There have been several legal developments through judgments rendered by Indian courts in recent times, in matters involving arbitration law. Some of the most significant judgments that we have come across in the third quarter of 2020, that discuss and set out the legal position in relation to interpretation and applicability of provisions of the Arbitration and Conciliation Act, 1996 have been summarized below:
1. Barminco Indian Underground Mining Services v. Hindustan Zinc Limited
S.B Arbitration Application 10/2020
High Court of Rajasthan
Decided On: 20.07.2020
Brief Facts: The applicant in the present case, entered into a contract to provide its services for the development of a mine of the respondent. During the pendency of the contract, the applicant raised certain invoices which were duly paid by the respondent. However, the invoices for February 2020 and March 2020 along with a claim raised under the 'force majeure' and 'change in law clauses' of the contract were not paid by the respondent. The respondent contended that the contract had become financially unviable hence requested the applicant to re-negotiate the terms of the contract to reduce the scope of work by 50%. As the applicant refused to accept the offer, the respondent unilaterally terminated the contract alleging that the applicant had failed to honour a contractual term. The applicant then demanded a sum of 32.17 Crore Rupees towards the work already done from January 2020 to April 2020. The respondent, in turn, claimed 49.69 Crore Rupees against the applicant. Apprehending that the respondent would invoke the bank guarantee of 5 Crore the applicant preferred the present application under Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The petitioner also contended that since the seat of the arbitration was Singapore, the instant case would be an "international commercial arbitration", for which the applicant had misguidedly approached the High Court. The respondent, on the contrary, contended that the arbitration in the contract of the parties could not be treated as an "international commercial arbitration", since neither of the parties was incorporated in a country outside India. The respondent further emphasised upon the fact that the applicant was a limited liability partnership (LLP) incorporated under the Limited Liability Partnership Act, 2008 in India.
Held: The High Court held that the moot question in the present matter is what is the true import of the expression "international commercial arbitration", given the fact that the place and seat of arbitration is Singapore. Depending upon the answer, the High Court stated that it would determine whether the present application will be heard maintainable before the High Court.
The High Court thereafter referred to the UNCITRAL Model Law of International Commercial Arbitration and the definition of "Court" as given under Section 2(1)(e) of the Arbitration Act. The High Court further noted the definition of "international commercial arbitration" as given under Section 2(1)(f) of the Arbitration Act was nation-centric. That is to say that for an arbitration to be termed as an "international commercial arbitration", the agreement must have at least one foreign party or a company which was incorporated outside India. The High Court further noted that it may be the case that the seat and venue in the instant matter was Singapore and the award passed (if any) would be a foreign award and the same will be executable under the provisions of Part II of the Arbitration Act. However, merely because the award is to be executed in accordance with Part II of the Arbitration Act, the arbitration itself may not be termed as an "international commercial arbitration". The High Court concluded that since there was no quarrel amongst the parties that the applicant was an LLP incorporated in India, the instant arbitration would not qualify as an "international commercial arbitration". The parties were accordingly directed to proceed before the Commercial Court of Udaipur.
2. Uni Construction v. Ircon International Limited
O.M.P.(I)(COMM) 159/2020 & I.A. 4824/2020
Delhi High Court
Decided On: 16.07.2020
Brief Facts: The dispute in the present matter related to a non-completion of the contractual work under a construction contract (GCC) that was issued by the respondent to the petitioner. The petitioner approached the High Court of Delhi (High Court) with a Section 9 application filed under the Arbitration and Conciliation Act, 1996 (Arbitration Act). The petitioner prayed for a restraining order on the respondent from invoking a bank guarantee of 7 Lakh Rupees and from blocking the payments due to the petitioner.
The petitioner contended that the contractual work could not be completed within the scheduled duration due to the COVID-19 pandemic during which the workforce returned to their villages, and the contract site was declared a containment zone. These circumstances, according to the petitioner, constituted "force majeure". However, the respondent, in its arguments, pointed out that there was material suppression of facts made by the petitioner, and for that reason, the petition had to be dismissed. The respondent stated that the petitioner had furnished two term deposits for about 16.51 Lakh Rupees and 7 Lakh Rupees, which together constituted 50% of the contractual value. However, the petitioner had suo motu and without any notice to the respondent encashed the term deposit of about 16.51 Lakh Rupees in stark violation of the terms of the GCC and had concealed this fact from the High Court in the present petition. Hence, the moot question in the instant matter was whether a case for admitting the Section 9 petition was made or not.
