Case BriefsHigh Courts

Delhi High Court: A Division Bench comprising of G.S Sistani and V Kameswar Rao, JJ., dismissed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter “Arbitration Act”) read with Section 10 of the Delhi High Court Act, 1966 and Section 13 of the Commercial Courts Act, 2015 against the order of a Single Judge wherein the appellants had raised objections against the award of the arbitrator under Section 34 of the Arbitration Act.

The crux of the argument of the appellants was that the arbitrator failed to follow the principles of natural justice by not making a full and fair disclosure that he had been appointed as an arbitrator by the respondent in as many as 43 cases prior to the present case. The appellants pleaded that on this ground alone, the award rendered by the arbitrator should be set aside. The appellants, admittedly, had not urged this argument before the Single Judge.

The Court noticed that the arbitrator had issued a notice to the parties, wherein the following relevant sentence was quoted, “….currently adjudicating on multiple claims filed by the claimant company.” The order-sheet reflected that the hearing was attended by counsel for both parties. Consequently, the Court found no grounds for interfering with the order passed by the Single Judge for two reasons. The first being that the argument urged before the Court was not raised in front of the Single Judge, and secondly, the judgment in Aditya Ganapa v. Religare Finvest Ltd. (OMP No. 1038 of 2014, decided on 30.01.2015) relied on by the appellants did not fit in the factum of the present case where the arbitrator had indeed, disclosed his interest to the parties. Appeal dismissed. [Sidhi Industries v. M/s Religare Finvest Ltd.,  2017 SCC OnLine Del 12685, decided on 11.12.2017]

OP. ED.

In the recent decision of the Supreme Court (SC) in Duro Felguera, SA v. Gangavaram Port Ltd.[1], while holding that the doctrine of “composite reference”, is not applicable in the present case, the Court clarified as to when a composite reference to arbitration in case of multiple agreements can be made. In fact, the decision is also in line with the objective and intention of the Arbitration and Conciliation (Amendment) Act, 2015 as it affirmed the position pertaining to limited intervention of the Court at the stage of appointment of arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (Act) and narrow scope of challenge to an award in international commercial arbitration.

Brief facts

Gangavaram Port Limited (GPL) herein the respondent awarded tender work to a Spanish Company — Duro Felguera Plant as Industrials SA (Duro Felguera) and its Indian subsidiary — M/s Felguera Gruas India (P) Ltd. (FGI). Subsequently this original contract was divided into five distinct contracts with different works description. The contract pertaining to supply of bulk material handling equipment’s was awarded to Duro Felguera. Whereas the other remaining four contracts, were awarded to FGI (i.e. Indian subsidiary). Each of these contracts contained an arbitration clause. Apart from this, Duro Felguera also entered into a corporate guarantee, thereby guaranteeing due performance of all the works awarded to Duro Felguera and FGI, which had its own arbitration clause. Later on, a tripartite Memorandum of Understanding (MoU) was executed between Duro Felguera, FGI and GPL. When dispute arose, the petitioner and its Indian subsidiary issued five separate arbitration notices (i.e. one by petitioner and four by Indian subsidiary). Whereas the respondent issued a comprehensive one arbitration notice.

GPL inter alia contended that the MoU being the latest had subsumed all the separate agreements and therefore there can only be one agreement, hence only one Arbitral Tribunal for all the disputes emanating from the five different agreements and the corporate guarantee was to be constituted. According to GPL, since MoU referred to original contract which contained arbitration clause, the original contract with its arbitration clause shall be deemed to have been incorporated in the MoU. It was further contended that having regard to the nature of works in each contract and in order to avoid conflicting awards, huge wastage of time, resources and expenses it would be just and proper to make a “composite reference” and have a single Arbitral Tribunal of “international commercial arbitration” for settling the dispute arising between the parties as the same would be consistent with the intention of the parties and public policy.

On the other hand, the contention of the Duro Felguera was that all the five contracts were distinct and separate, as regards, their content and subject-matter and hence there cannot be a “composite reference” for efficacious dispute settlement. It was also contended that MoU cannot override the terms of five contracts which includes different arbitration clauses, as the MoU only listed the priority of the documents which was to be considered in order to have clarity in carrying out the works and nothing more.

