Citation: Commercial Arbitration Application No. 3094 of 2022
Facts of the case:
The application before the Bombay High Court is a S. 11 application for appointment of an arbitral tribunal under the Arbitration and Conciliation Act, 1996 (hereinafter as “Arbitration Act”) for deciding the dispute that has arisen between the parties.
Respondent – VLCC
Applicant – Priya Malay Sheth an ‘Infrastructure Provider’
The purpose of the agreement was to inter alia, enable the respondent to carry out business activities at the premises that would be developed by the applicant. Pursuant to the agreement, the applicant invested Rs.1.30 crores in the said Business. Later on, disputes arose between the parties on certain issues in respect of which correspondence was exchanged between them. The applicant via its advocate’s notice set out all her grievances pointing out the losses that were caused to her under the agreement. The respondent was called upon to refund the sum of Rs.1.30 crores with interest at the rate of 24% and an additional sum of Rs.50 lakh for mental harassment and trauma. The applicant stated in her legal notice that if her demands were not met, she would invoke the arbitration agreement for appointment of a sole arbitrator. The respondent by its advocate’s letter replied to the legal notice of the applicant stating that according to the agreement executed between them, it was the prerogative of the respondent to appoint the sole arbitrator and that the proceedings were required to be held in Delhi.
After receiving denial of the respondent to appoint Arbitrator and there was a failure to appoint Arbitrator, he approached the Bombay High Court u/s 11 of the Arbitration Act.
Issues:
Did the respondent have unilateral authority to appoint an arbitral tribunal?
Whether the Bombay High Court would have jurisdiction to entertain this application as parties to the contract have agreed that the venue of arbitration will be at Delhi?
Held:
The respondent would not have unilateral authority to appoint an arbitral tribunal.
Once the parties to a contract have agreed that the venue of arbitration in its entirety shall be at Delhi, the seat of arbitration necessarily is at Delhi. Hence, the jurisdiction to entertain the proceedings for appointment of an arbitral tribunal would lie with the Delhi courts.
The Bombay High Court disposed of the case with liberty to the applicant to file appropriate proceedings before the Courts in Delhi.
K S&CO Comments:
This judgment provides clarity on an important issue of venue of arbitration. There is often confusion between seat and place or venue of arbitration. While the judgment restricts the authority a single party to a contract to unilaterally appoint an arbitral tribunal, it also clarifies that once the parties have agreed to a venue for arbitration, it would not be open for one of the parties to change the place of arbitration and approach a High Court of a different place seeking directions for the same.
D.P. Construction versus M/s. Vishvaraj Environment Pvt. Ltd
Citation: Misc. Civil Appln. (ARBN.) no. 31 of 2021
Facts of the case:
M/s Vishvaraj Environment Pvt. Ltd (“Non Applicant”) was awarded a contract by Nagpur Municipal Corporation (“Applicant”) for laying pipelines and in reference to the same, the Non-Applicant approached the Applicant by issuing a work order. After some negotiations upon the terms, the work order was executed in favour of the applicant which included a clause of settlement of disputes by Arbitration. However, certain disagreements occurred between the parties as regards the extent of work done, the time taken for the said work and the entitlement of the applicant towards payment in terms of the agreement between the parties. The Applicant issued a letter to the Non-Applicant stating that the Non-Applicant was supposed to carry out certain amendments but those amendments were not carried out, due to which the Applicant was not compensated. Furthermore, the Applicant issued a legal notice dated stating their grievances and claims. The applicant averred in the said legal notice that if the payment was not released to it within one month, as requested, the applicant would seek redressal of its grievances by approaching the competent court of law.
In reply to the said legal notice, the Non-Applicant issued a legal notice denying all the claims and stated that in spite of the demand of the Applicant, the Applicant is required to deposit a specific amount towards penalty with the Non-Applicant. Additionally, the Non-Applicant stated that if the penalty amount is not paid, then the Non-Applicant should approach the appropriate forum. It is pertinent to note that both the parties did not mention anything pertaining to invoke the clause of Arbitration. In pursuance to the above, the Applicant filed the present application under Section 11(6) of the Arbitration Act, seeking the appointment of the arbitrator.
