India: Successive Arbitration Vis A Vis Order 2 Rule 2 CPC

The law would be adequate, should occasion arise, to do justice between the rival claimants. But successive awards are not per se to be condemned¹.

This was the opinion given by Justice C.C. Ghose, of the Calcutta High Court in a 1927 case related to arbitration. In this case after an Award was passed by an Umpire under the Indian Arbitration Act of 1899, the same was appealed by the Appellants before a Committee, who made and published their award in favour of the Appellants. The award was thereafter filed in Court under the provisions of Section 11 of the Indian Arbitration Act 1899. However, the Respondents thereupon applied to the Court for an order that the said award be taken off the file (set aside). The Court was of the view that the procedure whereby the dispute comes before the committee is called an appeal. What it is called is of no consequence; the fact remains that the committee is a body other than a Court of justice to whom the parties have agreed to refer their dispute. Such a proceeding is known to the law as an Arbitration proceeding, and those in whom the arbitrament is lodged are known as arbitrators or an umpire. In my judgment the committee were arbitrators or, it may be said, an, umpire, and their award as such is one which the successful party is entitled to require to be filed.

Then came the second phase of the Arbitration Act 1940. A case which is of relevance qua the topic at hand was the case of M.A. and Sons vs. Madras Oil and Seeds Exchange Ltd. and Anr².

In this case, the Court observed that there can be no doubt whatever that the appeal is a creature of statute, and is a remedy that does not merely or automatically flow in favor of a party upon any principle of natural justice or as part of the incidents of common law. It is perfectly legal to provide for different stages of arbitration, such as, from a single arbitrator to a committee of appeal. It is the award which finally emerges from this procedure which is conclusive as between the parties and not liable to be set aside, except as provided for in Section 30 of the Arbitration Act X of 1940. The legal pursuit of successive remedies will make them all proceedings 'connected by an intrinsic unity' and 'to be regarded as one legal proc,

In both these phases the case per se related to successive Arbitration, however, the same was not filed before any Court of law, but passed by a Committee of Arbitrators, nevertheless, the successive Award was upheld by the Court. In this Article, we would try and explain the reasoning behind why successive Arbitrations is not barred under Order 2 Rule 2 CPC.

Order II Rule 2 of the CPC prescribes that every suit must include the whole claim that a party is entitled to and when a part of a claim is relinquished, the same cannot be sued for thereafter.

Coming to the present regime of the Arbitration and Conciliation Act of 1996 (the Act), which highlights that the basic intent of the legislature was to provide autonomy to the parties in determining the procedure, mode, manner, jurisdiction and timelines for the arbitration. As such considering the history of this statute it cannot per se be said that the present regime in any manner, bars the parties from having successive arbitrations.

This reasoning is further strengthened by the recent judicial pronouncements.

In Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. & Ors.³ the Supreme Court observed that parties may be put into the position of making inconsistent cases in different proceedings. In litigation it is possible to make inconsistent cases in the same proceedings; doing so later, in different proceedings, may come under the head of abuse of process. But that is no reason to extend the law of issue estoppel in arbitration proceedings beyond its proper sphere. The Court further observed that there may be cases in which an award can be evidence in subsequent proceedings even though it will not necessarily be conclusive evidence. however, multiple proceedings must be avoided.

However, in Parsvnath Developers Limited & Anr. vs. Rail Land Development Authority⁴, the Hon'ble Delhi High Court, was dealing with a Section 11 of the Act, wherein the Respondent declined to appoint an arbitrator on the ground that the dispute between the parties have already been addressed by the Arbitral Tribunal and stood concluded by the Arbitral Award dated 25.11.2017. The Court held that the legislature by amending the Act by way of the Arbitration and Conciliation (Amendment Act) 2015 and the insertion of Section 11(6A) of the Act has also restricted the scrutiny of the Court at the stage of adjudicating an application under Section 11 of the Act only to the existence of the Arbitration Agreement. The Court further observed that an Arbitration agreement can be invoked any number of times and does not cease to exist "only with the invocation for the first time."

