Hello! With the humidity rising ever so high in the national capital, we continue to relentlessly bring to you the happenings and relevant precedents in domestic arbitration. Here are a few key updates on what went by in the field of arbitration, this summer. Happy reading!
Rendezvous – Indian Courts and Arbitration
Supreme Court
Section 34 Court cannot overturn the interpretation of contract rendered by the Arbitral Tribunal – National Highway Authority of India v. M/s Hindustan Construction Company Ltd [Civil Appeal No. 4702 OF 2023]
While deciding a civil appeal preferred by the National Highway Authority of India, the Supreme Court of India, recently affirmed the view taken by subordinate courts, that a court cannot overturn the interpretation of a contract rendered by the arbitral tribunal. The scope of the appeal was limited to two claims, first concerning the increase in royalty, sales tax etc. on account of subsequent legislations; and second for the balance amount for the construction of the embankment. In respect of the first claim, the Supreme Court distinguished between Clauses 70.1 – 70.7 and Clause 70.8. The Supreme Court found that while Clauses 70.1 – 70.7 dealt with escalation premised on fluctuations in market value, Clause 70.8 concerned compensation for additional costs resulting from subsequent legislation. Accordingly, the Court concluded that the first claim is covered by Clause 70.8 and not Clauses 70.1 – 70.7. So far as the second claim was concerned, the Court noted that the arbitral tribunal had taken a particular view which was further approved by Section 34 & 37 Courts. The Supreme Court also noted that NHAI had sought to make deductions after initially paying the amounts for the embankment. On the basis of the above, the Supreme Court did not find any perversity or illegality in the arbitral award and held that there is no reason for interference with the arbitral tribunal’s interpretation of the contract.
Power of the Arbitrator under Section 32(2)(c) can only be invoked if the continuation of proceedings becomes unnecessary or impossible – Dani Wooltex Corporation & Ors. vs Sheil Properties Pvt. Ltd. & Anr. [Civil Appeal No. 6462 OF 2024]
The Supreme Court of India recently clarified on the threshold to be met while terminating arbitral proceedings under Section 32(2)(c) of the 1996 Act. It was held that an arbitrator can invoke its powers under Section 32(2)(c) only if the continuation of proceedings becomes unnecessary or impossible. The facts of the case, as noted in the judgment, show that Sheil Properties, after filing its claims against Dani Wooltex Corporation, had not taken any steps for eight years. Accordingly, Dani Wooltex filed an application under Section 32(2)(c) of the 1996 Act, before the Ld. Arbitrator, seeking termination of proceedings where despite objection by Sheil, the Ld. Arbitrator by an order, relying on the judgment of NRP Projects Pvt. Ltd. vs. Hirak Mukhopadhyay & Anr., terminated the proceedings. This order was challenged by Sheil before the Bombay High Court, which set aside the termination order. The Supreme Court, while approving the order of the Bombay High Court and dismissing the appeal, has held that abandonment of a claim can be a ground for termination, only if the facts and circumstances are sufficiently established. The Apex court held that termination under Section 32(2)(c) requires unequivocal evidence of necessity or impossibility. Failure to schedule a hearing does not automatically constitute abandonment.
Delhi High Court
If there is sufficient reason to intervene, the Court can re-evaluate the Arbitral Tribunal’s interpretation of a Contract–M/s Divyam Real Estate Pvt. Ltd. vs. M/s M2K Entertainment Pvt. Ltd [O.M.P. (COMM) 162/2020]
While allowing a petition under Section 34 and setting aside the arbitral award, the Hon’ble High Court of Delhi observed that the arbitral tribunal had not correctly interpreted the terms of the contract. The High Court scrutinized the Arbitral Award and found that the reasoning provided by the arbitrator was sparse and cryptic. The Court noted that the arbitrator had made speculative assumptions about the profit without substantial evidence. The Court observed that the arbitrator failed to decide whether the respondent had indeed incurred any loss of profit, and the awarded amount of Rupees 20 lakh was not supported by evidence. Therefore, the High Court noted that there was sufficient reason to interfere with the arbitral tribunal’s interpretation and concluded that the award passed was perverse and patently illegal.
