The imposition of lockdown has significantly impacted the dispute resolution procedures. Arbitration is considered as more flexible dispute resolution procedure and hence the arbitral institutions across the globe have been operating and have issued guidelines with regard to virtual hearing and electronic filing of documents. In the domestic front, the Supreme Court extended the limitation periods under the Arbitration & Conciliation Act, 1996 (“A & C Act”) through its order dated May 06, 2020. There are various judgments which have been passed by the Hon’ble Apex Court and the High Courts. We have covered some of the important judgments in this newsletter.
Delhi HC: Deposit of 75% of the awarded amount as a precondition to appeal under the MSMED Act is not a requisite for non-statutory arbitrations
The Delhi High Court in the case of AVR Enterprises v. Union of India, CM(M) 769/2018 with CM APPL. 27219/2018, decided on 8th May, 2020 held that Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”), which contains a provision for pre deposit of 75% of the award, as a precondition to appeal the award, would apply only to proceedings initiated under section 18 of the MSMED Act and would not apply to an award published by an Arbitrator appointed by the parties otherwise than in accordance with MSMED Act.
In the present case, the parties entered into a contract for procuring Cover Waterproof. A dispute arose with regard to supplies and it was referred to arbitration. The award was made in favor of the Petitioners reducing the quantum of Liquidated Damages which was challenged by the Respondent under Section 34 of the A & C Act. The Trial Court passed an order in favor of the Respondents which was further challenged by the petitioners in the Delhi High Court arguing that the petition by the Respondent was liable to be dismissed because they had not deposited 75% of the awarded amount as stipulated under Section 19 of the MSMED Act.
The Hon’ble Court observed that there would have been no need to provide for the expression ‘made either by Council or by any Institution or Centre providing alternate dispute resolution services to which reference has been made by the Council’, if provisions of Section 19 of the MSMED act were to be applied to every decree, award or other order irrespective of the fact the same was made by the Council or a private Arbitrator. Hence, the Court found no merit in the Petition and upheld the decision of the Trial Court.
Our Comments/Views
The judgment holds significant value in terms of limiting the applicability of the statutory arbitrations. The view of the Court regarding the non-applicability of the MSMED Act in case of those arbitrations which have not proceeded as per the Act is important and highlights that statutory arbitration provisions will only apply in case the procedure prescribed under the statute is followed.
SC: No objection can be raised, if it has been waived by the party
On 29th April 2020, the Supreme Court in Quippo Construction Equipment v. Janardhan Nirman, Civil Appeal No.2378 Of 2020 ruled that when a party chooses not to participate in the arbitration proceedings and fails to register its objections before the arbitrator, such party may later be barred from raising objections after an arbitral award has been passed. It also observed that the specification of “place of arbitration” may have special significance in case of International Commercial Arbitration and not in Domestic Arbitrations.
The present case involved four agreements containing arbitration clauses between two parties, of which three agreements designated New Delhi as the place of arbitration, whereas one agreement stated Kolkata as the place of arbitration. The arbitration was to be administered by the Construction Industry Arbitration Association (CIAA). When disputes arose between the two parties, a sole arbitrator was appointed to conduct arbitration proceedings in New Delhi. Denying the existence of any agreement between them, the respondent filed a suit in the Sealdah Court, Kolkata seeking an injunction against the appellant from proceeding with arbitration. On resumption of the arbitral proceedings, despite adequate notice and opportunities provided, the respondent failed to appear and present its case before the arbitrator. The arbitral proceedings continued without the participation of the respondent, and an ex parte award was passed accepting the appellant’s claims. Notably, this was a common award covering the claims in respect of all four agreements between the two parties.Initially, the Calcutta HC declined to intervene in the matter, and dismissed a challenge preferred by the respondent to the common award on the contention that on what basis can the plea could be moved before it. A subsequent plea was moved by the respondent before the District Court in Alipore, contending that one of the four agreements designated Kolkata as the venue of arbitration. This plea was eventually dismissed stating that this court had no jurisdiction for the same, which was further challenged before the Calcutta HC. In February 2019, the Calcutta High Court gave a ruling favorable to the respondent, leading the appellant to challenge the same before the Supreme Court. The Supreme Court, considering the facts that the respondent failed to participate in the proceedings before the Arbitrator and did not raise any submission that the Arbitrator did not have jurisdiction or that he was exceeding the scope of his authority, observed that the respondent has waived the right to all such objections. Furthermore, the case at hand involved domestic arbitration with almost identical arbitral mechanisms, and therefore Supreme Court remarked that the specification of a ‘place of arbitration’ may have special significance in an International Commercial Arbitration, where the place of arbitration may determine which curial law would apply. However, in a domestic arbitration, the applicable substantive and curial law would be the same. It was held that the respondent had, by its conduct, waived all objections to the venue of arbitration and consolidation of disputes.
Our Comment/views
The decision rightly emphasis on the importance to participate in an arbitration proceeding, and any objection should be raised before the arbitrator. To an extent, it can be agreed that the concept of place of arbitration is not as important in domestic arbitration as in International arbitration, however it is essential to determine which court in the domestic sphere, will have the supervisory jurisdiction.
