July 12, 2021
Arbitration Newsletter- May & June 2021
A New Retrospective Taxation Claim Launched Against India
Earlyguard, a British subsidiary of the Japanese conglomerate Mitsui & Co, has commenced Arbitration against India, under the India-UK Bilateral Investment Treaty after the Indian tax authorities raised a retrospective tax claim of Rs 2,400-crore (US$342 million) on a transaction that took place back in the year 2007.
The said transaction was over the sale of Earlyguard’s shares in a UK-domiciled entity called Finsider International Company (Finsider). Finsider owned 51% shareholding in Sesa Goa, an Indian iron ore company.
Mitsui & Co., the holding company of Earlyguard has maintained that it had treated the capital gain properly according to the tax laws at that time. However, in January 2020, a tax payment notice was issued by the Indian tax authority. Subsequent to which, arbitration proceedings were commenced to dispute the tax notice.
PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited, [Civil Appeal No. 1647 of 2021]
The Supreme Court of India upheld party autonomy and freedom of contract in the case of PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited, where it observed that the provisions of the Arbitration & Conciliation Act, 1996 (“the Act”) do not prohibit Indian Parties from arbitrating in foreign seats.
The parties in this instant case were both companies incorporated in India. However, the Respondent was a subsidiary of a French company. A settlement agreement was signed by the parties when disputes arose between them. By way of this settlement agreement, the parties agreed to settle disputes that arose by arbitration in Zurich under International Chamber of Commerce (“ICC”) Rules to be governed by the Indian substantive law.
This judgement has clarified the position regarding two important questions. Firstly, the court held that Indian parties are free to choose foreign arbitration seats. And secondly, that interim relief granted in such arbitration proceedings would be enforceable in Indian Courts. Arbitrations where Indian parties choose a foreign seat would not come within the ambit of International Commercial Arbitration under Section 2 (1) of the Act, nor would such an arbitration be against the public policy of India.
K S&Co Comments:
This judgement has settled the position regarding the autonomy of Indian parties to choose a seat of arbitration. An award from such an arbitration proceeding will be enforceable in Indian Courts as a foreign award under Part II of the Act. Indian parties may therefore, choose a foreign seat of arbitration.
Uttar Pradesh Power Transmission Corporation Ltd. v. CG Power and Industrial Solutions Ltd. & Anr. [SLP (c) No.8630 of 2020]
In this case, the question arose whether the presence of an arbitration clause precludes the remedy of filing of a Writ Petition. The Supreme Court of India held that the mere existence of an arbitration clause would not prohibit the Court from entertaining a Writ Petition.
The court relied on its previous judgments of Whirlpool Corporation v. Registrar of Trademarks Mumbai & Ors. [AIR 1999 SC 22], and Pimpri Chinchwad Municipal Corporation and Ors. v. Gayatri Construction Co. & Ors.[ (2008) 8 SCC 172] and held that:
“It is well settled that availability of an alternative remedy does not prohibit the High Court from entertaining a writ petition in an appropriate case. The High Court may entertain a writ petition, notwithstanding the availability of an alternative remedy, particularly (1) where the writ petition seeks enforcement of a fundamental right; (ii) where there is failure of principles of natural justice or (iii) where the impugned orders or proceedings are wholly without jurisdiction or (iv) the vires of an Act is under challenge”.
K S&CO Comment:
This judgment is good news for litigants, as the rights of parties will not be not be precluded merely because there exists an arbitration clause in an agreement.
Bombay High Court sets aside the arbitration award in BCCI v. DCHL
The Bombay High Court set aside an arbitral award that directed the Board for Control of Cricket in India (“BCCI”) to pay around Rs. 4800 crores to Deccan Chronicle Holdings Ltd. (“DCHL”), the owner of Indian Premier League (“IPL”) team Deccan Chargers for illegally terminating them from the IPL.
In 2020, DCHL filed a petition and the Court appointed a sole arbitrator to decide the dispute. The arbitral award was passed in favor of DCHL and the arbitral tribunal directed BCCI to pay a total compensation of Rs. 4814.67 crores with 10% interest from 2012 in addition to costs. BCCI went on to challenge the arbitral award before the Bombay High Court and the court set aside the same while observing that, “the award proceeded in places without reasons, in others by ignoring evidence, in yet others by wandering far afield from the contract, and in taking views that were not even possible”.
K S&Co Comment:
This judgment emphasizes the importance of following due process in arbitration proceedings and the importance of the underlying contract itself.
Delhi High Court grants anti-enforcement injunction in Interdigital Technology Corporation & Ors. v. Xiaomi Corporation & Ors. [I.A. 8772/2020 in CS(COMM) 295/2020]
The Delhi High Court granted an anti-anti-suit injunction or an anti-enforcement injunction in the Interdigital v. Xiaomi case and held that a foreign court cannot restrain a party from pursuing its cause before an Indian Court when Indian Court is the only forum competent to adjudicate the claim.
On 9th June, 2020 the defendants had filed an SEP royalty rate-setting suit before the Wuhan Court, to fix a global FRAND royalty rate. The defendants also filed an anti-suit injunction application before the Wuhan Court for a restraint, against the plaintiffs, from prosecuting the present suit before this Court.