Held: The High Court took note of the fact that the petitioner had consciously suppressed the fact that it had already encashed on of the term deposits worth 16.51 Lakh Rupees even before the competition of work in blatant violation of the GCC. The High Court then reiterated the position in law that any interlocutory relief such as the one under Section 9 of the Arbitration Act was discretionary in nature. Invocation of a discretionary relief required a party to knock the doors of the court with clean hands. It was held that the suppression of material facts constituted a fraud upon the court, and an equitable relief could not be granted in such cases.1
The High Court further noted that the term deposit of 16.51 Lakh Rupees constituted almost 75% of the performance security required to be provided by the petitioner under the GCC. In such a case, it could not be said that the considerations of the balance of convenience and irreparable loss would justify the respondent from encashing the remaining 7 Lakh Rupees furnished as security pending the performance of the contract. On a conspectus of the facts, the High Court held that the petitioner was not entitled to any relief.
3. Pankaj Arora v. AVV Hospitality LLP & Ors.
O.M.P.(T) (COMM.) 32/2020 & I.As. 5832-5833/2020
Delhi High Court
Decided On: 20.07.2020
Brief Facts: The instant matter involved a petition under Section 14 and 15 of the Arbitration Act seeking the termination of the mandate of the sole arbitrator. Disputes arose between the second respondent, third respondent and the petitioner in relation to a Memorandum of Understanding (MoU) through which the petitioner was required to be inducted into the first respondent firm. The parties approached the Delhi High Court (High Court) for the appointment of the arbitrator, and the sole arbitrator was appointed under the aegis of Delhi International Arbitration Centre (DIAC). The second and the third respondents contended that under an alleged receipt-cum-agreement, the petitioner had undertaken to pay an amount of 1.39 Crore Rupees of which only 21 Lakh Rupees was paid. The remaining amount constituted the respondent's counter-claim. The petitioner, however, contended that there was no arbitration clause in the receipt-cum-agreement and therefore, the sole arbitrator did not possess the jurisdiction to entertain the matter. The petitioner thereafter moved an application under Section 16 of the Arbitration Act (Section 16 Application) praying that the counter-claims of the second and the third respondent be dismissed since they did not constitute an arbitrable dispute amenable to the jurisdiction of the arbitrator. The said application under Section 16 was disposed of by the sole arbitrator. Hence, the present dispute.
Held: The High Court noted that the order passed under Section 16 (Section 16 Order) being an interim order passed by the arbitrator, was amenable to challenge under Section 34 of the Arbitration Act. Without ventilating such a challenge, the petitioner could not have preferred the present petition, for termination of the mandate of the arbitrator. The High Court further explained that termination of the mandate of the arbitrator could not be directed, while the Section 16 Order remained unquestioned.
The High Court held that a reading of the Section 16 Order of the arbitrator reveals that the decision was not taken mechanically, without application of mind, but for good and sound reasons. The petition in the present case, therefore, was held to be completely devoid of merits and was dismissed accordingly.
4. Prasar Bharti v. Stracon India Limited and Ors.
EFA (OS)(COMM) 4/2020, CM Nos. 13439 and 13442/2020
Delhi High Court
Decided On: 13.07.2020
Brief Facts: The appellant entered into an agreement (Agreement) with the respondents whereunder the respondents were granted exclusive telecasting rights for cricketing events. The respondents contended that the appellant assured that a minimum of 27 days of international cricket would be available for telecasting in each season. Disputes arose amongst the parties when the respondent claimed that there was a shortfall of 17 days on part of the appellant in providing cricketing days under the Agreement.
The parties submitted themselves to arbitration. The arbitrator awarded the respondent with USD 5,509,259, along with pendente lite interest and costs of arbitration. The appellant challenged the award by filing a petition under Section 34 of the Arbitration Act while the respondent filed for the enforcement of the award under Section 36 of the Arbitration Act. In the enforcement application, the High Court of Delhi (High Court) directed the appellant to deposit a sum of 15.37 Crore Rupees assessed as the shortfall for 7 cricketing days along with pendente lite interest. In compliance with the order, the appellant was required to deposit a total of almost 33.70 Crore Rupees in the Registry. The award regarding the compensation granted for the balance 10 cricketing days was set aside.
In the hearing of the enforcement application, the appellant vide three separate arbitral awards, was held by the High Court to be entitled to 22.43 Crore Rupees from the respondents. Therefore, an order was passed that the Registry releases a sum of 11 Crore Rupees in favour of the respondent.
The appellant objected to the order passed under Section 36 of the Arbitration Act granting 11 Crore Rupees to the respondent by filing an appeal under Section 13 of the Commercial Courts Act, 2015 (Commercial Courts Act). Hence, the moot question in the instant matter was whether the present appeal directed against an order passed in arbitration proceedings was maintainable under Section 13 of the Commercial Courts Act.
Held: The High Court noted that Section 13 of the Commercial Courts Act provides for an appeal from orders which are mentioned in Section 37 of the Arbitration Act. Section 37 of the Arbitration Act restricted its operation to the following orders:
- refusing to refer the parties to arbitration under Section 8;
- granting or refusing to grant any measure under Section 9; and
- setting aside or refusing to set aside an arbitral award under Section 34.
