March 9, 2022

Dispute Resolution News Letter- Jan - Feb 2021

UHL Power Company Ltd. Vs. State of Himachal Pradesh

Facts of the case:

A sole arbitrator had awarded a sum of Rupees 26,08,89,107.35/- in favour of UHL Power Company Ltd. (“UHL”) towards expenses claimed along with pre-claim interest capitalized annually, on the expenses so incurred in the year 2005. Compound interest was awarded in favour of UHL as well at the rate of 9% per annum till the date of claim. Further, future interest was also to be awarded at the rate of 18% per annum on the principal claim with interest in case the awarded amount was not realized within a period of six months from the date of the same.

The single judge disallowed the entire claim of UHL when the State of Himachal Pradesh (“State of H.P.”) filed a petition under Section 34 of the Arbitration and Conciliation Act of 1996 (“Arbitration Act”) as they were not satisfied with the above award. A petition was then filed by UHL under section 37 of the Arbitration Act wherein the Division Bench of the High Court of Himachal Pradesh awarded a sum of Rupees 9,10,26,558.74/- in favour of UHL along with simple interest but refused the payment of compound interest. Both the parties UHL and State of H.P. chose to appeal before the Supreme Court as they were aggrieved.

Issues:

Whether interest can be awarded on post-award interest?

Held:

The three judge bench of Chief Justice of India N.V. Ramana, Justice Hima Kohli and Justice A.S. Bopanna noted that the post-award interest can be granted by an arbitrator on the interest amount awarded. The apex Court relied on Hyder Consulting (UK) Ltd. VS. Governor, State of Orissa through Chief Engineer ((2015) 2 SCC 189) (“Hyder Consulting”) to support the same.

Likewise, the findings of the appellate court was quashed and set aside wherein it was decided the arbitral tribunal was not empowered to grant compound interest or interest upon interest and only simple interest can be awarded in favour of UHL on the principal amount claimed.

K S &CO Comments:

The findings of the apex court have come in line with the catena of judgements passed erstwhile on the same subject of post award interest. In lieu of the judgement, parties may want to incorporate a clause in the agreement to provide clarity on the issue of arbitrator’s power to grant post award interest in order to avoid unnecessary litigation. The judgement is welcome as it encourages the payment of the award to the award holder and incase of a delay in the payment, fairly compensates the award holder. 

Haryana Tourism Limited Vs. Kandhari Beverages Limited

Facts of the case:

Haryana Tourism Limited (HTL) had invited tenders/quotations for the supply of Aerated Cold Drinks at its Tourist Complexes and the tender submitted by Kandhari Beverages was accepted. HTL later terminated the contract after disputes arose between the parties and the matter was referred to the sole arbitrator.

The arbitrator dismissed the counter claims filed by Khandari Beverages and directed them to pay Rs 9.5 lakh. Kandhari Beverages, thereafter, filed an objection petition at Additional District Judge, Chandigarh under Section 34 of the Arbitration and Conciliation Act 1996 against the award passed by the arbitrator.

The Additional District Judge dismissed the appeal/objection petition filed by Khandari Beverages after which they filed an appeal before the high court under Section 37 of the Arbitration Act. The appeal was allowed and the Punjab and Haryana High Court heard  the matter on its merits and thereby quashed and set aside the award passed by the arbitrator as well as the order passed by Additional District Judge, Chandigarh.

Aggrieved by the same, HTL preferred an appeal before the Apex court against the impugned order of the Punjab and Haryana High Court.

Issues:

Whether the High Court can enter into the merits of a case in an appeal under section 37 the Arbitration Act?

Held:

The apex court opined that the Punjab and Haryana high court had erred by exercising the jurisdiction not vested in it under Section 37 of the Arbitration Act. For the same reason, the impugned judgment and order passed by the High Court was quashed and set aside. The award passed by the arbitrator and the order passed by the Additional District Judge under Section 34 of the Arbitration Act overruling the objections was restored. The court reasoned that an award can be set aside only if the award is against the public policy of India.

K S&CO Comments:

It is pertinent to note that this ruling aims to restore the object of Arbitration. The alternate dispute resolution forum came into existence to lessen the burden on the courts and not to have the courts carry an additional baggage of cases which are already referred to arbitration. Once the arbitration commences, the courts should exercise absolute restrain from adjudicating the dispute on merits.

In this case, the Supreme Court observed that the High Court has entered into the merits of the claims of the appellant. This is impermissible and the courts can’t penetrate into the claims of the parties and consider them on merits while exercising its power under section 37 of the Arbitration Act. However, the court also listed out the exceptions under which the arbitrator’s award can be quashed under Sections 34 and 37 of Arbitration Act.

The court opined that an award can only be set aside, if the award is found to be contrary to,

  1. The fundamental policy of Indian Law; or
  2. The interest of India; or
  3. Justice or morality; or
  4. If it is patently illegal.