Decision

The SC held that there cannot be a single arbitration reference for disputes arising out of different agreements, even if they are interlinked to a single transaction. This decision of the SC is in contrast with the ratio laid down in its earlier decision of Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.[2] (Chloro Controls), wherein the doctrine of “composite reference” was recognised.

Scope of S. 7(5) — Mere reference of a document cannot lead to an inference that arbitration clause in the document becomes part of the agreement by such reference

The Court held that for incorporation of an arbitration clause by reference it requires “a conscious acceptance” of the arbitration clause from another document, as a part of the contract, before such arbitration clause could be read as a part of the contract between the parties. The question whether or not the arbitration clause contained in another document, is incorporated in the contract would essentially be a question of intention of the parties to be gathered from the terms of the contract. The SC held that the fact that the MoU makes a reference to the original agreement does not indicate that, by such reference, arbitration clause was intended to be incorporated in the MoU. The reason being that the MoU only make a reference to original agreement in order to have more clarity in execution of the work and such general reference will not be sufficient to hold that the arbitration clause in the original agreement is incorporated in the MoU. Thus the Court laid down the test of general and specific reference of the document for the applicability of incorporation by reference test. This observation of the SC is in line with its dicta laid down in M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd.[3] Hence the Court made it clear that inclusion of arbitration agreement by reference would require more than a general reference to another contract.

Composite reference when permissible

GPL placed reliance on Chloro Controls[4] to contend that where various agreements constitute a composite transaction, Court can refer disputes to arbitration if all ancillary agreements are relatable to principal agreement and performance of one agreement is so intrinsically interlinked with other agreements. Though Chloro Controls[5] has considered the doctrine of “composite reference”, the SC in the present case distinguished the same. In Chloro Controls[6] the principal agreement contained an arbitration clause which required that any dispute or difference arising under or in connection with the principal agreement, which could not be settled by friendly negotiation and agreement between the parties, would be finally settled by arbitration conducted in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The words “under or in connection with” had wider ambit. However, no such clause was present in the case at hand. All five contracts as well as the corporate guarantee have separate arbitration clauses which were neither dependent on the terms and conditions of the original contract nor on the MoU. Therefore no composite reference to arbitration was allowed in the present case. On analysing the reasoning of the Court it can be concluded that the Court has clarified the principle laid down in Chloro Controls[7] as one that limits the reference to composite arbitration in case of intrinsically interlinked agreements by the wording of the arbitration clause of the principal agreement. Therefore the Court interpreted the law laid down in Chloro Controls[8] as one that makes reference to composite arbitration dependent on an interpretation of the arbitration clause in the principal agreement to be wide enough to allow such a reference and not merely when the agreements are intrinsically interlinked.

Scope of enquiry under S. 11(6-A) of the Act

The Supreme Court by its earlier decision in SBP & Co. v. Patel Engg. Ltd.[9], had waived the scope of court’s power under Section 11 of the Act. However, by virtue of 2015 amendment this position has changed and the power of court to appoint an arbitrator under Section 11(6-A) of the Act have been narrowed down with the sole purpose to minimise the Court’s intervention at the stage of appointing the arbitrator. The Delhi High Court in Picasso Digital Media (P) Ltd. v. Pick-A-Cent Consultancy Service (P) Ltd.[10] followed the same line of thoughts wherein it  held that the court, at the stage of appointment of arbitrator, cannot examine whether the respondent has a justified claim of misrepresentation against the petitioner as that would be a question to be examined by the arbitrator in the arbitration proceedings. The SC, in the present case, confirmed this position of law. This is one of the first case of Section 11(6-A) before this Court. The Court in explicit terms clarified its role at the stage of Section 11(6-A) petition to be to prima facie examine the existence of a valid arbitration agreement and not its validity and therefore concluded that: “From the record, all that we could see are five separate letters of award; five separate contracts; separate subject-matters; separate and distinct work; each containing separate arbitration clause.…”

In the present case there were six arbitrable agreements (five agreements for works and one corporate guarantee) and each agreement contains a provision for arbitration. Hence, the Court concluded that there has to be an Arbitral Tribunal for the disputes pertaining to each agreement. While the arbitrators can be the same, there has to be six tribunals — two for international commercial arbitration involving the Spanish Company M/s Duro Felguera, SA and four for the domestic.

