Arbitration Review: 40 Recent Judgments [Part 1]

Bar & Bench November 3 2019
Arbitration

Tariq Khan

Professor Dame Hazel Genn, DBE, QC was so right when she said:

“The push for less law is supported by the growing ADR profession which professes a mission to rid society of conflict but which is more interested in the profits to be made from large commercial dispute settlement than the small change of the county courts.”

Following are the 40 recent decisions delivered by the Indian Courts on Arbitration law: In Part 1, we discuss 20 of those decisions:

Section 7

Whether a non-signatory to the Arbitration Agreement can be impleaded in the Proceedings?

  1. Mahanagar Telephone Nigam Ltd. v. Canara Bank & Ors. [Judgment dated 08.08.2019 in Civil Appeal Nos. 6202-6205 of 2019] 

The Supreme Court held that a valid arbitration agreement is the foundation stone on which the entire edifice of the arbitral process is structured. The arbitration agreement need not be in any particular form. What is required to be ascertained is the intention of the parties to settle their disputes through arbitration. Further, the Court held that the meaning of a contract must be gathered by adopting a common-sense approach, and must not be allowed to be thwarted by a pedantic and legalistic interpretation.  An ‘arbitration agreement’ is a commercial document inters partes and must be interpreted so as to give effect to the intention of the parties, rather than to invalidate it on technicalities.

A non-signatory can be bound by an arbitration agreement on the basis of the “Group of Companies” doctrine, where the conduct of the parties evidences a clear intention of the 2 parties to bind both the signatory as well as the non-signatory parties. The Group of Companies Doctrine can also be invoked in cases where there is a tight group structure with strong organizational and financial links, so as to constitute a single economic unit, or a single economic reality. In such a situation, signatory and non-signatories have been bound together under the arbitration agreement. This will apply in particular when the funds of one company are used to financially support or re-structure other members of the group.  Given the tripartite nature of the transaction, there can be a final resolution of the disputes, only if all three parties are joined in the arbitration proceedings, to finally resolve the disputes which have been pending for very long.

Whether Recovery Proceedings under the Land Revenue Act can be invoked during the pendency of Arbitral Proceedings?

  1. Tulsi Narayan Garg, Sarawagu Mohalla, Sheopur v The MP Road Development Authority  Bhopal [Judgment dated 30.08.2019 in Civil Appeal No. 6726/2019]

The Supreme Court held that a party to an agreement cannot be an arbiter in his own cause. Further, it was held that as long as the dispute is pending before the Arbitral Tribunal the recovery proceedings under the Land Revenue Act cannot be initiated.

Whether an arbitral clause can have a prior condition to deposit 10% of the claim amount for invoking arbitration?

  1. M/S. Icomm Tele Ltc. v. Punjab State Water Supply & Sewage Board & Anr [Judgment dated 11.03.2019 in Civil Appeal No. 2713 of 2019]

The Supreme Court held that arbitration is an important alternative dispute resolution process which is to be encouraged because of the high pendency of cases in courts and the cost of litigation. Further, it was held that deterring a party from invoking this alternative dispute resolution process by a pre-deposit of 10% would discourage arbitration, contrary to the object of de-clogging the Court system, and would render the arbitral process ineffective and expensive. For the said reason, this said clause was struck down.

Section 11

Whether the Application under Section 11 of the Arbitration and Conciliation Act, 1996 is maintainable in view of Section 3G (5) of the National Highways Act, 1956 which provides for the appointment of an Arbitrator by the Central Government?

  1. NHAI v Sayedbad Tea Company Ltd. and ors. [Judgment dated 27.08.2019 in Civil Appeal No(s). 6958­6959 of 2009] 

The Supreme Court held that it is settled principle of law that when the special law sets out a self­ contained code, the application of general law would impliedly be excluded. Further, it was held that in view of the power being vested exclusively with the Central Government to appoint an Arbitrator under Section 3G (5) of the Act 1956, being a special enactment, the application filed under Section 11(6) of the   Act   1996   for   appointment   of   an   Arbitrator   was   not maintainable   and   provisions   of   the   Act,   1996   could   not   be invoked for the purpose.

Whether the allegation of fraud can render the Arbitration Agreement void?

  1. Rashid Raza v Sadaf Akhtar [Judgment dated 04.09.2019 in Civil Appeal No. 7005/2019]

The Supreme Court held that there are two working tests i.e. 1) whether the plea of fraud permeates the entire contract and above all, the agreement of arbitration, rendering it void, or 2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain. The Court observed that the case falls on the side of “simple allegations” which would not vitiate the arbitration clause and the allegations pertain to the affairs of the company and not to any matter in the public domain, the matter was referred to arbitration.

  1. M/S Mayavati Trading Pvt. Ltd. v. Pradyut Deb Burman [Judgment dated 05.09.2019 in Civil Appeal No. 7023/2019] 

The Supreme Court held that Section 11 (6A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense. With these observations, the court overruled the judgment in United India Insurance Company Limited vs. Antique Art Exports Pvt. Ltd. 

