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Tariq Khan
Here is Part II of the 50 landmark decisions delivered by the Indian Courts on Arbitration law in 2018-2019. (You can read Part I here)
SECTION 34
Scope of interference with Arbitral Award in India
MMTC Ltd. v. M/s Vedanta Ltd. (Civil Appeal No. 1862/2014)
As far as section 34 of the Arbitration Act, 1996 is concerned, the position is that Court does not sit in appeal over the arbitral award and may interfere on merits on the limited grounds provided under Section 34(2) (b) (ii) i.e. if award is against public policy of India. Further, an arbitral award may not be interfered if the view taken by the arbitrator is a possible view based on facts. However, position changed after 2015 Amendment whereby Explanation 1 was inserted to Section 34(2) and the scope of contravention of public policy was modified to the extent that it now means fraud or corruption in the making of the award etc. Additionally, in domestic arbitrations, violation of Indian Public Policy also includes patent illegality appearing on the face of the award. [Section 34 (2A)]
Interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. While interpreting the terms of a contract, conduct of parties and correspondences exchanged would also be relevant factors and it is within the Arbitrator’s jurisdiction to consider the same
Whether in a Section 34 Petition the Court has the Jurisdiction to remand the matter to the Arbitrator?
Radha Chemicals v. Union of India Civil Appeal No. 10386 of 2018
The Supreme Court reaffirmed its stand taken in Kinnari Mullick and Another vs. Ghanshyam Das Damani, (2018) 11 SCC 328, and held that the court while deciding a Section 34 petition has no jurisdiction to remand the matter to the Arbitrator for a fresh decision. Further, it was held that the discretion of the Court under Section 34(4) to defer the proceedings for specified purpose is limited and can be invoked only upon request by the party prior to setting aside of the Award.
Limit on Fresh Evidence for Adjudicating Challenge to Arbitral Award
M/s Emkay Global Financial Services ltd. v. Girdhar Sondhi Civil Appeal No. 8367 of 2018
The court held that an application for setting aside an arbitral award will not ordinarily require anything beyond the record that was before the Arbitrator. However, if there are matters not contained in such record, and are relevant to the determination of issues arising under Section 34(2)(a), they may be brought to the notice of the Court by way of affidavits filed by both parties. Cross examination of persons swearing to the affidavits should not be allowed unless absolutely necessary, as the truth will emerge on a reading of the affidavits filed by both the parties.
Limitation Period for setting aside an Award
Anilkumar Jinabhai Patel (D) V Pravinchandra Jinabhai Patel Civil Appeal No. 3313 of 2018 arising out of SLP (C) No.15668 of 2012
Limitation period prescribed under Section 34(3) of the Arbitration Act, 1996 would commence only from the date of signed copy of the award delivered to the party making the application for setting it aside. Further, the court held that Section 31(5) of the Act requires a signed copy of the award to be delivered to each party.
Section 34 (3) of the Arbitration Act tantamount to an “express exclusion” of Section 17 of Limitation Act
P Radha Bai v Ashok Kumar 2018 SCC Online SC 1670
The court held that the phrase “but not thereafter” in Section 34(4) of the Act nails the legislative intent of giving “finality” to the Arbitral Award by fixing an “outer boundary period” for challenging an award.
M/s Simplex Infrastructure Ltd. v Union of India 2019 2 SCC 455
In this case the court held that the statutory time limit to challenge an Arbitral Award has to be strictly adhered to.
Meaning of Public Policy
M/S Lion Engineering Consultants v State of M.P. & Ors. Civil Appeal NOS. 8984-8985 OF 2017
The Hon’ble Supreme Court has held that the public policy of India refers to law in force in India whether State law or Central law. Further, the court held that there is no bar on plea of jurisdiction being raised by way of an objection under Section 34 of the Arbitration Act, 1996 even if no such objection was raised under Section 16.
Whether prior notice of an application under Section 34 is directory or mandatory?
The State Of Bihar & Ors. v. Bihar Rajya Bhumi Vikas Bank Samiti Civil Appeal No. 7314 of 2018
Contrasting Section 34(5) with Section 80 of the Code of Civil Procedure, the court observed that to construe such a provision as being mandatory would defeat the advancement of justice and therefore, prior notice to other party before filing application to set aside arbitral award is not mandatory and is merely directory.
Whether no particular evidence is required for awarding loss of profits and the same could be awarded by estimating the same at 10%?
GTM Builders & Promoters Pvt Ltd. v. Sneh Developers Pvt Ltd O.M.P. (COMM) 10/2016
Taking a note of the judgments of the Supreme Court relied upon by the Arbitral Tribunal, the court held that none of the referred decisions are authorities for the proposition that claim for loss of profits can be awarded without any rudimentary evidence or material indicating the same. Further, it is open to the courts to estimate the quantum of loss of profits; however, it would be necessary for a party to establish that in the normal course, the contract would have yielded profits to the extent as claimed.
Whether a clause in an agreement excluding interest on security deposit can act as a bar on the Arbitrator to award pendente lite interest?