SC: Execution of an arbitral award can be only to the extent what has been awarded
The Supreme Court in the case of Firm Rajasthan Udyog & Ors. vs Hindustan Engineering & Industries ltd., Civil Appeal No. 2376 Of 2020, held that the Award passed was merely for the determination of the price of the land and was thus not executable independently. What was thus executable was the agreement, and not the Award. The order passed by the Court for execution of the sale deed in terms of the Award, is outside the realm of law, as the Award did not state the transfer of land in favour of the respondent, but only determined the price of land.Appellant firm is the owner of 249.60 Bighas (approximately 100 acres) of land. Dispute relates to the said land which was the subject matter of acquisition and by a notification, the acquisition was given in the benefit of the respondent. The Appellant challenged the same by a Special Leave Petition. During the pendency of the said Special Leave Petitions, an agreement was arrived at between the parties, that about 145 bighas would be sold to the respondent Company, subject to the fixation of price of land, construction etc. to be finalized through Arbitration and the matter of determination of price of the land would be decided by the sole Arbitrator. An award was thus passed fixing price of 145 Bighas of land, which would be payable for the land to be sold to the respondent. The respondent filed an application for execution of the Award with Additional District Judge which was allowed on 05.01.1985 and then again challenged by the appellants vide Civil Revision Petition and subsequently the Respondent Company filed for specific performance which was withdrawn thereafter. In 2016, the Rajasthan HC upheld the order of ADJ, Bharatpur. Aggrieved by the said judgment, the present appeal was been filed by way of Special Leave Petition. The only question which arise for determination before the SC was as to whether the reference to the Arbitrator, in terms of the Agreement, was merely for fixation of price of land to be sold by the appellant to the respondent in terms of the agreement, and if that be so, could a direction to execute the sale deed have been issued, even though the Civil Suit seeking specific performance of Agreement filed by the respondent was unconditionally withdrawn by the respondent. The Supreme Court held that the Award passed in present case was merely for the declaration of the price of the land, which would be subject to the agreement and it was not necessary for the respondent to get the sale deed executed at the price so determined by the Arbitrator. It was held that it is thus clear that execution of an award can be only to the extent what has been awarded/decreed and not beyond the same. Furthermore, the Court held that once the respondent had given up its claim of execution of sale deed in terms of his agreement by withdrawing the suit for specific performance, the appellant had abandoned its claim for execution of the sale deed. It is also noteworthy that neither the Agreement nor the Award had been registered under the Registration Act, 1908 and that the impact of non-registration would result in non-execution of such Award. Accordingly, the impugned judgment upholding the order of the Additional District Judge was quashed, and the appeal was allowed by the SC.
Our Comments/Views
The arbitration is the creation of the contract, and therefore the court should look into what kind of disputes has been referred to arbitrator under the agreement. The Court rightly held that execution is only possible to an extent which the award has been passed.
SC: A foreign award is unenforceable if it opposes the “fundamental policy of Indian law and basic principles of justice”
The Supreme Court in the case of National Agricultural Cooperative Marketing Federation of India v. Alimenta S.A, Civil Appeal No.667 of 2012, decided on 22nd April, 2020 refused to enforce a Federation of Oil, Seeds and Fats Associations Ltd. (‘FOSFA’) award, holding it to be against the fundamental policy of Indian Law and the basic principles of justice. During 1979-80, NAFED, a canalizing agency for the Government of India and Alimenta had entered into a 5,000-ton Indian groundnut supply deal. The State agency required the Government’s express consent for any sale to be carried forward from the previous years. The transaction was governed by a ‘Prohibition Clause’ contained in the Agreement, whereby in case of prohibition of export by executive order or by law, the agreement would stand cancelled. Dispute arose due to short supply by NAFED on account of cyclone in India. The balance supply was agreed to be supplied in another season next year, by way of an addendum. But NAFED got no permission to carry forward the exports to another season since the price of the commodity had escalated thrice than the prevailing price within one year. NAFED informed Alimenta. This was taken as notice of default by Alimenta, who later filed arbitration proceedings before FOSFA London. The invocation of arbitration by Alimenta was challenged by NAFED before the Delhi High Court, which ultimately held that the 1st agreement would be governed by arbitration and there was no arbitration agreement in the 2nd Agreement. This view was upheld by the Supreme Court in 1987. Subsequently, the award was rendered by the tribunal against NAFED on 15 November 1989 who unsuccessfully filed an appeal before the Board of Appeal. The Board of Appeal passed its award in 1990 thereby escalating NAFED’s issues by increasing the award amount and the interest. Consequently, Alimenta moved to the HC to enforce the award under Sections 5 and 6 of the Foreign Awards Act, 1961. NAFED objected to the award on the ground that it was contrary to public policy and, thus, was unenforceable. The award was held enforceable by the High Court and after several rounds of litigation, the dispute finally reached the Supreme Court in furtherance to an appeal filed by NAFED. In a notable ruling, the Supreme Court held that the award is ex facie illegal and in contravention of fundamental policy of Indian law and basic principles of justice, and without permission of the Government no export was permissible. The export without permission would have violated the law, thus, enforcement of such award would have been violative of the public policy of India. Our Comment/views The enforcement of foreign award can be rejected only on few limited grounds. The violation of Export Control order of the government does not amount to violation of fundamental policy of law. The reading of various cases brings the understanding that mere contravention of law would not attract the bar of fundamental policy of Indian law.