Court’s authority to appoint a sole arbitrator not undermined by an Arbitration Agreement specifying a Three-Member Tribunal – M/S Twenty-Four Secure Services Pvt. Ltd. vs. M/S Competent Automobiles Company Ltd. [ARB.P. 24/2024]
Recently, while deciding an application for the appointment of an arbitrator under Section 11(6) of the 1996 Act, the Delhi High Court appointed a sole arbitrator even though the arbitration agreement specified for a three-member tribunal. This decision arose from a dispute between M/s Twenty-Four Secure Services Pvt. Ltd. and M/S Competent Automobiles Company Limited, where the parties could not agree on the appointment of arbitrators. The High Court dismissed the claim that it lacked such jurisdiction, pointing out that the parties had been unable to agree on an arbitrator. As a result, it was held that the petition filed under Section 11(6) of the 1996 Act, was neither premature nor untenable, affirming its legal maintainability. The Court while coming to its conclusions, relied on the decision of the Supreme Court in Union of India (UOI) vs. Singh Builders Syndicate (2009) 4 SCC 523, where the Supreme Court had upheld the appointment of a sole arbitrator by the High Court despite the arbitration agreement specifying for a three-member tribunal.
The seat of Arbitration determined by the location of arbitration proceedings, not with the cause of connection, unless there exists an indication contrary to the same – Delhi Tourism And Transportation Development Corporation vs. M/S Satinder Mahajan [O.M.P. (COMM) 337/2021 & I.As. 14635/2021, 14862/2022]
The Delhi High Court, recently dismissed objections to an arbitral award passed by the District Level Micro and Small Enterprises Facilitation Council, Pathankot [“Facilitation Council”], citing lack of jurisdiction to entertain the petition under Section 34 of the 1996 Act. The case arose from a contractual dispute arising out of a construction project in Delhi. The Court found that it lacked jurisdiction as the arbitration’s seat was in Pathankot, where the Facilitation Council conducted proceedings. To this end, the Court also noted that Section 18(4) of the MSME (Micro, Small, and Medium Enterprises) Act, permits a medium or small enterprise to approach a Facilitation Council at the place where it is located. The Court emphasized that, without an exclusive jurisdiction clause in the contract, the seat of the arbitrator determines jurisdiction, citing the Supreme Court judgments in BGS SGS SOMA JV v. NHPC Ltd. (2020) [Civil Appeal No. 9307 OF 2019] and Inox Renewables Ltd. v. Jayesh Electricals Ltd [Civil Appeal No. 1556 OF 2021. Consequently, the petition was dismissed, allowing the petitioner to approach the appropriate court.
Issues on merits should not be raised during Section 11 proceedings – Delhivery Limited vs. Far Left Retail Private Limited [ARB.P. 481/2024]
The Delhi High Court, in an application filed by Delhivery Limited under Section 11(5) of the 1996 Act, appointed an arbitrator for adjudication of disputes under a Service Contract and dismissed the objections raised by Far-Left Retail regarding the insufficiency of service. The Court held that such objections will not be entertained in proceedings under Section 11(5) of the 1996 Act as they pertain to the merits of the dispute. The dispute arose on account of certain payment failures against the invoices raised under the Service Agreement. The Delhi High Court held that the objections regarding insufficiency of service should be raised before the arbitrator, as they relate to the merits of the dispute.
