝐭𝐡𝐞𝐫𝐞 𝐚 𝐖𝐚𝐲 𝐭𝐨 𝐑𝐞𝐬𝐨𝐥𝐯𝐞 𝐃𝐢𝐬𝐩𝐮𝐭𝐞𝐬 𝐫𝐞𝐥𝐚𝐭𝐢𝐧𝐠 𝐭𝐨 𝐎𝐩𝐩𝐫𝐞𝐬𝐬𝐢𝐨𝐧 𝐚𝐧𝐝 𝐌𝐢𝐬𝐦𝐚𝐧𝐚𝐠𝐞𝐦𝐞𝐧𝐭 𝐭𝐡𝐫𝐨𝐮𝐠𝐡 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧?

Anupam Mittal vs. People Interactive (Bombay HC, Decided on 05.10.2023), was an injunction application filed in a suit, whereby the Plaintiff was seeking to restrain the Defendants from enforcing an anti-suit permanent injunction order passed by the #singapore High Court. By this Order the Singapore HC restrained plaintiff from proceeding with his petition in NCLT, Mumbai against the Defendants.

The Singapore HC had given this injunction holding the disputes were purely contractual in nature, therefore deserved to be resolved by #Arbitration in line with the clause in the Agreement between the parties.

The question was whether the Plaintiff’s prior NCLT Petition, making allegations of oppression & mismanagement would have a bearing on the case.

The Court observed as follows:

1. Well established three pronged test of prima facie case, balance of convenience & irreparable injury applies to an anti-enforcement order. Anti enforcement injunction is in a sense an anti-anti-suit injunction. Hence same concept applies. (Modi Entertainment Network Vs. W. S. G. Cricket PTE Limited,(2003)4SCC341).
2. Section 241 r/w 242 r/w 430 of Companies Act, 2013 make it evident that NCLT has exclusive power to consider Oppression & Mismanagement Disputes. These disputes are non-arbitrable. (N. N. Global Vs. Indo Unique Flame (2021)4SCC379).
3. Even though the place of Arbitration is Singapore as per the agreement, the Place of Enforcement of the award is ultimately going to be India. Therefore, the issue that Oppression & Mismanagement are non-arbitrable under Indian law, assumes significance. Ultimately the findings of the arbitral tribunal would become futile if they could not be enforced in India. (Sections 7(1)(b)(ii) & Section 48 of the A&C Act- Renusagar Power Company v. General Electric 1994 Supp (1) SCC 644) & Vijay Karia v, Prysmian Cavi (2020) 11 SCC 1).
4. Therefore, NCLT being the only remedy available to the Plaintiff for the aspect of Oppression & Mismanagement, the anti-suit permanent injunction granted by the Singapore HC prevents him from exercising such a remedy, rendering him remediless.
5. Principle of Comity of Courts cannot override valuable rights of the litigant’s access to justice. (Interdigital Technology Vs. Xiaomi Corporation, Delhi HC).
6. The Defendant’s plea that the Plaintiff’s NCLT Petition is only ‘dressed-up’ to look like an action for Oppression & Mismanagement cannot be decided by this Court but it is within the exclusive jurisdiction of NCLT to decide this issue. This finding is not within the scope of a prima facie limited examination.

Therefore, the three pronged test stood satisfied in favour of the Plaintiff & the Court granted temporary injunction to resist enforcement of Singapore HC’s Order.

 

𝐇𝐨𝐰 𝐦𝐮𝐜𝐡 𝐒𝐢𝐦𝐢𝐥𝐚𝐫𝐢𝐭𝐲 𝐢𝐬 𝐒𝐢𝐦𝐢𝐥𝐚𝐫𝐢𝐭𝐲 𝐢𝐧 𝐌𝐮𝐬𝐢𝐜 𝐂𝐨𝐩𝐲𝐫𝐢𝐠𝐡𝐭?

Ustad Faiyaz Wasifuddin Dagar v/s Mr. A.R. Rahman & Ors (Delhi High Court, Order dated 20.10.2023), is a pending suit alleging infringement of copyright.