Whether the Madras High Court could exercise jurisdiction under Section 11 (6) of the Arbitration and Conciliation Act, 1996 despite the fact that the agreement contains the clause that venue of Arbitration shall be Bhubaneswar?

  1. Brahmani River Pellets Limited v. Kamachi Industries Limited [Judgment dated 25.07.2019 in Civil Appeal No. 5850 of 2019]

The Supreme Court held that where the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter and parties intended to exclude all other courts. As the parties agreed to have the “venue” of arbitration at Bhubaneswar, the Madras High Court erred in assuming the jurisdiction under Section 11(6) of the Act. Since only Orissa High Court will have the jurisdiction to entertain the petition filed under Section 11(6) of the Act.

Sections 12 and 13

Whether the right of one party to appoint an Arbitrator stands extinguished by virtue of the amended Section 12 of the Act?

  1. Kadimi International Pvt. Ltd. v Emaar MGF Land Ltd. [Judgment dated 29.08.2019 in Arb.P. 485/2019]

The Court held that the independence and impartiality provisions of the Arbitration and Conciliation (Amendment) Act, 2015 do not take away the right of a party to make a unilateral appointment of the arbitrator(s) if the agreement between the parties so permits. What is proscribed is only the appointment of a person who is otherwise ineligible to act as an arbitrator in the context of the independence and impartiality provisions under the Act.

Sections 14 and 15

Whether the Participation of the appellants in the Arbitration Proceedings can be treated as implied consent for an extension?

  1. Jayesh H Pandya & Anr. v. Subhtex India & Ors [Judgment dated 27.08.2019 in Civil Appeal No(s). 6300 of 2009]

The Supreme Court held that the essential element of waiver is that there must be a voluntary and intentional relinquishment of a right. The voluntary choice is the essence of waiver. There should exist an opportunity for choice between the relinquishment and an enforcement of the right in question. It cannot be held that there has been a waiver of valuable rights where the circumstances show that what was done was involuntary. The arbitration proceedings are supposed to be governed and run by the terms as agreed by the parties. The Arbitrator, therefore, cannot go beyond the clause of the arbitration agreement. It was held that the Arbitrator became de jure unable to perform his functions after the expiry of four months. 

Section 19

Whether strict rules of Pleadings apply to Arbitration?

  1. Indeen Bio Power Limited v. M/S EFS Facilities Service (India) Pvt. Ltd. [Judgment dated 24.07.2019 in Arb. A. (Comm.) No. 39/2016]

The Court held that the Arbitration Clause would stand apart and not perish with the Agreement by virtue of the mere fact that a Notice was not issued. Further, it was held that rigid rules of pleadings are applicable to a suit action and 'form' cannot trump 'substance'.

Section 34

Whether the Parties can adduce evidence to prove the specified grounds in sub-section (2) to Section 34, in an application under Section 34 of the Arbitration and Conciliation Act, 1996

  1. M/S. Canara Nidhi Limited v. M Shashikala and others [Judgment dated 23.09.2019 in Civil Appeal 7544 of 2019]

The Supreme Court held that the proceedings under Section 34 of the Arbitration Act, 1996 are summary in nature and the scope of enquiry is restricted to a consideration whether any of the grounds mentioned in Section 34(2) or Section 13(5) or Section 16(6) are made out to set aside the award. It was clarified that Section 34 application will not ordinarily require anything beyond the record that was before the arbitrator and that cross-examination of persons swearing into the affidavits should not be allowed unless absolutely necessary. For adducing additional evidence in proceedings under Section 34 of the Arbitration Act, the applicant should indicate as to what point is intended to be adduced, the necessity and relevance of the additional evidence sought to be adduced and the specific documents or evidence required to be produced. Lastly, it was held that the proceedings under Section 34 are summary proceedings and are not in the nature of a regular suit.

Whether the Arbitral Tribunal travelled beyond the scope of submission to Arbitration?

  1. Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India [Judgment dated 08.05.2019 in Civil Appeal No. 4779 of 2019] 

The Supreme Court held that in the guise of misinterpretation of the contract, and consequent “errors of jurisdiction”, it is not possible to state that the arbitral award would be beyond the scope of submission to arbitration if otherwise the aforesaid misinterpretation (which would include going beyond the terms of the contract), could be said to have been fairly comprehended as “disputes” within the arbitration agreement, or which were referred to the decision of the arbitrators. If an arbitrator is alleged to have wandered outside the contract and dealt with matters not allotted to him, this would be a jurisdictional error which could be corrected on the ground of “patent illegality”, which would not apply to international commercial arbitrations that are decided under Part II of the 1996 Act.

The Court clarified that under no circumstance can any Court interfere with an arbitral award on the ground that justice has not been done in the opinion of the Court. That would be an entry into the merits of the dispute which is contrary to the ethos of Section 34 of the 1996 Act.

Whether the Mandate under Section 34 (3) of the Arbitration and Conciliation Act providing outer limit of 120 days to file an application to set aside arbitral award?