M/s Ravechee and Co v Union of India Civil Appeal Nos. 5964-5965 OF 2018
The court relied on a three-judge bench decision in Union of India v Ambica Construction and held that an Arbitrator has the power to award interest unless specifically barred from awarding it. It was clarified that the bar must be clear and specific. It was further held that the bar to award interest on the amounts payable under the contract would not be sufficient to deny the payment of interest pendent-lite.
BCCI v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287
Amended Section 36 applies even to pending Section 34 applications on the date of commencement of the Arbitration Amendment Act, 2015.
Whether an award adjudicating excepted matters would violate Section 34?
Triune Energy Services Pvt Ltd v. Indian Oil Petronas Pvt Ltd O.M.P. (Comm) 5/2016
Relying upon the judgement of the Supreme Court in J.G. Engineers Private Ltd. v. Union of India & Another: (2011) 5 SCC 758, the court held that an award adjudicating claims, which are excepted matters would violate Section 34 (2)(a)(iv) and 34(2)(b) of the Act. Further, the court held that the Petitioner’s claim for work done could not have been rejected only on the ground that the termination of the contract was legal. The court observed that notwithstanding the legality of the termination of the contract, a contractor is entitled to the value of the work done.
If an issue is conclusively determined prior to the final award, the same constitutes an ‘interim award’
M/S Cinevistaas Ltd. v. M/s Prasar Bharti OMP (Comm.) 31/2017
A petition under section 34 of the Arbitration Act, 1996 was filed challenging the Order passed by the Arbitrator whereby the prayer for amendment of Statement of Claim filed by the Petitioner was rejected. The issue before the court was whether these amendments were inadvertent errors which were left out in the Statement of Claims or they were additional claims. Relying on Indian Farmers Fertilizer Co-operative Ltd. vs Bhadra Products 2018 (1) Arb LR 271 (SC) the court held that if an issue is conclusively determined prior to the final award, the same constitutes an ‘interim award’. The court observed that the order is not to be construed as a mere procedural order or an order rejecting a technical amendment but in fact a rejection of substantive claims. Lastly, it was held that additional claims were not time-barred as they were raised in the first place in the notice invoking arbitration.
SECTION 36
Jurisdiction of Court in Enforcement Proceedings
M/s ARSS Infrastructure Projects Ltd v. Calcutta Haldia Port Road Company Ltd. O.M.P. (ENF.) (COMM) 55/2017
The Court held that in exercising its power under Section 36 of the Act it cannot substitute such award or make amendments thereto. Further, in enforcement proceedings the Court has no jurisdiction to modify the Award. The jurisdiction of the Court is limited only to ensure that the Award is implemented.
Sundaram Finance Limited v. Abdul Samad & Anr. Civil Appeal No.1650 of 2018
The court held that enforcement of an award through its execution can be initiated anywhere in the country where the decree can be executed and there is no requirement of obtaining a transfer of the decree from the court which would have jurisdiction over the arbitral proceedings.
SECTION 37
Whether an order on the application for discovery is appealable under Section 37?
Union of India v Reliance Ltd. & Ors. 2018 SCC Online Del 13018
The court held that an Order directing disclosure of documents is not appealable under Section 37 (2) (b) of the Arbitration Act. The court held that power of an Arbitral Tribunal to order discovery was not contained in section 17 (1) (ii) (c) of the Arbitration Act, 1996 rather it can be understood to be sourced in Section 19(4) read with Section 27 of the 1996 Act. It was further held that an appeal was not maintainable against a procedural order seeking disclosure/discovery of documents passed by the Arbitral Tribunal.
SECTION 47
Whether an Application under Section 47 of the Act seeking enforcement of a foreign award is liable to be dismissed if it is not accompanied by an Arbitration Agreement?
P.E.C. Limited v. Austbulk Shipping SDN BHD 2018 SCC Online SC 2549
The court held that the Arbitration Agreement need not be filed at the time of filing an application seeking enforcement of Foreign Award.
SECTIONS 48 AND 49
Whether non-stamping of a Foreign Award would render it unenforceable?
Shriram EPC Limited v. Rioglass Solar SA 2018 SCC Online SC 1471
The Supreme Court held that since a foreign award, is not contained within the expression “award” in Item 12 of Schedule I, it is not taxable under the Indian Stamp Act, 1899 and thus, non stamping of foreign award would not render it unenforceable under section 49 of the arbitration act
Fundamental Policy of Indian Law and limited scope of Section 48
Daiichi Sankyo Company Limited v Malvinder Mohan Singh And Ors O.M.P.(EFA)(COMM.) 6/2016
The court held that protection of the minor is a fundamental policy of Indian law. It is a substratal principle on which Indian law is founded. Court observed on the limited scope of interference in so far as enforcement of a foreign award is concerned and noted that under Section 48(2)(b) of the Act, the enforcement could be refused only if the award was contrary to the (i) fundamental policy of India (ii) interest of India and (iii) justice or morality. Further, the Delhi High Court affirmed that an award could not be said to be against the fundamental policy of Indian law in case there was violation of provisions of a statute but only if there was a breach of a substantial principle on which Indian law is founded. Lastly, the court held that the approach of the Arbitral Tribunal as regards the methodology for calculating damages could not be faulted with, particularly given the limited scope of Section 48 of the Act.