The suit has been filed by Indian classical singer Faiyaz Wasifuddin Dagar, Padma Shree awardee against Mr. A.R. Rahman, Mr. Mani Ratnam, Madras Talkies and other Defendants alleging that the composition of the Defendants’ song ‘Veera Raja Veera’ of the film titled Ponniyin Selvan Part-2 infringes the Plaintiff’s composition claimed to be inherited by the Plaintiff from his father and uncle. The Plaintiff claims to be the custodian of of the Dagar vani, school of music.

The IP (Intellectual Property) Division of the Delhi High Court, has admitted the suit and prima facie compared the impugned song ‘Veera Raja Veera’ with that of the original classical composition of the Plaintiff. While admitting the suit, the Court has orally remarked that there seems to be a possibility that the composition is much more than just inspiration.

At present the Defendants have been directed to produce the raw music composition of the song ‘Veera Raja Veera’.

The Court after having on record, the raw recording of the composition of the song Veera Raja Veera’ will ponder upon many questions of law and fact that will be raised by the Plaintiff and the Defendant during the course of their arguments.

The final result is still to be seen.

 

𝐀𝐰𝐚𝐫𝐝 𝐨𝐟 𝐋𝐨𝐬𝐬 𝐨𝐟 𝐏𝐫𝐨𝐟𝐢𝐭𝐬, 𝐨𝐧 𝐭𝐡𝐞 𝐛𝐚𝐬𝐢𝐬 𝐨𝐟 𝐖𝐡𝐚𝐭 𝐄𝐯𝐢𝐝𝐞𝐧𝐜𝐞: 𝐀𝐧𝐨𝐭𝐡𝐞𝐫 𝐛𝐥𝐨𝐰 𝐭𝐨 𝐭𝐡𝐞 𝐇𝐮𝐝𝐬𝐨𝐧𝐢𝐚𝐧 𝐂𝐚𝐦𝐞𝐥’𝐬 𝐛𝐚𝐜𝐤?

M/s Unibros v. All India Radio (#SupremeCourtofIndia, decided on 19.10.2023) Was a Civil Appeal before the Supreme Court, against the Delhi High Court’s order dismissing an appeal under Section 37 of the #Arbitration & Conciliation Act, 1996 (“A&C” Act).

Unibros was awarded a work contract by the Respondent to carry out construction of the Delhi Doordarshan Bhawan at Mandi House. There was a delay of around 42 months, owing to which disputes arose between the parties, and #arbitrator was appointed.

The appeal was mainly directed towards dismissal of Unibros’ claim towards loss of profit by the Delhi High Court. The Arbitration had allowed this claim, stating that the delay was caused by All India Radio, taking a profit allowance of 7.5% per year as reasonable in civil works, and then applying the Hudson’s formula.

The Court observed as follows:

 

1. A claim for loss of profit will only be considered when supported by adequate evidence. What the contractor needs to establish is that had he received the amount due under the contract, he could have utilized the same for some other business in which he could hav earned profit. Unless such a plea is raised and established, such a claim cannot be granted. (Reliance placed on Bharat Cooking Coal Limited vs. L.K. Ahuja (2004) 5 SCC 109).
2. Such evidence may generally include independent contemporaneous evidence such as other potential projects that the contract had in the pipeline that could have been undertaken if not for the delays, total number of tendering opportunities received, but declined by the contractor owing to contract prolongation, extensions of time, financial statements. The list is not exhaustive.
3. The Hudson’s formula, is widely accepted but is not to be applied in vaccum. These formula provide an estimate of the losses the contractor may have suffered and while they are helpful, they alone cannot ‘prove’ the contractor’s loss.
4. The ingredients for establishing a claim for loss of profit is as follows:

a. Firstly, there was a delay in completion of contract.

b. Secondly, such delay is not attributable to the claimant.

c. Thirdly, claimant’s status as an established contractor, handling substantial projects.

d. Fourthly, credible evidence to substantiate loss of profitability.

5. A claim for damages, whether general or special, cannot as a matter of course result in an award without proof of the claimant having suffered injury.

In view of the same, the Court held that the arbitral award was patently illegal as it was based in no evidence, as was therefore in conflict with public policy of India as contemplated by Section 34(2)(b) of the A&C Act.

In view of the same, the present Appeal was dismissed.