Conclusion

This case sets a standard regarding drafting of an arbitration clause in multiple agreements so as to bring all those agreements within the purview of Section 7 of the Act. Further, since this is one of the first few cases under Section 11(6-A) it provides us with the scope of the term “existence of an arbitration agreement”. This decision becomes relevant as it would throw a guiding light on what subsumes within an analysis of existence of an arbitration agreement and what is covered under validity of an arbitration agreement. Further, this decision of SC is in line with the legislative intent and promotes pro-arbitration approach by minimising Court’s intervention at the stage of Section 11 of the Act.

 

* Kiran Devrani, Practicing Lawyer, Dispute Resolution; Graduate, Vivekananda Institute of Professional Studies, GGSIPU (Batch of 2015) and Surabhi Lal, Practicing Lawyer, Dispute Resolution; Graduate, National Law University, Delhi (Batch of 2016).

[1]  (2017) 9 SCC 729

[2]  (2013) 1 SCC 641

[3]  (2009) 7 SCC 696

[4]  (2013) 1 SCC 641

[5]  (2013) 1 SCC 641

[6]  (2013) 1 SCC 641

[7]  (2013) 1 SCC 641

[8]  (2013) 1 SCC 641

[9]  (2005) 8 SCC 618

[10] 2016 SCC OnLine Del 5581

Case BriefsSupreme Court

Supreme Court: Deciding the question relating to the entertainability of an application by this Court for making an award passed by the arbitral tribunal, when it retains seisin over arbitral proceeding, as Rule of the Court, the 5-judge bench of Dipak Misra, CJ and Dr. AK Sikri, AM Khanwilkar, Dr. DY Chandrachud and Ashok Bhushan, JJ overruled the rulings in State of Madhya Pradesh v. Saith and Skelton (P) Ltd., (1972) 1 SCC 702 and Guru Nanak Foundation v. Rattan Singh and Sons, (1981) 4 SCC 634, wherein it was held:

“when an arbitrator is appointed by this Court and further directions are issued, it retains seisin over the arbitration proceedings and in such circumstances, the Supreme Court is the only court for the purposes of Section 2(c) of the Arbitration Act, 1940.”

Stating that the jurisdiction of a Court conferred under a statute cannot be allowed to shift or become flexible because of a superior court’s interference in the matter in a different manner, the bench explained:

“When arbitrator is not appointed under the Act and the matter is challenged before the High Court or, for that matter, the Supreme Court and, eventually, an arbitrator is appointed and some directions are issued, it will be inappropriate and inapposite to say that the superior court has the jurisdiction to deal with the objections filed under Sections 30 and 33 of the Act.”

The Bench further explained that the Section 39 of the Act provides for an appeal and solely because a superior court appoints the arbitrator or issues directions or has retained some control over the arbitrator by requiring him to file the award in this Court, it cannot be regarded as a court of first instance as that would go contrary to the definition of the term ‘court’ as used in the dictionary clause as well as in Section 31(4) of the Act. The bench said that the Supreme Court:

“may make a reference to an arbitrator on consent but to hold it as a legal principle that it can also entertain objections as the original court will invite a fundamental fallacy pertaining to jurisdiction.”

The Court, hence, overruled the above-mentioned verdicts and all the other verdicts of this Court that state the law on the basis of the said verdicts. [State of Jharkhand v. Hindustan Construction Co. Ltd, 2017 SCC OnLine SC 1458, decided on 14.12.2017]

Case BriefsSupreme Court

Supreme Court: In the dispute between 95-year-old veteran actor Dilip Kumar and the developer of his Pali Hill Porperty, the bench of J Chelameswar and S. Abdul Nazeer, JJ referred the matter for resolution by arbitration and directed both the parties to submit their dispute for arbitration by the Former Supreme Court judge, Justice P. Venkatarama Reddy.

As per the development agreement entered into in June 2006, Dilip Kumar was entitled to 50% of the “Development potential” and the developers were jointly entitled to the balance 50% of the “development potential”. The development was to be completed within 24 months, however, till date no development worth mentioning has taken place. Respondent developer PRAJITA was not the original party to the agreement but stepped into the shoes of one of the developers on 20.04.2010 under a deed of assignment. It was alleged that PRAJITA has posted armed guards around the property in question preventing the appellant from entering the property. Appellant actor had contended that he was willing to pay an amount of Rs. 20 crores to PRAJITA in order to have an undisturbed possession and peaceful enjoyment of the property.