I-PAY Clearing Services Pvt. Ltd. vs ICICI Bank Ltd

Facts of the case:

I-Pay (the Appellant) had entered into an agreement with the ICICI Bank Limited (the Respondent) to develop various software application packages to manage Smart Card-based loyalty programs. However, because ICICI bank abruptly terminated the Service Provider Agreement, I-Pay claimed damages of Rs.95 crores against ICICI bank on account of loss incurred in business. The matter was referred for arbitration.

The Sole Arbitrator framed five points for determination out of which, the first point of determination was, “Whether the contract was illegally and abruptly terminated by the Respondent?”. Accordingly, the Arbitrator passed an award in November 2017, directing the ICICI, interalia, to pay I-Pay an amount of Rs.50,00,00,000 (Rupees Fifty Crores) together with interest.  Aggrieved by the award, ICICI applied under Section 34(1) of the Arbitration and Conciliation Act 1996 for setting it aside on the ground that the arbitrator has awarded Rs.50, 00, 00,000/- to I-Pay without recording any finding on Point No.1. ICICI also contended that the contractual obligations between the parties were closed mutually and amicably as there was accord and satisfaction between the parties.

In the arbitration petition filed by ICICI bank before the High Court, I-Pay filed a Notice of Motion under Section 34(4) of the Arbitration Act, for adjourning the proceedings for three months and directing the Arbitrator to issue additional reasons in support of the award. The High Court, while dismissing the I-Pay’s motion, held that unless and until a finding is recorded on point no.1 first, the Arbitrator could not have proceeded to record findings on the claims made by the IPay, and as such, the defect in the award is not curable under Section 34(4) of the Arbitration Act. Aggrieved by the same, IPay preferred an appeal in the Supreme Court.

Issue:

Whether the contract was illegally and abruptly terminated by the respondent? Is remission under Section 34(4) of the Arbitration Act permissible when it comes to curing patent illegalities?

Held:

The SC held that when it is the specific case of ICICI bank that there are no findings at all, on “whether the contract was illegally and abruptly terminated by the respondent?” Remission under Section 34(4) of the Arbitration Act, is not permissible. It further held that, Section 34(4) of the Arbitration Act, can be resorted to record reasons on the finding already given in the award or to fill up the gaps in the reasoning of the award.

The SC dismissed the appeal holding that on the plea of ‘accord and satisfaction’ on further consideration of evidence, which was ignored earlier, even if the arbitral tribunal wanted to consciously hold that there was ‘accord and satisfaction’ between the parties, it cannot do so by altering the award itself, which he had already passed.

K S&CO Comments:

This judgment provides helpful guidance to the Courts as to under what circumstances an application under Section 34(4) of the Arbitration and Conciliation Act 1996 can be entertained and allowed. It also lays down the relevant considerations which a court dealing with the application under Section 34(4) must consider. The Court has rightly agreed to ICICI bank’s contention that since the Arbitrator had passed the award by ignoring essential and relevant evidence on record, it suffers from unreasonableness and patent illegality, which cannot be cured on remittal under Section 34(4) of the Act by the Arbitrator.

The decision harmoniously construes Section 31, 34(1), 34(2A) and 34(4) of the Arbitration Act. Accordingly, it holds that in appropriate cases, on the request made by a party, the Court can allow the arbitrator to resume the arbitral proceedings for giving reasons or filling up the gaps in the reasoning in support of a finding, which is already available rendered in the award. But at the same time, the Court also cautions that when it prima facie appears that there is patent illegality in the award itself—by not recording a finding on a contentious issue—in such cases, the Court may not accede to the request of a party for allowing the Arbitral Tribunal to resume the arbitral proceedings.

In Future Coupons Pvt. Ltd. V. Amazon.Com NV Investment Holding

Facts of the case:

Amazon entered into an agreement with Future Coupon Private Limited (FCPL), wherein the former intended to acquire a 49% stake in FCPL. Later, FCPL entered into a Shareholder Agreement with Future Retail Limited (FRL). FRL decided to sell, retail businesses and assets to Reliance, which was contrary to the provisions of the Agreement. Aggrieved by this sale transaction, Amazon approached the Singapore International Arbitration Centre (SIAC) for emergency relief by invoking the provisions for emergency arbitration. The Emergency Arbitrator put the Future-Reliance deal on hold. Amazon filed a Section 17(2) application for the enforcement of this award before the Delhi High Court wherein, ld. Single Judge passed a short (First impugned order) and subsequently a detailed order (Second impugned order) holding the award to be an order under Section 17(2) and slapped a cost of Rs. 20,00,000 on the Respondents.  SLPs were filed against these orders. FRL also filed an application under Para 10 of Schedule 1 of the SIAC Rules for vacating of the award. This application was dismissed and an appeal was filed before the Delhi High Court, wherein the High Court refused to grant any interim relief (Third impugned order). This was appealed by way of an SLP.

Issues:

  1. Whether the First and the Second impugned order passed by the ld. Single Judge of the Delhi Court are valid in law?
  2. Whether the Third impugned order passed by the ld. Single Judge is valid in law?