Bombay HC: Partial final award can be subsumed within the expression “arbitral award” depending on the facts of the case
The Bombay High Court in the case of Aero Club vs Solar Creations Pvt. Ltd., Appeal (Ld.). No. 63 of 2020, decided on 20th March, 2020, held that the partial final award passed on 5th June 2015 had subsumed within the expression “arbitral award” under section 2(1)(c) of the A & C Act and the bar of limitation contained in section 34(3) of the said Act will be attracted and the challenge to it will have to be rejected.In the present case, the dispute between the parties pertains to two franchisee agreements. The Arbitrator passed a partial final award covering all issues which arise for consideration, other than the final calculation and quantification of the amounts awarded (if any) to either party together with interest thereon on the 5th June, 2015 and the final award was passed on 14th December, 2015. Aggrieved by both the awards, the petitions for the same were preferred under section 34 of the said Act, which was decided by a common judgment and order dated 21st January 2020. Two appeals were filed under Section 37 of the A & C Act challenging the common judgment and order dated 21st January, 2020 which stated that the challenge to it is barred by time prescribed under Section 34(3) of the said Act. The appeal was filed on the ground that the mere declaration of rights and liabilities without its enforceability is not enough to call such an order partial final award so as to attract the bar under sub-section (3) of section 34 of the said Act. The court upheld the judgment stating that the predominant test to treat an interim award/partial final award as an arbitral award under Section 2(1)(c) of the said Act was fulfilled in the above case. Furthermore, it is not that every order, decision or adjudication terminating the arbitral proceedings under Section 32 of the said Act can be called as an award. The arbitrator will become functus officio after passing of an interim award in respect of the subject matter of such award made and to that extent only. Moreover, there is no case made out for interference in its appellate jurisdiction in a challenge to the final award passed on 14th December 2015 and therefore the appeals stand dismissed.
Our Comment/views
The partial award may amount to the final award depending upon the facts and circumstances of the case. The Bombay HC correctly applied the test and ruled that the partial award can be considered as the final award in the facts and circumstances of the present case.
Gujarat HC: Challenge by way of a Writ petition not admissible for any order passed by the Arbitral Tribunal during Arbitration proceedings
The Gujarat High Court in the case GTPL Hathway ltd v. Strategic Marketing Pvt ltd., Special Civil Application No. 4524 of 2019, decided on 20th April, 2020, held that an order during arbitration proceedings by the Arbitral Tribunal cannot by challenged under Articles 226 and 227 of the Constitution of India as the A & C Act, 1996 is a special and a self-contained code dealing with arbitration In the present case, a contract was executed in 2014 between the two parties for establishing a Customer care center. During an inspection checking, it was found that the respondent has manipulated its software program and by such manipulation the respondent used to claim and raise false invoices. The petitioner on further enquiry came to know that two of its employees conspired with the respondent and committed fraud. A criminal complaint was filed against the respondent for offences punishable under sections 408, 409, 120B, 34 of the Indian Penal Code and sections 65 and 66(D) of IT Act, 2008. The petitioner continued to avail the services of customer care centre for approximately six weeks from the date of inspection. The respondent issued notice for invoking arbitration clause and thereafter filed petition under section 11 of the Arbitration Act for appointment of an arbitrator. The respondent thereafter filed his statement of claim and the petitioner filed his counter claim. The Arbitral tribunal by its order in 2018 directed to take on record the preliminary statement defense and counter claim and observed that it would be open for the petitioner to amend the same in accordance with law. After hearing the parties, the Arbitral Tribunal by an order in 2019 dismissed the preliminary objection application filed by the petitioner. Being aggrieved by the said order, on the grounds that the arbitrator did not consider the disputes between the parties, the petitioner has preferred the present petition. While relying on the judgments of the Apex Court, the Hon’ble High Court of Gujarat dismissed the present petition without entering into merits of the matter, only on the ground that the order passed during arbitration proceedings cannot be challenged under Articles 226 and/or 227 of the constitution of India as the 1996 Act is a special act and a self-contained code dealing with arbitration. Moreover, if the challenge of the party to the arbitrator fails then the arbitrator will proceed with the arbitration proceedings and the party aggrieved has to wait till the passing of the award and there after, the validity of the award can be challenged by the aggrieved party only by invoking the provisions of Section 34 of the Act. Furthermore, it would be open for both the sides to raise all the contentions on merits before the appropriate forum in appropriate proceeding at appropriate time in accordance with law.
Our Comments/Views
The main objective of the Act being that of minimizing judicial intervention was kept in mind while passing the judgment and therefore the judgment passed was in accordance with the policy and object of the Arbitration Act, 1996. Arbitration Act, being a special act, was given due consideration while forming the judgment.