Apart from referring the matter to arbitration, the Court gave the below mentioned directions:

  • The appellant shall deposit an amount of Rs. 20 crores by demand draft to the Registry of this Court within a period of four weeks from today and intimate the same to PRAJITA.
  • Upon the receipt of such intimation, PRAJITA shall withdraw all the security personnel deployed by it and hand over possession of the property in question within a period of seven days from the date of the receipt of the above-mentioned intimation to the appellant in the presence of the Commissioner of Police, Mumbai or any other senior police officer subordinate to the Commissioner of Police, Mumbai to be nominated by the Commissioner of Police.
  • The Commissioner of Police or his nominee shall draw a Panchnama of the fact of the handing over of the property by PRAJITA to the appellant and file the same in the Registry of this Court within a week from the date of the handing over of the possession.
  • Upon the filing of the Panchnama with the Registry of this Court, PRAJITA shall be at liberty to withdraw the amount of Rs. 20 crores deposited by the appellant pursuant to this order

The Court said that, the question as to whether PRAJITA would be entitled for any damages apart from receiving the above-mentioned amount of Rs. 20 crores from the appellant will be decided by the arbitrator appointed by the Court. [Yusuf Khan v. Prajita Developers Pvt. Ltd., 2017 SCC OnLine SC 1016, decided on 30.08.2017]

Case BriefsHigh Courts

Delhi High Court: While deciding a case where no acceptance was communicated as regards sale contracts and the other party sought to enforce the award rendered by invoking the arbitration clause in the contract, the Single Bench of Vibhu Bakhru, J. declined to enforce the award in view of no communication of acceptance of the contract to the other party.

The present case dealt with two companies at a preliminary stage of negotiation for sale of palm oil, whereby the seller, who presumed the existence of a binding contract between the two, sought to enforce the award given by an Arbitral Tribunal which held the contracts to be existing, it being a usual practice to conclude unsigned contracts.

This Court, however, while analyzing the facts and circumstances of the case in light of its previous judgments and addressing the question as to whether an arbitration agreement existed between the parties, held that Section 44(a) of the Arbitration and Conciliation Act, 1996 clearly mandates the agreement to be in writing, and since the contracts had not been signed there could have been no communication or meeting of minds, thereby concluding no enforceable contract between the parties and the subsequent entailing causes of action by invocation of the arbitration clause or otherwise.[Virgoz Oils & Fats Pvt. Ltd.v. National Agricultural Co-Operative Marketing Federation of India, 2016 SCC OnLine Del 6203, decided on 05.12.2016]

Case BriefsSupreme Court

Supreme Court: Explaining the scope of Section 8 of the Arbitration and Conciliation Act, 1996, the Bench of Dr. A.K. Sikri and D.Y. Chandrachud, JJ held that mere allegation of fraud simplicitor may not be a ground to nullify the effect of arbitration agreement between the parties. Where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration.

The Court further explained that it is only in those cases where the Court finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by civil court on the appreciation of the voluminous evidence that needs to be produced, the Court can sidetrack the agreement by dismissing application under Section 8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself.

It was, hence, said that while dealing with an application under Section 8 of the Act, the focus of the Court has to be on the question as to whether jurisdiction of the Court has been ousted instead of focusing on the issue as to whether the Court has jurisdiction or not. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non-arbitrable subjects such as disputes relating to rights and liabilities which give rise to or arise out of criminal offences; matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody; Insolvency and winding up; etc., are carved out by the Courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, Courts are better suited than a private forum of arbitration.

D.Y. Chandrachud, J added that the Arbitration and Conciliation Act, 1996, should be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle. [A. Ayyasamy v. A. Paramasivam, 2016 SCC OnLine SC 1110, decided on 04.10.2016]

Case BriefsSupreme Court

Supreme Court: Deciding the question as to whether an appeal against the judgment of the Single Judge in an international arbitration matter is appealable to the Division Bench or to put it otherwise, whether the intra-court appeal would lie because of the Letters Patent, the Court held that such appeal is maintainable before the division bench and has to be treated as an appeal under Section 50(1) (b) of the Arbitration and Conciliation Act, 1996 and has to be adjudicated within the said parameters.