  1. NHAI & Anr. v. Subhash Bindlish & Ors [Judgment dated 14.08.2019 Special Leave Petition (Civil) No(s). 17812/2019]

The Supreme Court held that the subsequent amendment in 2015 would not change the character of the mandate under Section 34(3) of the Act.

Section 36

Whether an unconditional stay of the Award can be granted under Section 36 of the Arbitration and Conciliation Act, 1996 when the applicant is Government?

  1. PAM Developments Pvt. Ltd. v. State of West Bengal  [Judgment dated 12.07.2019 in Civil Appeal No. 5433 of 2019]

The Supreme Court held that the Arbitration Act, 1996 mandates that parties to the arbitration are treated equally; no special treatment can be given to the government when considering an application for stay of the award.

Section 43

Whether the Period during which Parties were negotiating can be excluded for the purpose of computing the Period of Limitation for reference to arbitration to Arbitration under the Arbitration Act, 1996?

  1. M/S Geo Miller & Co. Pvt. Ltd. v. Chairman, Rajasthan Vidyututpadan Nigam Ltd. [Judgment dated 03.09.2019 in Civil Appeal No. 967 of 2010]

The period during which the parties were bona fide negotiating towards an amicable settlement may be excluded for the purpose of computing the period of limitation for reference to arbitration under the 1996   Act. However, in such cases, the entire negotiation history between the parties must be specifically pleaded and placed on the record. Moreover, in a commercial dispute, while mere failure to pay may not give rise to a cause of action, once the applicant has asserted their claim and the respondent fails to respond to such claim, such failure will be treated as a denial of the applicant’s claim giving rise to a dispute, and therefore the cause of action for reference to arbitration. It does not open for the applicant to plead that it waited for an unreasonably long period to refer the dispute to arbitration merely on account of the respondent’s failure to settle their claim and because they were writing representations and reminders to the respondent in the meanwhile.

Section 45

What is the scope and power of the Court under Section 45 of the Arbitration Act, 1996?

  1. Jes & Ben Groupo Pvt. Ltc. v. Hell Energy Magyarorzag KFT. (Hell Hunhry Ltd.) & Anr. [Judgment dated 23.09.2019 in CS (COMM) 257/2019]

The Court must take a prima facie view of the matter objectively on the basis of the material and evidence produced by the parties on the record of the case. It must afford full opportunities to the parties to lead whatever documentary or oral evidence they want to and then decide like a trial of a preliminary issue on jurisdiction or limitation in a regular civil suit and subsequently pass an elaborate and reasoned order. The effect of the Arbitration Agreement cannot be nullified only on the basis of an allegation of fraud simpliciter, without any corroborative material to justify such allegations. The court reiterated that even a non-signatory to the arbitration agreement can be referred to arbitration if the cause of action is arising out of one agreement and the disputes arise out of the same contract. Lastly, it was held that where both the parties are people having expertise in the field, and the contract is a commercial transaction, the plea of unequal bargaining power cannot be raised to avoid arbitration. 

Sections 48 and 49

Whether the Compensation received by the Decree Holder is in the nature of "Windfall Gain" and can be liable for taxation in India?

  1. Glencore International AG v. Dalmia Cement (Bharat) Ltd. [Judgment dated 09.08.2019 in EX.P. 75/2015 31.07.2019]

The Court held that amounts received by decree-holder as compensation cannot fall within the ambit of Article 22(3) of the DTAA and thus, cannot be liable for taxation in India. Further, it was held that monies received under the award as arbitration costs and legal costs cannot be treated as “fee for technical services” and hence, will not be taxable. The Court also noted that once a claim merges into a decree of the court it transcends into a judgment-debt and therefore, only those adjustments and deductions can be made which are permissible under the CPC, 1908. A decree should be executed according to its tenor unless modified by a statute.

Whether Arbitral Tribunals are mandatorily required to render a decision on Jurisdictional Issues at the Preliminary Stage?

  1. Glencore International AG v. Indian Potash Ltd. & Anr. [Judgment dated 09.08.2019 in EX.P. 99/2015]

The Court held that there is no such fundamental policy in Indian law that adjudicating authorities, including arbitral tribunals, are mandatorily required to render a decision on jurisdictional issues at the preliminary stage, and before hearing the matter on merits.

Section 87 of the 2019 Amendment Act

  1. Godrej Industries Limited v. Darius Rutton Kavasmaneck & Ors. Comm [Arbitration Petition No. 1021 OF 2019]

The court held that since arbitral proceedings had commenced prior to October 23, 2015, Section 36 of the Amendment Act, 2015 would not apply and hence, the award will not be enforceable during the pendency of the section 34 petition.

  1. Suraj Raj Bhan Mehta & Ors. v. Zion Promoters and Developers [Judgment dated 20.09.2019 OMP Enf Comm. 121/2019]

The Court held that provisions of Arbitration and Conciliation (Amendment) Act, 2015 shall not apply to the arbitration proceedings commenced prior to the commencement of the Amendment Act of 2015 and the award will not be enforceable as there will be an automatic stay on the operation of the award.

The author is a Senior Associate at Advani and Co.