The Non-Applicant raised a preliminary objection, as the present application is not maintainable under Section 11 (6) of the Arbitration Act, as the Applicant did not follow two-tier procedure for invoking Arbitration, which was initially to refer the matter to dispute to the respondent whose decision would be final and binding. In case, the said step failed, the dispute would be referred for arbitration to a sole Arbitrator and the provisions of the said Act would govern it. On this basis, the Non Applicant claimed that since the procedure agreed between the parties was yet to be resorted to, this Court could not invoke jurisdiction under section 11(6) of the Arbitration Act.
Issues:
Whether mentioning Claims in legal notice would amount to invocation of the Arbitration clause ?
Held:
The Bombay High Court after hearing both the parties held that the Court can be called upon to exercise jurisdiction under Section 11(6) of the said Act, only when the procedure agreed between the parties under Section 11(2) of the said Act regarding appointment of arbitrator(s) has failed. The Hon’ble Court added that invocation of arbitration has to be in clear terms, as specified in Section 21 of the Arbitration Act, and that a mere reference to the claims and disputes sought to be raised by a party, and the existence of an arbitration clause, would not itself mean that arbitration clause has been invoked by such a party. The Court added that in the said legal notice, there was no reference of the applicant’s intent to invoke arbitration clause. Hence, the Court ruled that unless there is a request by a party to the dispute, for the dispute to be referred to arbitration, merely stating the claims and disputes in a notice would not suffice.
K S&CO Comments:
The Arbitration Act lays down the procedure for adjudication of disputes. Section 21 of the Arbitration Act specifically states that for a dispute to be referred to arbitration, a request for the same is to be sent to the respondent. The applicant’s failure to show its intention to invoke the arbitration clause in the legal notice to the respondent, resulted into non adherence to the procedure laid down for invoking arbitration under the Arbitration Act. Therefore, simply making an application to refer the disputes to arbitration because an arbitration clause exists would not successfully invoke arbitration.
National Highways Authority of India v P. Nagaraju & Ors.
Citation – Civil Appeal no. 4671 of 2022
Facts of the case:
The National Highways Authority of India (Appellants) approached the Supreme Court to set aside the order passed by the Karnataka High Court wherein their appeal against the order passed by the Principal District Sessions Judge was dismissed. The respondents are owners of parcels of land that were part of the same acquisition for the formation of the Bengaluru-Mysore highway.
The Special Land Acquisition Officer (SLAO) on consideration of the material before him had passed an award determining compensation at Rs. 2,026/- and Rs. 17,200/- for the two parcels of land.
The claimants being dissatisfied filed a petition with the Arbitrator u/s 3G (7) of the National Highways Act, 1956. The Arbitrator took into consideration a subsequent notification to reckon the guideline value and the fact that the lands mentioned were converted from agricultural use to residential and industrial. Accordingly, he enhanced the compensation for the lands to Rs.15, 400 and Rs.25, 800.
The NHAI ( National Highways Authority of India) was aggrieved by the order on the basis that it was against the law, public policy and principles of natural justice. Their other grievance was that the guideline value was adopted without any basis.
The Principal District and Sessions Judge, keeping in mind the narrow scope available in the petition u/s 34 of the 1996 Act, agreed with the Arbitrator and dismissed the suit challenging the award passed by the Arbitrator.
Subsequently, the High Court took a similar view and noted that if a plausible view is taken by the Arbitrator, it should not be substituted by another view of the Court u/s 34 and 37 if the 1996 Arbitration Act. Finally, the NHAI appeals against this dismissal by the High Court before the Supreme Court.
Issues:
Did the Arbitrator commit patent illegality, sufficient to vitiate the award?
Did the Arbitrator, in his manner of adopting said guideline, deny an opportunity to the NHAI amounting to violation of the principles of natural justice?
Did the Arbitrator assign sufficient reasons to place reliance on the guidelines?