Rejecting the argument that the Letters Patent Appeal was not available in arbitration matters and Section 13 of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015, the Court held that Section 13 of the 2015 Act bars an appeal under Letters Patent unless an appeal is provided under the 1996 Act. Such an appeal is provided under Section 5 of the 2015 Act where a forum is created, i.e., Commercial Appellate Division. The Letters Patent Appeal could not have been invoked if Section 50 of the 1996 Act would not have provided for an appeal. But it does provide for an appeal. Section 50(1)(b) of 1996 Act has not been amended by the 2015 Act that has come into force on 23.10.2015. Thus, an appeal under Section 50(1)(b) of the 1996 Act before the Division Bench is maintainable.

The bench of DIpak Misra and C. Nagappan, JJ, hence, held that a conspectus reading of Sections 5 and 13 of the 2015 Act and Section 50 of the 1996 Act which has remained unamended leads to the irresistible conclusion that a Letters Patent Appeal is maintainable before the Division Bench. [Arun Dev Upadhyaya v. Integrated Sales Service Ltd, 2016 SCC OnLine SC 1053, decided on 30.09.2016]

Case BriefsSupreme Court

Supreme Court: Considering the sad state of affairs of long drawn expensive and cumbersome trials to resolve disputes between two Government owned corporations and the fact that one of the parties in the case at hand had with considerable tenacity opposed the move aimed at a quick and effective resolution of the conflict and resultant quietus to the controversy by a reference of the disputes to arbitration in terms of the Arbitration and Conciliation Act, 1996, the bench of T.S. Thakur, CJ and R. Banumathi, J. referred the matter for adjudication to Justice K.G. Balakrishnan, Former Chief Justice of Supreme Court, who is hereby appointed as Sole Arbitrator to adjudicate upon all claims and counter claims which the parties may choose to file before him.

In the present case, the parties had entered into a contract for construction of a Coal Handling Plant and a Clause in the Contract provided for adjudication of disputes between the parties by way of arbitration. Disputes between the parties were referred for resolution in terms of the “permanent in-house administrative machinery” set up by the Government. Both the parties, upon being dissatisfied with the awards, challenged the award in appeals filed before the Law Secretary, Department of Legal Affairs, Ministry of Law and Justice in terms of the in-house mechanism provided by the Government. The appellant then filed a civil suit before the High Court of Delhi alleging that the Arbitral award passed by the appellate authority was according to the appellant illegal and vitiated by errors apparent on the face of the record, hence, liable to be set aside.

Discussing the question of remanding the case to the Civil Court, the Court noticed that an arbitral award under the Permanent Machinery of Arbitration may give quietus to the controversy if the same is accepted by the parties to the dispute. In cases, however, a party does not accept the award, as is the position in the case at hand, the arbitral award may not put an end to the controversy. Such an award being outside the framework of the law governing arbitration will not be legally enforceable in a court of law. Just because a Government owned company has resorted to the permanent procedure or taken part in the proceedings there can be no estoppel against its seeking redress in accordance with law. Making reference to a sole arbitrator for adjudication of all outstanding disputes between the two corporations, the Court held that the alternative to such arbitration is a long drawn expensive and cumbersome trial of the suit filed by the appellant before a civil court and the difficulties that beset the execution of an award made under a non-statutory administrative mechanism and that both these courses are unattractive with no prospects of an early fruition. [NORTHERN COALFIELD LTD v. HEAVY ENGINEERING CORP. LTD, 2016 SCC OnLine SC 697, decided on 13.07.2016]

Case BriefsSupreme Court

Supreme Court: Dealing with the question relating to interpretation of Section 69(3) of the Partnership Act, 1932 with reference to its applicability to Arbitral proceedings, the bench of Fakkir Mohamed Ibrahim Kalifulla and C. Nagappan, JJ held that the Arbitral Proceedings do not come under the expression “other proceedings” of Section 69(3) of the Partnership Act and hence, the ban imposed under the said Section 69 can have no application to Arbitral proceedings as well as the Arbitration Award.