The High Court referred to the judgment in Kandla Export Corporation & Anr. v. M/s. OCI Corporation & Anr.2 to hold that the right of appeal inheres in no one and therefore it is described as a creature of statute. Therefore, the High Court reiterated that the Hon'ble Supreme Court has clarified that in respect of the orders under the Arbitration Act, only those appeals mentioned in Section 37 are maintainable before the Commercial Appellate Division.
The High Court further held that it did not find merit in the appellant's argument that the Commercial Courts Act being a subsequent enactment would override the Arbitration Act. The High Court applied the principle of "generalia specialibus non derogant", to hold that the Arbitration Act would be considered as a special enactment for all proceedings arising under the Act and it would therefore prevail over the Commercial Courts Act which would be treated as a general law. Therefore, the High Court concluded that under Section 37 of the Arbitration Act, no appeal was maintainable from any order passed under Section 36 of the Arbitration Act.
5. Reliance Infrastructure Ltd. v. Haryana Power Generation Corporation Ltd.
Civil Revision No.7193 of 2019 (O&M)
High Court of Punjab and Haryana
Decided On: 16.07.2020
Brief Facts: The facts of the instant case are such that pursuant to the bids invited by the respondent, the petitioner was awarded an Engineering, Procurement and Construction contract (EPC Contract). The petitioner wrote to the respondent requesting for the appointment of an arbitrator given certain disputes and differences that had arisen under the EPC Contract. As provided under the EPC Contract, the arbitrator was appointed by the Government of Haryana vide order dated 27.07.2016. The petitioner thereafter, filed an application under Section 11 of the Arbitration Act in the High Court at Chandigarh (High Court) for the appointment of an arbitrator which was dismissed. Aggrieved by the decision of the High Court, the petitioner preferred a Special Leave Petition before the Hon'ble Supreme Court, which was heard on 06.12.2017 and order was reserved. The petitioner then withdrew the Special Leave Petition and wrote to the sole arbitrator appointed by the Government of Haryana to convene the hearing in the arbitration between the petitioner and respondent. The petitioner filed a claim statement before the arbitrator. Thereafter, the petitioner, on multiple occasions, sought weeks for filing its re-joinders. Eventually, the petitioner filed an application before the Hon'ble Supreme Court praying for the restoration of the Special Leave Petition to the original position. The arbitrator noted that the petitioner was adopting dilatory tactics to stall the arbitration. The petitioner then once again withdrew its application before the Hon'ble Supreme Court and then filed an application under Section 14 of the Arbitration Act before the Special Commercial Court in Gurugram. In the meantime, the application filed by the petitioner under Section 14 of the Arbitration Act was dismissed.
The respondent filed an application under Section 29A of the Arbitration Act before the
Special Commercial Court, Gurugram, requesting for extension of time for the arbitrator to pass award. The Special Commercial Court allowed the application for a period of six months. The petitioner challenged the order passed under Section 29A of the Arbitration Act. Hence, the present case.
Held: The High Court observed that from the facts enumerated, it was clear that the petitioner was trying to delay the disposal of the arbitration proceedings, which was pending since the year 2016. The High Court relied upon the maxim "Actus Curiae Neminem Gravabit" which means that an act of the court shall prejudice no man. The High Court observed that the arbitrator was not allowed to continue with the proceedings. Therefore, given the inherent powers of to do justice, the High Court ordered that the remainder of the extended time was to be counted from the date of the instant judgment.
6. Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius) Limited and Ors.
Civil Appeal Nos. 5145, 5158 and 9820 of 2016
Supreme Court of India
Decided On: 19.08.2020
Brief Facts: The instant case involves a challenge to the interlocutory judgment and the order passed in an appeal under Section 9 of the Arbitration Act. The respondent, i.e. HSBC had entered into two agreements namely a Share Subscription Agreement (SSA) and a Share Holders Agreement (SHA) with the appellants. Through the SSA and the SHA, the respondent agreed to invest USD 60 million into the Avitel Group. The prime contention of the respondent is that the appellants had made a representation that they were at an advanced stage of finalising a contract with the British Broadcasting Company (BBC) which was expected to generate a revenue of USD 300 million in the first phase and ultimately over USD 1 billion. The prospects lured the respondent, and hence, it agreed to invest USD 60 million into the Avitel Group.
The respondent grew suspicious of the appellant's operations and appointed Ernst & Young and KPMG Dubai to inquire into the business activities of the Avitel Group. The HSBC was informed that the purported BBC contract was non-existent and around USD 51 million of the invested money appeared to have been siphoned off to companies in which the promoters of the Avitel Group had a stake. The respondent proceeded with arbitration under the SSA and the SHA, which had a similarly worded arbitration clauses. After rounds of arbitration and litigation amongst the parties, the Final Award was passed by the SIAC. The arbitral tribunal ruled in favour of the respondent and held that the appellant had committed the tort of deceit and fraudulently misrepresented. Therefore, the arbitral tribunal through a final award granted the invested sum of USD 60 million and interest along with the legal costs to the respondent, i.e. HSBC. Aggrieved by the said award, the appellant challenged the final foreign award but failed in both the appeals presented under Section 34 and 37 of the Arbitration Act. Thereafter, the respondent moved to the Bombay High Court to enforce the final foreign award. Hence, the present matter.