SECTION 50
Whether an appeal not maintainable under Section 50 of the Arbitration and Conciliation Act is nonetheless maintainable under Section 13 (1) of the Commercial Courts Act?
Kandla Export Corporation & Anr. v. M/s OCI Corporation & Anr. 2018 14 SCC 715
In this the Supreme Court held that appeals filed under Section 50 of the Arbitration Act would have to follow the drill of Section 50 alone and not Section 13(1) of the Commercial Courts Act. Hence, Foreign Awards cannot be challenged under Section 13(1) of the Commercial Courts Act, 2015.
Himachal Sorang Power Private Limited & Anr. Versus NCC Infrastructure Holdings Ltd. (CS COMM 12/2019)
1) Principles governing anti-suit injunction are not identical to those that govern an anti-arbitration injunction.
2) Court’s are slow in granting an anti-arbitration injunction unless it comes to the conclusion that the proceeding initiated is vexatious and/or oppressive.
3) Court which has supervisory jurisdiction or even personal jurisdiction over parties has the power to disallow commencement of fresh proceedings on the ground of res judicata or constructive res judicata.
4) The fact that in assessment of the court a trial would be required would be a factor which would weigh against grant of anti-arbitration injunction.
5) Aggrieved should be encouraged to approach either the Arbitral Tribunal or court which has the supervisory jurisdiction in the matter. An endeavour should be made to support and aid arbitration rather than allowing parties to move away from the chosen adjudicatory process.
6) Arbitral Tribunal could adopt a procedure to deal with “re-arbitration complaint” (depending on rules/procedure governing the proceedings )as a preliminary issue
Whether the Insolvency and Bankruptcy Code can be invoked in respect of an operational debt where an Arbitral Award has been passed against the Operational Debtor, which is not yet been finally adjudicated upon
K. Kishan v. M/S Vijay Nirman Company Pvt. Ltd Civil Appeal No. 21824 of 2017
The court held that the filing of a Section 34 petition against an Arbitral Award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an Award, continues even after the Award, at least till the final adjudicatory process under Sections 34 & 37 has taken place. However, court clarified that there may be cases where a Section 34 petition challenging an Arbitral Award may clearly and unequivocally be barred by limitation, in that it can be demonstrated to the Court that the period of 90 days plus the discretionary period of 30 days has clearly expired, after which either no petition under Section 34 has been filed or a belated petition under Section 34 has been filed. It is only in such clear cases that the insolvency process may then be put into operation.
Vidya Drolia & Ors. v. Durga Trading Corporation Civil Appeal No. 2402 / 2019
In this case the court held that the reasoning given in Himangni Enterprises case is incorrect insofar it holds that “mere fact that an exemption from Rent Act is available does not mean that the matter becomes non-arbitrable….As soon as the exemption is withdrawn, Rent Act will apply, and therefore it cannot be contended that Arbitration & Conciliation Act, 1996 would apply“. Court further held that there is nothing in Transfer of Property Act to show that a dispute as to determination of lease arising under Section 111 cannot be decided by arbitration.
Basis and Principle to decide the place of ‘Seat’ of Arbitration
Union of India v. Hardy Exploration and Production (India) Inc Civil Appeal No. 4628 of 2018
The court held that when a place is agreed upon, it gets the status of seat which means juridical seat. Further, the terms “place” and “seat” are used interchangeably. When only the term “place” is stated or mentioned and no other condition is postulated, it is equivalent to “seat” and that finalises the facet of jurisdiction. But if a condition precedent is attached to the term “place”, the said condition has to be satisfied so that the place can become equivalent to seat. The court concluded that the word “place” cannot be used as seat. An illustration was also given by the court that a venue can become a seat if something else is added to it as a concomitant. But a place unlike seat, at least as is seen in the contract, can become a seat if one of the conditions precedent is satisfied. It does not ipso facto assume the status of seat.
Bilateral investment treaty and Anti-Arbitration Injunction
Union of India v. Vodafone Group Plc United Kingdom & Anr CS (OS) 383/2017
1) The court concluded that an investment treaty arbitration between a private investor and the host state, which results by following the treaty route is not itself a treaty, but is sui generis and recognized as such all over the world.
2) Court clarified that it cannot be said as an absolute proposition of law that the moment there is an investment treaty arbitration between a private investor and the State, National Courts are divested of their jurisdiction.
3) Investment Arbitration disputes are fundamentally different from commercial disputes as the cause of action (whether contractual or not) is grounded on State guarantees and assurances (and are not commercial in nature).
4) Lastly, it was held that it is not unknown for Courts to issue anti arbitration injunction under their inherent power, especially when neither the seat of arbitration nor the curial law has been agreed upon.
Foreign Lawyers and Law Firms can conduct International Commercial Arbitrations in India
The Supreme Court held that foreign lawyers do not have an absolute right in conducting International Commercial Arbitrations in India, however this does not bar them in cases where the rules of Institutional Arbitration apply or the matter is covered by the provisions of Arbitration Act in view of Section 32 and 33 of the Advocates Act, 1961.
The author is a Senior Associate at Advani and Co.