Interpreting S. 69 of the Partnership Act, the Court held that in order to attract the said Section, first and foremost the pending proceeding must be a suit instituted in a Court and in that suit a claim of set off or other proceedings will also be barred by virtue of the provision set out in sub-sections (1) and (2) of Section 69 as specifically stipulated in sub-section (3) of the said Section. Having regard to the manner in which the expressions are couched in sub-section (3), a claim of set off or other proceedings cannot have independent existence. In other words, the foundation for the application of the said sub-section should be the initiation of a suit in which a claim of set off or other proceedings which intrinsically connected with the suit arise and not otherwise.

Rejecting the contention that an Arbitral proceeding can be equated to a Civil Court Proceeding, the Court took notice of the Sections 35 and 36 of the Arbitration and Conciliation Act, 1996 and held that Section 36 of the 1996 Act only creates a statutory fiction which is limited for the purpose of enforcement of the Award. The deeming fiction is specifically restricted to treat the Award as a decree of a Court, exclusively for the purpose of execution, though as a matter of fact, it is only an Award of Arbitral proceeding. It is a settled proposition, that a statutory provision will have to be construed from the words that are expressly used and it is not for the Court to add or substitute any word to it. Therefore, going by Sections 35 and 36 of the 1996 Act it cannot be held that the entire Arbitral proceeding is a Civil Court proceedings for the purpose of applicability of Section 69(3) of the Partnership Act. [Umesh Goel v. Himachal Pradesh Cooperative Group Housing Society Ltd., 2016 SCC OnLine SC 624, decided on 29.06.2016]

Case BriefsHigh Courts

Delhi High Court: Deciding on a public interest litigation wherein relief was sought that no retired Supreme Court Judge can give chamber advice to any party and that no retired Supreme Court or High Court Judge will take up arbitration work while he or she is a Chairperson or Member of any Government appointed constitutional or statutory body, commission, commission of inquiry, tribunal or appellate body, the division bench of G. Rohini, C.J and Rajiv Sahai Endlaw, J observed that it is a settled principle of law that a full time employee, as certainly full time Chairpersons or Presidents or Members of Tribunals or Commissions or Statutory Authorities are not entitled to take up any other employment or vocation and certainly an arbitration would constitute an employment. The Court reasoned that a full time employee is expected to spend his energy and resources to his employment and should not divert to any other job or vocation.

In the instant case an affidavit was filed by the Under Secretary, the Department of Legal Affairs, Ministry of Law & Justice, and Government of India wherein it was stated that the issue of taking up arbitration work by the Chairpersons or Members of Tribunals and Statutory Authorities, while so functioning was under consideration and it was proposed to formulate a “Uniform Policy” regulation the terms and conditions of service of such authorities. Eventually the Tribunals, Appellate Tribunals and Other Authorities (Conditions of Service) Bill, 2014 had been drafted and was introduced in the Rajya Sabha which provided that no person while holding office as the Chairman or Member shall act as an arbitrator save that he may with the permission of the Central Government complete his uncompleted arbitration work at the time of appointment. The counsel for the petitioner contended that this delay on part of the legislature is resulting in members taking up arbitration work to the detriment of full time office held by them. While the learned ASG contended that the bill is still under examination.

Referring to a catena of cases like Sukumar Mukherjee v. State of West Bengal (1993) 3 SCC 723, Dr Haniraj L. Chulani v. Bar Council of Maharashtra & Goa (1996) 3 SCC 342, the Court stated that it is no argument or consideration that the whole time authority would be acting as arbitrator only during the hours he is not working as Chairperson or Member. Giving further reasons, the Court said that giving any kind of directions would be overstepping the limits as the present issue falls in the domain of legislature and giving due respect to the doctrine of separation of powers respondents are directed to bestow special attention on the issue and to ensure that appropriate legislation is made at the earliest. [Common Cause v. Union of India, 2015 SCC Online Del 14003, decided on 11.12.2015]

Supreme Court Cases

Case Reported in 2015 SCC Vol. 3 March 7, 2015 Part 1

None of the grounds contained in S. 34(2)(a) deal with the merits of the decision rendered by an arbitral award, it is only when arbitral award is in conflict with public policy of India as per S. 34(2)(b)(ii), that merits of an arbitral award are to be looked into under certain specified circumstances. Said circumstances include when the award is in conflict with fundamental policy of Indian law, interest of India, justice or morality and patent illegality. When any of the heads/sub-heads of test of “public policy” is applied to an arbitral award, court does not act as court of appeal. Interference is permissible only when findings of arbitrator are arbitrary, capricious or perverse, or when conscience of court is shocked, or when illegality is not trivial but goes to root of the matter, not when merely another view is possible. Furthermore, arbitrator being ultimate master of quantity and quality of evidence while drawing arbitral award, award based on little evidence or on evidence which does not measure up in quality to a trained legal mind cannot be held invalid. Once it is found that arbitrator’s approach is neither arbitrary nor capricious, no interference is called for on facts. (2015) 3 SCC 49