Held: The Hon'ble Supreme Court noted that the only moot point in the entire dispute was whether the respondent could be said to have a strong prima facie case in the enforcement proceedings under Section 48 of the Arbitration Act. If so, whether irreparable prejudice would be caused to the respondent if the protective orders were not issued in its favour.
The Hon'ble Supreme Court first and foremost stated that the instant case would depend upon the position of substantive law in India qua arbitrability of fraud alleged by a party to the arbitration agreement. The decision in Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee3 was referred to, and it was observed that the judgment delivered by a learned Single Judge under a Section 11 jurisdiction would not be a binding precedent. However, the learned Judge's reasoning had a strong persuasive value which the bench in the instant matter was inclined to adopt. Therefore, the Hon'ble Supreme Court further concluded that the decision in N. Radhakrishnan v. Maestro Engineers4 was no more having precedential value. The judgment in Ayyasamy A. v. A. Paramasivam5 was relied upon through which the Hon'ble Supreme Court reiterated that only those case where serious allegations of fraud were involved were to be treated as non-arbitrable and it is only the civil court which should decide such matters. However, where there were allegations of fraud simpliciter and such allegations were merely alleged, the Hon'ble Supreme Court held that it may not be necessary to nullify the effect of the arbitration agreement between the parties as such issues could be determined by the Arbitral Tribunal.
As for the question of what would constitute a serious allegation of fraud, the following two tests were reiterated by the Hon'ble Supreme Court:
- Does the plea permeate the entire contract, and above all, the agreement of arbitration, rendering it void? (or)
- Whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain?
The Hon'ble Supreme Court then relied upon the judgment in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.6 and Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd.7 to hold that the same set of facts may lead to civil and criminal proceedings and if it was clear that a civil dispute involves questions of fraud, misrepresentation, etc. which can be the subject matter of proceeding under Section 17 of the Contract Act, 1872 and/or the tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so. In reference to the present matter, it was held that there could be no doubt whatsoever after reading the issues and some of the material findings in the Foreign Final Award that the issues raised and answered are the subject matter of civil as opposed to criminal proceedings. The fact that a separate criminal proceeding was sought to be initiated and may have failed is of no consequence whatsoever.
The Hon'ble Supreme Court concluded that HSBC had made out a strong prima facie case necessitating that USD 60 million, being the principal amount awarded to them, was kept apart in the manner indicated by the learned Single Judge of the Bombay High Court. The balance of convenience was also in favour of the respondent. It was clear that in case HSBC was to enforce the Foreign Final Award in India under Section 48 of the 1996 Act, an irreparable loss would be caused to it unless at least the principal sum was kept aside for purposes of enforcement of the award in India. Accordingly, the Hon'ble Supreme Court dismissed the petition.
7. JMC Projects (India) Limited v. South Delhi Municipal Corporation
Arb. P. 632/2017
Delhi High Court
Decided On: 13.08.3030
Brief Facts: The instant matter involves a petition filed under Section 11(6) of the Arbitration Act to constitute an arbitral tribunal for adjudicating disputes amongst the parties. The origin of the present petition lies in the disputes that emerged from the Special Conditions Contract (SCC) entered into by the petitioner and the respondent for some construction work. The petitioner requested the respondent to consider its claims and refer them for adjudication by the Dispute Resolution Committee (DRC) comprising of the representative of the petitioner and the Chief Engineer, MCD.
The DRC was constituted, and the respondent was directed to pay amounts of about 69.13 Lakh Rupees and 11.15 Lakh Rupees, along with the interest @ 7.5% p.a. to the petitioner. The order was signed only by the Chief Engineer as the petitioner's representative refused to sign the same. The petitioner thereafter sent a notice to the respondent invoking arbitration and sought the appointment of the arbitrator. The petitioner contended that clause 46 of the SCC was an arbitration clause between the parties. The petitioner relied upon the case in AMR India Ltd. v. South Delhi Municipal Corporation (SDMC)8 wherein a similarly worded clause was held to be an arbitration clause. The petitioner also referred to a catena of decisions to contend that clause 46 of the SCC would constitute an agreement to arbitrate.9
The respondent to the contrary argued that there was no arbitration agreement in clause 46 of the SCC since it provided for a two-member committee to adjudicate which would go against the letter and spirit of Section 10(1) of the Arbitration Act which does not allow an even number of arbitrators. Further, the respondent contended that the parties never intended for clause 46 to be an arbitration clause. This, according to the respondent, was evident from the fact that the petitioner had written to the respondent proposing to enter into a supplementary agreement for incorporating an arbitration clause. The respondent contended that the petitioner conveniently did not file the said letter on record. The respondent further submitted that the petitioner had on its own volition requested for DRC proceedings and did not pose any objections to the constitution of the DRC. Therefore, the decision of the DRC was to be taken as an arbitral award in itself. Hence, the present petition.