Held:
By applying the guideline value fixed for comparative parcels of land and discarding the guideline value for the specific survey number, the arbitrator had acted faultily. Necessary evidence to derive comparison between the lands was necessary to be brought on record and considered by the Arbitrator by assigning reasons. The Arbitrator did not refer to the manner in which the notification was brought on record and relied upon by him. The NHAI did not have sufficient opportunity before the Arbitrator to controvert the material relied upon by him. This coupled with the lack of sufficient reasons would indicate patent illegality in the award. The award is set aside and the matter remitted to the Arbitrator to decide based on the facts discussed by the Court.
K S&CO Comments:
The Supreme Court has taken the stand that pursuant to the limited scope of interference available to it under S. 34 of the Arbitration Act , it cannot modify an award. All it can do is remand the matter back to the arbitrator who shall then, keeping in mind the feedback it has received from the Court, modify the award. In matters of commercial arbitration the most important factor to be considered is urgency and expediency. It is our view that the legislature must increase the scope of the Supreme Court’s interference in an arbitral award, so that once the Court has listed out the changes required, the same can be implemented, saving time and costs to all parties involved.
Director General Central Reserve Police Force versus Fibroplast Marine Pvt. Ltd.
Citation: Tantia Constructions Limited v. Union of India
Petition for Special Leave to Appeal (L) No. 10722 of 2022
Facts of the case:
Metro Railway, Kolkata had awarded a contract to M/s Tantia constructions Ltd (applicant) to execute Civil Engineering work. During the execution of the project for which the contract was awarded, there was a dispute regarding price escalation. M/s Tantia Constructions prayed for appointment of an arbitrator by filing a section 11 application before the Hon’ble Calcutta High Court. The said application was disposed off on September 16, 2016 directing the Metro Railway, Kolkata to ensure constitution of Arbitral Tribunal. The Tribunal adjudicated the claim. The contract was concluded on March 22, 2016 and Final bill was prepared and submitted on December 16, 2016. As certain claims were rejected, fresh application was filed by M/s Tantia constructions Ltd for appointment of arbitrator on August 21, 2017.
The Hon’ble Calcutta High court recorded that, the Court is only to examine as to whether there exists an arbitration clause in agreement and that the court cannot go into the merits of the case and that all other objections are open before the Arbitrator. The advocate for respondent submitted that at the interim stage the applicant raising certain disputes, sought appointment of an arbitrator and that in terms of the direction issued by the High Court on September 2016, Arbitral Tribunal was appointed. Thereafter, the applicant submitted his Claim Petition on February 23, 2017, which was adjudicated upon by the Tribunal while passing award on December 11, 2020. The claims for which the Arbitral Tribunal is now sought to be appointed by the applicant were part of the Statement of claims filed by him and have already been adjudicated upon by the Arbitral Tribunal . The Hon’ble High Court stated that once the arbitrator has already adjudicated upon the claims made by the applicant, no question arises for appointment of fresh arbitrator. Aggrieved by the order of the Hon’ble High Court, Petition for Special Leave to Appeal was filed by the applicants in the Hon’ble Supreme Court.
Issue:
Whether there can be two proceedings with respect to the same Contract/ Transaction?
Held:
It was held by the Supreme Court that there cannot be two arbitration proceedings with respect to the same contract or transaction. In the present case, the dispute was referred to arbitration earlier and the arbitrator passed an award based on the claims that were made. Thereafter, a fresh arbitration proceeding was sought to be initiated with respect to some further claims, after the final bill had been issued. The Hon’ble Supreme Court refused to refer the parties to a fresh arbitration in exercise of Section 11(6) of the Arbitration Act, and the decision of the Hon’ble Calcutta High Court was upheld.
K S&CO Comments:
Once an arbitrator has adjudicated upon a certain set of claims, the arbitrability of those same claims stands extinguished. Just like in litigation, the doctrine of Res Judicata would apply. The doctrine simply states that a matter that has been finally juridically decided on its merits cannot be tried again between the same parties. If in case the applicants are not satisfied by the Award passed by the Arbitrator, an application can be made in Court for setting aside such award under Section 34 of the Arbitration Act. An appeal can also be made to the Court authorised by law under Section 37 of the Arbitration Act from an order of the Arbitral Tribunal.