Supreme Court

Supreme Court: Deciding a short question as to what should be the approach of the Court, once an application is duly filed in terms of Section 8 of the Arbitration and Conciliation Act, 1996 before the civil court, the bench of MY Eqbal and Kurian Joseph, JJ held that the approach of the civil court should be not to see whether the court has jurisdiction but to see whether it’s jurisdiction has been ousted. The Court further held that once it is brought to the notice of the court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statue, the civil court should first see whether there is ouster of jurisdiction in terms or compliance of the procedure under the special statute.

Regarding the general law approach that a court should first see whether it has jurisdiction or not, the Court, referring to generalia specialibus non derogant rule, said that Such approaches would only delay the resolution of disputes and complicate the redressal of grievance and of course unnecessarily increase the pendency in the court.

Section 8 of the Arbitration and Conciliation Act, 1966 comes into play when there is an agreement between the parties to refer the disputes or differences arising out of the agreement to arbitration, and either party, ignoring the terms of the agreement, approaches the civil court, the other party can, under the said Section, move the court for referring the parties to arbitration before the first statement on the substance of the dispute is filed. Sundaram Finance Ltd. v. T. Thankam, 2015 SCC OnLine SC 147, decided on 20.02.2015

High Courts

Bombay High Court: While interpreting an arbitration agreement, a bench comprising of Mohit S. Shah, CJ and M. S. Sonak, J held that in an agreement between two groups, group entities which are not signatories to the agreement may also be made party to the arbitration agreement if they are referred to in the contract.

In the present case, a joint venture company was set up by two groups through a joint venture agreement. Under the agreement, the definition of the appellant group included such other entities controlled by him or his immediate relatives or his group companies directly or indirectly. Similarly, the definition of the respondent group included “…and their immediate relatives taken together and such other entities controlled by them or their immediate relatives directly or indirectly. Disputes arose between the parties when the appellant group alleged that the respondent group were carrying on a competitive business. The appellant group thus approached the Court to seek interim relief under Section 9 of the Arbitration and Conciliation Act, 1996.

The Court after listening to the arguments on both sides, observed that the joint venture agreement was entered into between the two groups and not between specific individuals or entities. Thus, the immediate relatives and the entities controlled by the respective groups were also held to be bound by the terms of the agreement. The Court also observed that the legislative intent of the Act was to encourage arbitration. Therefore it was held that the aforesaid principles were required to be applied to the agreement and the arbitration agreement therein.

The Court thus reiterated that an arbitration agreement ought to be construed in a broad and common sense manner and that the arbitration agreement should be interpreted having regard to words and phraseology therein and no term or phrase should be treated as meaningless, especially if they are consistent with the other parts of the agreement. Rakesh S. Kathotia vs. Milton Global Ltd., 2014 SCC Online Bom 1119, decided on 22-09-2014

Alternate Dispute Resolution

Cases Reported in 2014 SCC Vol. 7 August 28, 2014 Part 4

Law of substantive contract does not determine law of arbitration agreement/lex arbitri. Parties are entitled to agree that law of one country would govern substantive contract and laws of another country would apply to arbitration agreement. Parties can also agree that conduct of reference to arbitration would be governed by laws of yet a third country. As in this case, parties had by agreement provided that substantive contract (PSC) will be governed by laws of India, arbitration agreement by laws of England and appointment of arbitrators by Permanent Court of Arbitration at The Hague in case of failure of parties to appoint arbitrator(s), and the arbitration proceedings will be conducted in accordance with the UNCITRAL Rules, 1976. Further, agreement also specifically provided that right to arbitrate disputes and claims under said contract shall survive termination of contract, hence, applying doctrine of severability, there is no scope for confusion as to law governing the substantive contract (PSC) and law governing arbitration agreement. Reliance Industries Ltd. v. Union of India, (2014) 7 SCC 603