Held: The moot question for consideration of the High Court of Delhi (High Court) in the present case was whether there was an arbitration agreement under clause 46 of the SCC. If so, whether the decision of the DRC would constitute an arbitral award.
As for the question as to whether clause 46 of the SCC constituted an arbitration clause, the High Court held that the question did not require a comprehensive analysis. The High Court held that the position was settled in the judgment of the coordinate bench in the case of AMR India (supra) wherein it was held that the clause in question was to be construed as an arbitration agreement. The High Court then reiterated the law laid in K.K. Modi v. K.N. Modi10 which discussed the attributes of an arbitration agreement.
On whether the High Court could be called upon to appoint an arbitrator in the present petition given the dilemma that has arisen on account of the DRC proceedings, it was held that the DRC proceedings would not constitute arbitral proceedings. The High Court observed that the parties were ad idem that the DRC proceedings were never prosecuted or defended as arbitral proceedings and even the members of the DRC were conscious of this fact. Since the procedure of conducting arbitral proceedings as prescribed under the Arbitration Act was not followed in the DRC proceedings, the High Court held that the petitioner was rightful in initiating arbitration.
8. Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties and Ors.
Civil Appeal No. 5147 of 2016
Supreme Court of India
Decided On: 19.08.2020
Brief Facts: The appellant, Deccan Paper Mills Co. Ltd., was the owner of a piece of land in Pune. The appellant decided to develop a segment of the said land, and for this purpose, it entered into a contract (Contract) with M/s Ashray Premises Pvt. Ltd., i.e. the second respondent. The Contract between the appellant and the second respondent did not contain any arbitration clause. Further, the contract under clause 2(m) allowed the developer the right of assignment. In furtherance of the Contract, the second respondent entered into a contract (Contract II) with Regency Mahavir Properties, i.e. the first respondent. The second respondent by Contract II assigned the execution of Contract I to the first respondent. Contract II contained an arbitration clause.
A deed of confirmation which was to be treated as a part of Contract II was signed amongst the first and the second respondent wherein the assignment was reaffirmed. The appellant alleged that it was falsely made to believe by one of the top partners of the second respondent that the development of the property would be carried out as quickly as possible. The appellant continued to be under the impression that one of the ex-partners of the first respondent, Mr. Atul Chordia was responsible for the development work. However, on monitoring the situation and failing to find any progress, the appellant discovered that the ex-partner was no more responsible for the development of the land. The appellant contended that the Contract II and the deed of confirmation were void ab initio since a fraud had been played on the appellant. The appellant thereafter, approached the court of Ld. Civil Judge (Senior Division), Pune seeking a declaration that all agreements and deed were obtained by fraud and therefore be declared null and void. The first respondent filed an application under Section 8 of the Arbitration Act relying upon Contract II. The appellant challenged the enforceability of the agreement on the ground that the same was null and void. The Additional Judge, Small Causes Court, Pune after hearing both sides referred them to arbitration.
The appellant then approached the High Court of Bombay (High Court) with a writ petition challenging the decision of the district court at Pune. The High Court upheld the decision of the district court in referring the parties to arbitration by placing reliance upon the decision in Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee.11 The appellant finally appeared before the Hon'ble Supreme Court of India wherein it challenged the arbitrability of the dispute on several grounds. The appellant at first argued that the disputes arose out of contracts that were fraudulently executed. Secondly, the appellant contended that the root of all agreements that is Contract I never contained an arbitration clause. Lastly, the appellant relied upon the decision in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.12 to contend that the present proceeding was an exception under Section 31 of the Specific Relief Act, 1963 for the appellant prayed for the cancellation of Contract I, Contract II and the deed of confirmation. The respondent contended that the fraud exception would apply only in cases where the agreement itself was not executed and not otherwise. In so far as the argument of the appellant under Section 31 of the Specific Relief Act, 1963 was concerned, the respondent contended that the court's discretion under the said provision is for the benefit of the party interested in setting aside a written instrument; therefore, proceedings would be in personam.
Held: The Hon'ble Supreme Court carefully considered the rival submissions and came to the following conclusions:
- Firstly, the Hon'ble Supreme Court relied upon its recent decision in the case of Avitel Post Studioz Limited & Ors. v. HSBC PI Holding (Mauritius) Ltd.13 wherein it was held that when the alleged fraud lies within the scope of performance of the contract or under Section 17 of the Indian Contract Act, 1872 – the dispute would be arbitrable. The Hon'ble Apex Court further clarified that the decision in N. Radhakrishnan v. Maestro Engineers14 was bad in law and had no legs to stand on. It was also reiterated that merely because a particular transaction may have criminal overtones, it does not mean that its subject matter becomes non-arbitrable.