In the present case however, the Petitioner had reserved its right to get certain disputes adjudicated by way of a separate arbitration. The Court clarified that the question of whether a claim is barred under provisions of the CPC, res judicata, or estoppel is a question beyond the Court's jurisdiction under Section 11 of the Arbitration Act, which deals specifically with the appointment of Arbitrators. The Court also noted that the existence of the Arbitration agreement itself and the fact that the same was invoked by the Petitioner at a previous instance are not in dispute. The Court while dealing with this scenario observed that "the question whether the claims now sought to be raised by the Petitioners would be barred by the principles of Order II Rule 2 of CPC or would be hit by res judicata or estoppel, are questions on the merit of the claim of the petitioner and defence of the respondent. These questions are to be determined by the Arbitral Tribunal alone on the basis of the pleadings and/or evidence led by the parties on these issues."

It is relevant to note here that this case was later challenged by way of an SLP⁵ before the Hon'ble Supreme Court of India, wherein the Court dismissed the SLP being without any merits and upheld the decision of the High Court.

The Delhi High Court in the case of Parsavnath Developer (Supra) relied on the newly inserted provision of Section 11(6A), which was inserted in the Act vide the 2015 Amendment, with the sole purpose to limit the powers that the Court could exercise in the appointment of arbitrators.

Section 11(6A) of the Act states: that the Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement." According to the said provision, the Court, while entertaining an application for the appointment of an arbitrator under Section 11, has to determine the 'existence' of an arbitration agreement only and nothing else. In other words, the Court cannot decide upon issues such as the validity or duration of the arbitration agreement etc.

Accordingly the law as it stands today is that the court at the stage of hearing petition under Section 11 of the Act cannot go in the question, whether the claim of the party would be barred by the principles of res judicata or estoppel or by Order II Rule 2 of the CPC and are matters to be considered by the arbitrator so appointed by the Court under Section 11 of the Act⁶."

A question now arises, whether such a challenge can be raised while deciding Objections under Section 34 of the Act.

In this regard the judgment of the Calcutta High Court in Ranjiv Kumar and Another vs Sanjiv Kumar and Another⁷, wherein the Court went on to hold that a plea of limitation or a plea of res judicata, cannot be carved out to be subjected to a challenge under Section 34 of the Act if the objection on either such ground is already overruled by the Arbitrator. Just as in a suit every decree is appealable, but orders on the jurisdictional issues are not, similarly in an arbitral reference it is only the awards, including interim awards, that are amenable to challenge under Section 34. It is not the character of an objection that determines the nature of the remedy available to the objector upon the objection being overruled by an arbitral tribunal. It is only the nature of the order on the objection that is the guiding factor. An objection may result in it being accepted or overruled: if it is accepted and the reference comes to an end, surely such order will deemed to be an award and will be amenable to a challenge under Section 34 of the Act; if, however, the objection is overruled, nothing is decided finally thereby as it only implies that the reference may continue.

The last option available to the party to raise this ground would be while filing Objections under Section 47 of the Civil procedure Code, 1908, during execution of the Award filed by the Decree Holder. This can be found in the judgment of the Hon'ble Allahabad High Court in Larsen and Toubro Ltd V. Maharaji Educational Trust8. Similar proposition was also discussed by the Hon'ble Calcutta High Court in Fingertips Solutions Pvt. Ltd V. Dhanashree Electronics Limited⁹.

As such a reading of the aforesaid discussion would show that the plea of res judicata cannot be decided at the stage of deciding an Application under Section 11 of the Arbitration Act. However, the said challenge falls under the realm of decision of the arbitrator. In the event the challenge is decided it cannot be subsequently raised in Section 34 of the Act, but can be raised at the time of filing Objections to the execution of the Award.

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