In a significant development, Hon’ble Supreme Court had held that Landlord- tenant disputes under Transfer of Property Act are arbitrable. While it will be interesting to see how it will bear practical effects on the ongoing cases, it is a welcome development for landlords and tenants who earlier were precluded from resorting their disputes by way of an arbitration. Apart from this, there have been significant developments relating to domestic arbitration. In this Newsletter, we have covered the arbitration related judgments passed by the Indian Courts in the month of November & December 2020 and our views on the same.
Hon’ble Supreme Court held that proceedings under section 34 of the Arbitration Act against a foreign arbitral award is not maintainable.
In an important judgment titled as Noy Vallesina Engineering SPA v. Jindal Drugs Limited and Ors., Hon’ble Supreme Court set aside a Bombay High Court order and held that proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 against a foreign award were not maintainable. The Court reiterated that a foreign award cannot be interfered with even if the agreement entered into by the parties was prior to the Supreme Court’s decision in BALCO. The court held that the intention of the parties to choose London as the seat of the arbitration will make Part I of the Act inapplicable. In this case, Appellant was a Company incorporated under the Italian Law and Respondent was a public limited company incorporated in India. Both the parties had entered into agreements for setting up of an ascorbic acid plant in India. After, the disputes arose between the parties, the Respondent filed a request for arbitration before the International Court of Arbitration, Paris. Partial and final awards were passed, both of which were foreign arbitral awards. Petitions were filed in India under Section 34 of the Arbitration Act challenging the partial as well as final awards. Ld. Single Judge held that the proceedings were not maintainable. However, The Division Bench of Bombay High Court while setting aside the Ld. Single Judge’s order held that proceedings under Section 34 of the Act could be validly maintained to challenge a foreign award. Appeal was thus filed by Appellant challenging the impugned judgment passed by the Division Bench, which was allowed by Hon’ble Supreme Court and the impugned judgment was set aside.
Our Comments:-
The judgment correctly interprets the law in as much as the arbitration clause in the present case clearly mentions that the parties chose the place and venue of arbitration as London. A foreign award of arbitration whose seat is abroad cannot be challenged under Section 34 of the Act. It is in accordance with the latest decision on this issue passed by Hon’ble Supreme Court in Government of India v Vedanta Ltd, 2020 SCC Online (SC) 749. The dispute arose out of a pre-BALCO contract; the award was rendered on 18.01.2011 (prior to the BALCO decision). The seat of arbitration was Kuala Lumpur; however, the governing law of the agreement or contract, was English law. The Supreme Court, in its three-judge decision, held that the curial law, i.e. the law governing the challenge to the award, was Malaysian law. It therefore, categorically ruled that a substantive challenge to the award, was correctly adjudicated by the Malaysian court, because the seat of arbitration was Kuala Lumpur.
Hon’ble Delhi High Court holds that Petition under Section 9 of Arbitration and Conciliation Act cannot be disposed of ex-parte, especially when coercive orders are passed.
Recently, Hon’ble Delhi High Court in case titled New Morning Star Travels v. Volkswagen Finance Private Limited was pleased to hold that disposal of section 9 petitions for interim reliefs without issuing notice and hearing to Respondent as well as passing coercive orders for possession would be violative of the principles of natural justice. In this case, the Petitioner Company, had brought vehicles under loan-cum-hypothecation agreements from the Respondents. The said agreement contained an arbitration clause. There was a default by the Petitioners in payment of certain installments of the loan. Thereafter, the Petitioner came to know that petitions under Section 9 had been filed by opposition party, in which the impugned orders were passed. Accordingly petition was filed under Article 227, in which the above stated orders were passed by Court.
Our Comments:
This Judgment correctly applies the concept of principles of natural justice in the facts of the case.
Hon’ble Supreme laid down the test to determine the arbitrability of disputes.