- Secondly, in view of recent judgments,15 it was clear that there has been a sea of change in Section 8 as we see in the Arbitration Act and Section 20 of the Arbitration Act of 1940. The Hon'ble Supreme Court reiterated that post amendment, if an action was brought before a judicial authority and all other conditions of Section 8 are met, then such judicial body shall refer the parties to arbitration unless it finds that prima facie, no valid arbitration agreement exists.
- Lastly, it was held that to determine whether the proceedings under Section 31 of the Specific Relief Act, 1963 were held in rem or in personam the Hon'ble Supreme Court relied upon the interpretation of a few decisions.16 It was concluded that it would be wholly incorrect to hold that cancellation of very same deed, if done under Section 31 would be an action in rem, however, if done under Section 34 of Specific Relief Act, 1963 would be an action in personam. Therefore, it was held that an action instituted under Section 31 of the Specific Relief Act, 1963 is an action in personam and not an action in rem.
Therefore, the Hon'ble Supreme Court concluded that the judgments of the district court and the High Court, in this case, needed no interference.
9. Balasore Alloys Limited v. Medima LLC
Arbitration Petition (Civil) No. 15/2020 and SLP (Civil) No.
10264 of 2020
Supreme Court of India
Decided On: 16.09.2020
Brief Facts: The instant case involves a petition filed under Section 11(6) read with Section 11(12) of the Arbitration Act filed by the applicant praying for the appointment of a sole arbitrator. The applicant entered into 37 transactions or purchase orders whereby the applicant agreed to supply High Carbon Ferro Chrome to the respondent. The parties also entered into an agreement (Agreement) relating to said transactions wherein the terms of the deal were enumerated. Disputes emerged amongst the parties concerning the transactions. The applicant relied upon clause 7 of the 37 purchase orders for resolution of disputes. The respondent to the contrary relied upon the Umbrella Agreement (Agreement) under which clause 23 provided for resolution of disputes before the International Chamber of Commerce (ICC). The respondent also stated that it had already invoked the arbitration by the issue of notice and that an arbitral tribunal was already constituted. The respondent, therefore, argued that the instant application seeking appointment of an arbitrator under clause 7 of the purchase orders was not bona fide. Hence the present matter.
Held: The Hon'ble Supreme Court relied upon the decision in Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Ors.17 wherein a similar issue of two different arbitration clauses in two related agreements was considered. The Apex Court noted that in such cases, the two arbitration clauses had to be harmonised and the parties would get the disputes resolved under the main agreement. The rationale behind such harmonisation was that there could not be conflicting awards in regards to items which overlap in two agreements. The parties would never contemplate such a situation. Turning back to the facts, the Hon'ble Supreme Court noted that the parties were ad idem to the terms of the Agreement which were comprehensive and all-encompassing. It was observed that the arbitration clause contained in clause 23 would, therefore be a part of the main agreement. Hence, the Hon'ble Supreme Court held that it would not be appropriate for the applicant to invoke arbitration under clause 7 of the purchase orders.
10. Government of India v. Vedanta Limited and Ors.
Civil Appeal No. 3185 of 2020 (Arising out of SLP (Civil) No.
7172 of 2020)
Supreme Court of India
Decided On: 16.09.2020
Brief Facts: In 1994, the Government of India entered into a Product Sharing Contract (PSC) with Cairn Energy India Pty. Ltd., Ravva Oil (Singapore) Pty. Ltd., Videocon Industries Limited and Oil and Natural Gas Corporation Ltd. for, among other things, exploring and developing petroleum resources in Ravva Gas and Oil Fields. Article 15 of the PSC provided that the respondents were entitled to recover development costs (for development of the Ravva Gas and Oil Fields). The disputes arose on the interpretation of Article 15.5, which pertained to Base Development Costs (BDC). The respondents in the instant matter incurred BDC, which was higher than the contractually capped amount. The respondents, therefore, requested the Government of India to increase the cap in Article 15.5 in order to recover the developments costs expended under the PSC. Accordingly, the parties were referred to arbitration, seated at Kuala Lumpur, Malaysia. The arbitral tribunal passed an award inter alia holding that:
- Firstly, the respondents were required to credit the appellant, i.e. the Government of India with the BDC recovered above and beyond the scope of Article 15.5 of the PSC between 1994 and 2000.
- Secondly, the respondents were entitled to recover the entire base development costs incurred for the contract years 2000-2009
The Government of India challenged the award under Section 37 of the Malaysian Arbitration Act, 2005 (Malaysian Arbitration Act) before the Malaysian High Court. The challenge under Section 37 of the Malaysian Arbitration Act was dismissed since the requirements of Section 37 were not met. Aggrieved by the decision of the Malaysian High Court, the Government of India challenged the order dismissing the appeal. The Malaysian Court of Appeal dismissed the second appeal as well.