Court has the power to extend the Arbitral Tribunal’s Mandate, even if it is expired under Section 29A(4) – M/S Power Mech Projects Ltd Vs M/S Doosan Power Systems India Pvt. Ltd. [O.M.P. (MISC.) 6/2024]
The Delhi High Court has reiterated its earlier stand that a court is empowered to extend the mandate of an arbitral tribunal under Section 29A(4) of the 1996 Act, even after its expiry. The dispute arose when Power Mech Projects sought an extension for the mandate of the arbitral tribunal, formed under the 1996 Act, to resolve disagreements over a subcontract with Doosan Power Systems. The arbitration was invoked by Power Mech on 10.05.2022 and the tribunal’s mandate expired on 04.02.2024. The Petitioner filed the application under Section 29A of the 1996 Act, only on 23.02.2024. The Delhi High Court noted existing conflicting interpretations of Section 29A(4) by different High Courts, however, finally relied upon a judgment passed by its circuit court, in ATC Telecom Infrastructure Pvt. Ltd. v. Bharat Sanchar Nigam Ltd [O.M.P.(MISC.) (COMM.) 466/2023], to extend the mandate of the tribunal. post-expiration, citing the specific language of the Act. The Court extended the tribunal’s mandate until 31.12.2024, ensuring continuity of the arbitration process.
The Court under Section 11(6) cannot determine the seat of arbitration based on a general jurisdictional clause in the contract –M/s Kings Chariot v. Mr. Tarun Wadhwa [ARB.P. 421/2024]
While deciding a Petition under Section 11(5) of the 1996 Act for the appointment of a Sole Arbitrator, the Hon’ble Delhi High Court addressed a jurisdictional challenge where the petitioner sought to invoke the jurisdiction of the Delhi High Court based on a clause in the contract stating “all disputes subjected to Delhi jurisdiction only.” The respondent contended such a general jurisdictional clause cannot be read to define the seat or venue for the purpose of the Arbitration.
The Court noted that while there exists a dispute resolution clause through arbitration, the said clause does not specify any seat or venue for arbitration. Replying upon the decision of M/s Ravi Ranjan Developers Pvt. Ltd. vs. Aditya Kumar Chatterjee, 2022 SCC OnLine SC 568, the Court held that where the parties do not specify any seat/place of Arbitration, then the jurisdiction of the Court shall be determined in accordance with Section 16 to Section 20 of C.P.C. Dismissing the application, the Court opined that since no cause of action arose in Delhi, it lacked the territorial jurisdiction to entertain the application.
Bombay High Court
Jurisdiction of High Courts under Section 37 of Arbitration Act – M/s Halliburton India Operations Private Limited vs Vision Projects Technologies Pvt. Ltd. (Commercial Appeal No. 17720 of 2024)
While setting out the scope of interference under Section 37 of the 1996 Act, the Bombay High Court opined that such interference is warranted only in cases where the order passed by the Lower Court is arbitrary, capricious, perverse or has gravely ignored settled principles of law.
In this case, the Appellant entered a contract with Oil and Natural Gas Corporation (ONGC), the respondent. Due to various disputes arising out of non-compliance with necessary requirements, the petitioner issued a termination notice and filed a Section 9 application to claim interim relief. The Learned Single Judge denied the petitioner’s request and stated that the termination was not in accordance with the sub-contract. The Appellant filed a commercial appeal under Section 37 of the 1996 Act which was dismissed by the Hon’ble Division Bench by holding that there was no exceptional reason to interfere with the Single Judge’s decision under Section 37(1)(b) of the 1996 Act. The High Court remarked that the Single Judge’s observation was limited to the interim measure context and would not prejudice the arbitration.
Guwahati High Court
The panel of arbitrators of Railways would have a certain amount of relationship with the Railways and therefore, covered by the 7th Schedule – Durga Krishna Store Pvt. Ltd. v. The Union of India & Ors. (Arb.P. No. 14 of 2022).
While disposing of an application under Section 11(6) of the Arbitration Act, the Guwahati High Court opined that notwithstanding the prior agreement between parties to the manner in which arbitration shall be proceeded with, where the arbitrator is to be appointed from a panel maintained by Railways comprising of ex-employees, they would have a certain amount of relationship with the respondents and therefore, would be covered by the 7th schedule of the 1996 Act. The Petitioner made monetary claims against the Respondent which was responded to by the Respondent seeking Petitioner’s consent for waiver under Section 12(5) of the 1996 Act. The Railway authorities contended that the conditions in the General Conditions of Contract (GCC) stated that the appointment of the arbitrator should be at the discretion of the Railway authorities. The Court while noting that the Petitioner did not respond to the said correspondence noted that Petitioner has not waived its right for appointment of the departmental arbitrator under Section 12(5) of the 1996 Act, and hence arbitrator cannot be appointed from the penal maintained by Railways.