In response to the order of the Wuhan Court, dated 23rd September, 2020 which granted the anti-injunction application, the plaintiff’s sought an injunction, against the defendants, from enforcing, against them, the aforesaid directions issued by the Wuhan Court.
The Court while granting an anti-enforcement injunction observed that the Wuhan Court had failed to consider that the cause of action arose in India. Thus, the Court ruled that if the Wuhan Court enforces the anti-injunction order against the plaintiff, then the defendants must compensate the plaintiffs by depositing an amount of Rs. 1 crore per day.
K S&CO Comments:
This judgement is India’s first anti-enforcement injunction granted by the Delhi High Court. Such anti-enforcement injunctions and anti-suit injunctions pave the way for new issues of contradictory judgements being passed by different national Courts.
Airports Authority of India v. Bentwood Seating System (P) Ltd. [O.M.P. (COMM) 262/2019 & IA No. 4517/2021]
The Delhi High Court, in this case, set aside an award passed by the arbitral tribunal regarding disputes that arose relating to a purchase order made by the petitioner for the supply of stainless steel passenger baggage trolleys by the Bentwood Seating System Private Ltd (“BSS”).
Airport Authority of India (AAI) terminated the purchase order due to delay caused in supply of the goods. Upon which, BSS invoked the arbitration clause. The Arbitral tribunal directed the specific performance of the contract.
However, the Delhi High Court set aside this award on the grounds that the tribunal had failed to examine if the contract had been obtained by fraud or not. The Court reasoned that if such a disputed contract was obtained by fraud, then the award granting specific performances could not be passed.
K S&CO Comments:
It is extremely important that the underlying contract is examined before an arbitral tribunal passes its award, to avoid setting aside of the award at a later stage.
Banga Electronics Pvt. Ltd. v. Jagmohan Singh [ARB.P. 1/2019]
The Delhi High Court dismissed a petition for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”) for the reason that the sale agreement of immovable property, which contained the arbitration clause was in contravention of a stay order against the said property that was passed before the execution of this agreement.
Therefore, the Court held that the sale agreement is void and not enforceable and that an arbitrator cannot be appointed to enforce a void agreement.
Raghuvir Buildcon Pvt. Ltd. v. Ircon International Ltd. [ARB. A. (COMM.) 15/2021]
The Delhi High Court dismissed an appeal against an arbitral award under Section 37 (2) (a) of the Arbitration and Conciliation Act, 1996 (“the Act”) stating that the scope of judicial interference against interlocutory orders is far more circumscribed than the scope of interference against the final decision.
The Court observed that it would only be able to examine if the order passed by an arbitral tribunal if it is unconscionable in law or facts, or if there is any other illegality. The Court cannot “re-arbitrate” the application that has already been decided by the arbitrator.
The Court upheld the interlocutory order passed by the arbitrator in which he held that only those disputes were referred to him that had arisen on the date of reference by the Court and not other disputes that had arisen later or that fell within certain ‘excepted matters’.
K S&CO Comments:
This decision of the Delhi High Court is of significance as it discusses the power of Courts to intervene in orders of the arbitral tribunal, holding that appeals against interlocutory orders of arbitral tribunals is allowed only in limited circumstances.
Geo Chem Laboratories Pvt. Ltd. v. United India Insurance [ARB. P. 479/2020]
The Delhi High Court was presented with a petition for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”). However, the arbitration clause in the insurance contract entered into by the parties stipulated that no dispute shall be referred to arbitration if United India Insurance does not accept any liability or if it disputes such liability in respect of the insurance contract.
The respondents argued that they had not admitted any liability while the petitioners argued that there was deemed admission on behalf of the respondents as they did not expressly reject or deny such liability.
The Court observed that the respondent did not deny or dispute any liability and the petitioner cannot be remediless as they wait for the respondent to accept or admit such liability. Therefore, the Court admitted the petition and proceeded to appoint the arbitrator with the direction to the petitioner that if the respondent eventually repudiates the entire claim of the petitioner, then as per the arbitration clause and section 11 of the Act, such appointment of an arbitrator would be disallowed.
National Federation of Fishermen Cooperative Ltd. v. Union of India & Ors. [O.M.P.(I) 4/2021 and IA No. 5226/2021]
The Central Registrar of Cooperative Societies had passed several interim orders against the appellant, although, the complaint was referred to arbitration under Section 84 of the Multi States Cooperative Societies Act, 2002.
The Delhi High Court set aside such orders passed by the Central Registrar of Cooperative Societies reasoning that Section 84 empowers the Registrar to refer the parties to arbitration to resolve certain disputes and does not provide power to the Registrar to pass interim orders.
Further, the Arbitration and Conciliation Act, 1996 (“the Act”) provides the power to grant interim orders either to the Court under Section 9 or to the Arbitrator under Section 17 of the Act. Thus, the Court held that the Registrar had no power under the respective laws to pass any interim order against the parties.
K S&CO Comment:
In case of complaints referred to arbitration under the Multi States Cooperative Societies Act, 2002, the power to grant interim orders is only with Arbitrator or the court, and not the Registrar.
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