Held:

The Court set aside the first and the second impugned order due to a lack of an opportunity granted to FCPL and FRL to file a reply and the non-adherence to the principles of natural justice. The third impugned order was remitted back to the Single Judge for reconsideration due to the misconstruction of an order which in actuality imposed no bar on the High Court to adjudicate on the vacation application by the Single Judge.

K S&CO Comments:

The Supreme Court through this case has upheld Natural justice as an important facet of a judicial review. The catena of orders passed in these proceedings is widely celebrated since the concept of Emergency arbitration has been recognised by the Indian Courts under Article 17(2). This has drastically shortened the timeframe for obtaining interim reliefs and will aid in the speedy disposal of matters. This Judgment not only showcases the strict adherence of the Indian Courts to the principles of natural justice but also sets forth India’s pro-arbitration stance.

Mohammed Masroor Shaikh Vs. Bharat Bhushan Gupta & Ors.

Facts of the case:

The appellant approached the Supreme Court contending that the Bombay High Court did not issue and serve a notice of the petition which was filed under Section 11 of the Arbitration Act, 1996 and hence could not plead before the judge that the claim was barred by limitation and that there was no arbitration clause.

Issue:

Whether a court is right to refer a dispute to arbitration when contentions on non- arbitrability are arguable before it?

Held:

The apex Court held that while entertaining a case with a petition under section 11 of Arbitration Act, a Court would have a right to refer matters to arbitration even when contentions relating to non-arbitrability are arguable.

K S & Co Comments:

In the case on hand, the appeal was on the basis of challenging the appointment of an arbitrator by the High Court of Bombay alleging non-issuance and service of notice of the arbitration petition. This case could be considered as an example wherein it was held that a court would refer the matter to arbitration when contentions relating to non-arbitrability are arguable. The Hon’ble Supreme Court also referred to its decision in the case of Vidya Drolia And Others VS. Durga Trading Corporation ((2021) 2 SCC 1) while deciding the above case.

Arcelor Mittal Nipon Steel (India) Ltd. v Essar Bulk Trading

Facts of the case:

The parties had entered into a Cargo Handling Agreement for Hazira Port, Surat. Disputes arose between the parties and the Appellant invoked the Arbitration clause prevailing in the Agreement. The Appellant approached the High Court of Gujarat for appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act. Both the parties filed a Section 9 petition of the Act respectively before the Commercial Courts for interim reliefs. The Commercial Court heard both the applications and reserved the orders. The application filed by the appellant under Section 11(6) of the Arbitration and Conciliation Act was disposed of by appointment of a three-member arbitral tribunal. The appellant requested the Commercial Court to refer both the applications filed under Section 9 to the Arbitral Tribunal. The Commercial Court turned down this request. The Appellant challenged the order of the Commercial Courts in the High Court. The High Court dismissed the application filed holding that the Commercial Court had the power to consider whether the remedy under Section 17 was inefficacious and pass orders under Section 9 of the Arbitration Act. Aggrieved by the decision of the High Court, the appellant approached the Apex Court.

Issues:

  1. Whether the court has the power to entertain an application under Section 9(1) of the Act, once an arbitral tribunal has been constituted, and if so, what is the true meaning and purport of the expression ‘entertain’ in Section 9(3) of the Act.
  2. Whether the court is obliged to examine the efficacy of the remedy under Section 17 (Interim measures ordered by the arbitral tribunal) of the Act, before passing an order under Section 9(1) of the Act, once an arbitral tribunal is constituted.

Held:

The Apex Court held that the word ‘entertain’ under Section 9(3) of the Act means to consider by application of the mind. The court entertains a case when it takes a matter up for consideration. Bare perusal of Section 9(3) illustrates that once the arbitral tribunal is constituted, the court cannot take up an application under Section 9 of the Act, unless the remedy under Section 17 is inefficacious. The moment an application is entertained in the sense, it is taken up for consideration, and the court has applied its mind to it, the court can certainly proceed to adjudicate the application. The Apex Court accepted the respondent’s submission that the intent behind Section 9(3) was not to turn the clock back and require a matter already reserved for orders to be considered in entirety by the arbitral tribunal under Section 17 of the Arbitration Act. The Apex Court determined it could never have been the statutory objective that, even after a Section 9 application is eventually heard, relief must be denied, and the parties are remitted to their remedies under Section 17. The appeal was allowed only to the extent of clarifying that it shall not be necessary for the Commercial Court to consider the efficacy of relief under Section 17 since the Commercial Court had already entertained the application under Section 9.

K S & CO Comments:

This is a welcome elucidation of the Court as it grants discretion to the courts to refer the parties to the arbitral tribunal for interim protection while determining an interim application under Section 9 of the Act. Applications for interim reliefs need to be disposed of with urgency or else the entire purpose of an interim protection application becomes otiose. It would be in the best interests of justice if a court to continue adjudication of a Section 9 application without considering the efficacy of a Section 17 application.

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