The Apex Court in a landmark judgment dated 14.12.2020, passed in Vidya Drolia & Ors. v/s. Durga Trading Corporation,held that Landlord- Tenant Disputes under the Transfer of Property Act are arbitrable except those cases where specific court or forum has been given exclusive jurisdiction to apply and decide special rights and obligations. It further ruled that dispute is not capable of adjudication and settlement by arbitration when the cause of action and subject matter of dispute:
1. Relates to actions in rem, that do not pertain to subordinate rights in personam that arise from right in rem,
2. Affects third party rights; have erga omnes effect,
3. Requires centralized adjudication, and mutual adjudication would not be appropriate and enforceable,
4. Relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable, and
5. When subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statutes(s),
On basis of this test, the Apex Court held that (1) landlord-tenant disputes governed by Transfer of Property Act, 1882 are arbitrable disputes, (2) matters covered under the DRT Act are arbitrable and (3) Allegations of Fraud does not vitiate arbitration in cases where the nature of dispute is civil.
Moreover, in the latter part of judgment, the court decision was concerned, with who was to decide the issues of arbitrability. It was held that, at Section 11 stage, the court has the power to determine arbitrability on prima facie basis. However, the court should refer the matter to arbitration if the validity of the arbitration agreement cannot be determined on a prima facie basis.
Our Comments:
This judgment comes as a relief to parties who can now resort to private forum to resolve disputes. Moreover, the court has shown pro-arbitration stance. The judgment affirms the efficacy of arbitration as an alternative mechanism. It would be interesting to see the effect of this judgment on the pending civil matters where a party has filed application under Section 8 of the Arbitration Act, 1996, for referring the matter to Arbitration.
Arbitration Clause in the contract can only be invoked, if there is a concluded contract between the parties.
The Hon’ble Orissa High Court, vide its judgment dated 02.12.2020 passed in Forum Projects Private Limited v. Berhampur Development Authority was hearing an appeal under Section 37 of the Arbitration Act, 1996, against an order of dismissal of petition under Section 9 of Arbitration Act, 1996. The Appellant in the present case sought to invoke arbitration clause in draft Lease-cum-Development Agreement (“Agreement”).he Appellant had signed the agreement and forwarded the agreement to the respondent but failed to deposit money. The said agreement was not signed by the Respondent. The failures of the appellant to deposit the money lead to cancellation of the Request for Proposal (“RFP”).Challenging the cancellation of RFP, the Appellant filed Section 9 petition for interim relief. However, District Judge, Berhampur dismissed the petition under Section 9 of the Arbitration Act as ‘not maintainable’. Assailing the order passed by District Judge, Section 37 petition was filed. The court once again rejected Section 37 petition and held that since there was no concluded contract between the parties, the arbitration clause in the contract cannot be invoked.
Our Comments:
The Court rightly rejected the appeal, since a complete and concluded contract is qui- essentia and the basis for any arbitration. This judgment is also in accordance with the judgment passed by Hon’ble Apex Court in M/s. National Highways and Infrastructure Development Corporation vs. BSPL Infrastructure Ltd, wherein it was held that in absence of concluded contract between the parties the arbitration clause in the draft agreement cannot be made operational.
In Brilltech Engineers v. Darrameks Hotels Developers,the Delhi High Court held that when the arbitration agreement provides for the arbitration of notified claims alone, the claims which are not notified in accordance with the procedure stipulated under the contract between the parties, cannot be referred to arbitration.
Courts will do their utmost to uphold an arbitration agreement and, where one exists, will not readily let it be dislodged, holds Bombay High Court.
Hon’ble Bombay High Court, recently vide its judgment dated 03.12.2020 in case titled “Dhargalkar Technoesis (I) Pvt. Ltd. vs. Mumbai Metropolitan Regional Development Authority” upheld held that the existence of a clear and unequivocal arbitration agreement is a pre-requisite. There must be a demonstrated consensus ad idem to refer disputes to arbitration.
The primary issue between the parties was whether there was a valid and binding arbitration agreement or not. The Court held that there must be a demonstrated consensus ad idem to refer disputes to arbitration.
Our Comments:
This judgment correctly applies the basic tenets of arbitration as propounded by Hon’ble Supreme Court in Jagdish Chander v Ramesh Chander & Ors, (2007) 5 SCC 719, wherein it was held that an arbitration agreement may be valid if it has four elements:
(a) The agreement must be in writing,
(b) The parties must have agreed to refer any present or future disputes to the decision of a private tribunal,
(c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving the parties due opportunity to put forth their respective cases,
(d) The parties should have agreed that the decision of the Private Tribunal in respect of the disputes will be binding on them.