In 2014, the respondents sought to enforce the petition under Section 47, read with Section 49 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), before the High Court of Delhi (High Court). The respondent also applied for condonation of delay. The Government filed an application under Section 48 of the Arbitration Act (Section 48 Application), resisting the enforcement of the award before the High Court inter alia on the ground that the enforcement petition was filed beyond the period of limitation; the enforcement of the award was contrary to the public policy of India, and contained decisions on matters beyond the scope of the submission to arbitration. The High Court rejected the Section 48 Application and allowed the application for condonation of delay filed by the respondents, and directed that the award be enforced. The appellant challenged this order of the High Court before the Supreme Court. Hence, the present case.
Held: The Hon'ble Supreme Court presented its judgment in the instant matter under four different heads, as stated below:
- Limitation for filing an enforcement/ execution
petition of a foreign award Under Section 47 of the Arbitration
The Hon'ble Supreme Court relied upon a catena of decisions18 to hold that the period of limitation for filing a petition for enforcement of a foreign award under Sections 47 and 49 of the Arbitration Act, would be governed by Article 137 of the Limitation Act, 1963, which prescribed a period of three years from when the right to apply accrued. The Hon'ble Supreme Court, therefore, concluded that the instant petition for enforcement of the foreign award was filed within the period of limitation prescribed by Article 137 of the Limitation Act, 1963. In any event, it was added that there were sufficient grounds to condone the delay, if any, in filing the enforcement/execution petition under Sections 47 and 49, on account of lack of clarity for the period of limitation for enforcement of a foreign award.
- Scheme of the 1996 Act for enforcement of New York
The Hon'ble Supreme Court amongst other things reiterated that the enforcement court is not to correct the errors in the award under Section 48, or undertake a review on the merits of the award, but is conferred with the limited power to "refuse" enforcement if the grounds are made out. If the court was satisfied that the application under Section 48 is without merit, and the foreign award is found to be enforceable, then under Section 49, the award shall be deemed to be a decree of "that Court". The limited purpose of the legal fiction is for the enforcement of the foreign award. The concerned High Court would then enforce the award by taking recourse to the provisions of Order XXI of the Code of Civil Procedure, 1908.
- Whether the Malaysian Courts were justified in
applying the Malaysian law of public policy while deciding the
challenge to the foreign award?
The Hon'ble Supreme Court held that the Malaysian Courts rightly examined the public policy challenge under the Malaysian Act, being the curial law of the arbitration. It was observed that even though the substantive law of the contract was Indian law, it would not be applicable for deciding the challenge to the issue of the excess of jurisdiction.19
- Whether the foreign award is in conflict with the
Public Policy of India?
The Hon'ble Supreme Court relied upon several decisions20 to reiterate that while considering the enforceability of foreign awards, the court does not exercise appellate jurisdiction over the foreign award nor does it enquire as to whether, while rendering the foreign award, some error has been committed. Under Section 48(2)(b) the enforcement of a foreign award could be refused only if such enforcement was found to be contrary to (1) fundamental policy of Indian law; (2) the interests of India; or (3) justice or morality.
The Hon'ble Supreme Court also stressed upon the substantive amendments which were made to Section 48 by the Arbitration and Conciliation (Amendment) Act, 2015. It was held that the scope of Section 48 was narrowed down since the phrase "interests of India" was dropped by the Renusagar judgment.21
The Hon'ble Supreme Court stated that it was unable to accept the contention of the appellant that the award was contrary to the basic notions of justice for two reasons. Firstly, the appellant has not made out a case of violation of procedural due process in the conduct of the arbitral proceedings. Secondly, the appellants failed to explain as to how the award conflicts with the basic notions of justice, or was in violation of the substantive public policy of India. Therefore, the Apex Court affirmed the judgment of the Delhi High Court.
11. Hindustan Construction Co. Ltd. v. National Hydro Electric Power Corporation Ltd.
FAO (OS) (COMM) 106/2020
Delhi High Court
Decided On: 22.09.2020
Brief Facts: The instant matter involves an appeal under Section 37 of the Arbitration Act read with Section 13 of the Commercial Courts Act, 2015 against the judgment of the Single Judge of the High Court of Delhi (High Court). The Single Judge vide the impugned dismissed an application under Section 9 of the Arbitration Act (Section 9 Application) seeking an injunction restraining the respondent from invoking any or all Bank Guarantees (BGs) cumulatively worth 214.36 Crore Rupees.