Allahabad High Court
Modification of awards by the arbitral tribunal not under the ambit of Section 33 of the A&C Act – National Highways Authority Of India vs. Musafir And Others [2024:AHC:81638]
The Allahabad High Court, while deciding an appeal under Section 37 of the 1996 Act, set aside the arbitral award earlier affirmed by Section 34 Court. The arbitration was initiated after the award of compensation to the landowners by the Competent Authority of NHAI, arising as a result of road widening (NH-29) between Varanasi and Gorakhpur. A final award was passed by the Arbitrator, remanding the matter back to the Competent Authority. Subsequently, the Competent Authority passed a fresh award, and in the presence of the arbitrator, NHAI agreed to make the payment in three slabs depending on the area at specified rates per square meter. Accordingly, the arbitral tribunal passed an award fixing compensation rate based on the three slabs.
Upon an application filed under Section 33 of the 1996 Act, the arbitral tribunal recalled the award and directed payment according to an amended award. Thereafter, it passed another award, modifying the previous amended award. NHAI objected to such modification/recall of arbitral awards and filed a Section 34 application, which was rejected by the Section 34 Court. Accordingly, NHAI filed the present appeal under Section 37 of the 1996 Act. The Allahabad High Court after reviewing the existing law surrounding Section 33 of the 1996 Act, noted that the tribunal had exceeded its authority by recalling and modifying its previous award and set aside the order of Section 34 Court as well as the awards passed by the arbitral tribunal.
Arbitration Highlights – Global
- On 02.05.2024, the Arbitration Law Review Committee (“ALRC”) constituted under the direction issued by the Chief Justice of Pakistan to carry out a review of arbitration laws in Pakistan, presented a Bill to the Federal Minister of Law and Justice. The ALRC recommended the Government to consider the Bill for its enactment through Parliament. The Bill inspired by the UNCITRAL Model Law, aims at replacing the existing Arbitration Act, 1940 which is outdated and calls for pro-arbitration changes.
- An arbitral tribunal has delivered a unanimous award, rejecting a Canadian investor’s US$180 million claim against Colombia over a ban on mining operations in high-altitude wetlands. The tribunal affirmed the Republic of Colombia’s interpretation of the FTA and international law, acknowledging the critical role of páramos in environmental conservation and the fight against climate change. The Tribunal ruled that Colombia’s mining ban, enacted through various legislative, administrative, and judicial actions, was a legitimate, non-discriminatory exercise of its power to regulate in the public interest, including the protection of the environment, and did not breach the FTA or international law.
- With its theme of ‘Uniting for global challenge and opportunity’, London International Disputes Week 2024 marked its return on International Arbitration Day i.e., 3rd of June and continued till 7th of June, 2024. The keynote speech was made by Rt Hon. the Baroness Carr of Walton-on-the-Hill, Lady Chief Justice of England and Wales on the 4th of June, 2024, where she highlighted the need for integrated forms of dispute resolution i.e., Negotiation, Arbitration and Litigation. The conference discussions were based on certain important contemporary topics which included Risk and Reputation in a Values- Driven World, How to think about AI in law, Exploring the global landscape for enforcement of judgments and awards, Disputes funding: Predictions for the Future and Client perspective on dispute resolution. Around 21,000 registrations from almost 8,000 delegates representing 100 jurisdictions have attended the conference throughout the week.
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The content provided in this newsletter is intended for general awareness purposes only and should not be considered as legal advice. Readers are advised to consult with a qualified legal professional regarding any specific issues mentioned herein.
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