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