The respondent had invited bids for turnkey execution of work on a hydroelectric power plant. The bid of the appellant was accepted, and the tenure of the contract work was set at 84 months, i.e. until 21.01.2016. The appellant submitted that on 20.06.2020, it began receiving emails from various banks that the respondent had begun invoking the BGs that the appellant had issued in favour of the respondent. The appellant then approached the High Court to prevent encashment of any of the 48 BGs that were issued in favour of the respondent. The High Court noted that neither was a fraud on the part of respondent established, no were any special equities existing in favour of the appellant. The Single Judge of the High Court dismissed the Section 9 Application accordingly. Hence, the present appeal.
Held: The High Court observed that the law relating to grant of injunctions was well settled. It was held that courts were slow to restrain the realisation of BGs, but various precedents have carved out two exceptions to this rule. Firstly, a fraud of egregious nature has been established and secondly, the special equities in the form of irretrievable harm or injustice being cause to the applicant if the encashment were allowed.22 The High Court further clarified that fraud in connection with a BG should vitiate its very foundation.23 In the facts of the instant case, the High Court concluded that the standards for pleading for fraud were not made out. In other words, no fraudulent or deceitful conduct was made out on the part of the respondent in invoking and seeking to encash the BGs. The present invocation appeared to be as per the terms of the contract itself, and could not be described as a fraud, let alone as an egregious fraud.
On the front of special equities argument, the High Court noted that to avail of this exclusion, the appellant was obligated to prove exceptional circumstances which made it impossible for the guarantor to reimburse himself if he ultimately succeeded. Clearly, a mere apprehension that the other party will not be able to pay, was not enough.24 The High Court also noted that while proportionality could be included in the exception of special equities, it could be applied only where the crystallised liability was significantly lower than the value of the BG furnished and the contract was a concluded one which is not the case in the present matter. Therefore, the appeal was dismissed as being devoid of merit.
1. Reliance placed on S.P Chengalvaraya Naidu v. Jagannath (1994) 1 SCC 1.
2. Kandla Export Corporation & Anr. v. M/s. OCI Corporation & Anr., 2018 14 SCC 715.
3. Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC 677.
4. N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72.
5. Ayyasamy A. v. A. Paramasivam, (2016) 10 SCC 386.
6. Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532.
7. Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24.
8. AMR India Ltd. v. South Delhi Municipal Corporation, 2018(2)ArbLR392(Delhi).
9. Smt. Rukmanibai Gupta v. Collector, Jabalpur and others (1980) 4 SCC 556; Punjab State & others v. Dina Nath with Executive Engineer Anandpur Sahib Hydel Construction Division (2007) 5 SCC 28; Bihar State Mineral Development Corporation and Another v. Encon Builders (I) (P) Ltd. (2003) 7 SCC 418.
10. K.K. Modi v. K.N. Modi, (1998) 3 SCC 573; Bihar State Mineral Development Corporation and Another v. Encon Builders (I) (P) Ltd., (2003) 7 SCC 418.
11. Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, 3 (2014) 6 SCC 677.
12. Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532.
13. Avitel Post Studioz Limited & Ors. v. HSBC PI Holding (Mauritius) Ltd., Appeal No. 196 of 2014 in Arbitration Petition No. 1062 of 2012.
14. N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72.
15. Ameet Lalchand Shah v. Rishabh Enterprises (2018) 15 SCC 678; Mayavati Trading Pvt. Ltd. v. Pradyut Deb Burman (2019) 8 SCC 714; Emaar MGF Land Ltd. v. Aftab Singh (2019) 12 SCC 751.
16. Suhrid Singh Vs. Randhir Singh (2010) 12 SCC 112; Razia Begum v. Sahebzadi Anwar Begum 1959 SCR 1111.
17. Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Ors., (1999) 5 SCC 651.
18. State of Karnataka v. State of Tamil Nadu 2017 (3) SCC 274; Bank of Baroda v. Kotak Mahindra Bank AIR2020SC1474; The Kerala State Electricity Board, Trivandrum v. T.P. Kunhaliumma (1976) 4 SCC 634.
19. Sumitomo Heavy Industries Ltd. v. Oil and Natural Gas Commission,  1 Lloyd's Law Reports 45.
20. ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705]; Renusagar Power Co. v. General Electric Co. 1994 Supp (1) SCC 644; ONGC v. Western Geco (2014) 9 SCC 263.
21. Renusagar Power Co. v. General Electric Co. 1994 Supp (1) SCC 644.
22. UP State Sugar Corporation v. Sumac International Ltd. (1997) 1 SCC 568; Standard Chartered Bank v. Heavy Engineering Corporation Ltd. Civil Appeal No(s). 9288 OF 2019.
23. U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. (1988) 1 SCC 174; Svenska Handelsbanken v. Indian Charge Chrome (1994) 1 SCC 502.
24. UP State Sugar Corporation v. Sumac International Ltd. (1997) 1 SCC; Himadri Chemical Industries Ltd. v. Coal Tar Refining Co. (2007) 8 SCC 110.
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