India Challenges the Cairn Arbitration Award

May 5, 2021

Arbitration Newsletter- March & April 2021

India Challenges the Cairn Arbitration Award

On December 21, 2020, the International Arbitral Tribunal in the case of Cairn Energy PLC and Cairn UK Holdings Limited v. The Republic of India, held that India had breached its obligations to Cairn under the 1994 UK-India Bilateral Investment Treaty, and awarded damages of US$1.2billion plus interest and costs, to Cairn.

India filed an appeal against the Cairn Energy arbitration verdict in a Dutch court challenging the $1.2-billion award.

Law of limitation on filing a petition under S. 34 of the Arbitration and Conciliation Act, 1996, now settled

In the case of Dakshin Haryana Bijli Vitran Nigam Ltd. v. M/s. Navigant Technologies Pvt. Ltd. (Civil Appeal No. 791of 2021), the question before the Court was regarding whether the period of limitation for filing the petition under S. 34 would commence from the date on which the draft award was circulated to the parties or the date on which the signed copy of the award was received by the parties.

The court held that there is a notable distinction between delivery of Arbitral Award and making of an award. As per Section 34(3) of the Act, it specifically provided that the strict timeline of 3 months was from the date of “receipt” of Award. Therefore, computation of limitation will commence from the date of receipt of Award by party.

Arbitration & Conciliation (Amendment) Act 2021 notified by government

The Act replaces the Ordinance that was promulgated in November, 2020, with similar provisions.

It has the effect of unconditionally staying the enforcement of the award passed on the basis of the arbitration agreement, induced by fraud or corruption.

It also seeks to omit the Eighth Schedule of the act which lays down qualifications for accreditation of Arbitrators in a move to make India a hub of global arbitration.

Setting aside appointment of Arbitrator

The Delhi High Court, in the case of Oyo Hotels & Homes Pvt. Ltd. v. Rajan Tewari & Anr., held that the Court has the power to set aside the appointment of an arbitrator, under Section 11 (6) of the Arbitration and Conciliation Act, if the appointment is ex-facie contrary to the arbitration clause, and thus is non est in law.

The Delhi High Court has held that an Emergency Arbitrator is an Arbitrator for all intents and purposes of the Arbitration and Conciliation Act

In the case of AMAZON.COM NV INVESTMENT HOLDINGS LLC v. FUTURE COUPONS PRIVATE LIMITED & ORS., a petition was filed under Section 17(2) of the Arbitration and Conciliation Act, 1996 read with Order XXXIX Rule 2A and Section 151 of Code of Civil Procedure for enforcement of the interim order dated 25th October, 2020 passed by the Emergency Arbitrator.

The respondents raised a legal objection to the maintainability of this enforcement petition on the ground that the Emergency Arbitrator is not an Arbitrator within the meaning of Section 2(1)(d) of the Arbitration and Conciliation Act; the interim order dated 25th October, 2020 is not an order under Section 17(1) and, therefore, not enforceable under Section 17(2) of the Arbitration and Conciliation Act.

Justice JR Midha held that from the conjoint reading of Sections 2(1)(d), 2(6), 2(8), 19(2) of the Arbitration and Conciliation Act and the Rules of SIAC which are part of the arbitration agreement by virtue of Section 2(8), it is of the view that the Emergency Arbitrator is an Arbitrator for all intents and purposes. The Court held that Section 2(1)(d) is wide enough to include an Emergency Arbitrator.

M/s Inox Renewables Ltd v. Jayesh Electricals Ltd.

A purchase order was entered into between M/s Gujarat Fluorochemicals Ltd. [“GFL”] and Jayesh Electricals Ltd. for the manufacture and supply of power transformers at wind farms. The contract had an arbitration clause, which stated that the venue of arbitration would be Jaipur.

GFL then sold its entire business to Inox Renewables Ltd. The business transfer agreement designated Vadodara as the seat of the arbitration between the parties, vesting the courts at Vadodara with exclusive jurisdiction qua disputes arising out of the agreement.

Disputes arose, and the Gujarat High Court was approached to appoint an arbitrator. With the mutual consent of both parties, the venue of Arbitration was agreed to be Ahmedabad. Pursuant to which, the arbitrator passed an award in favour of the Respondents i.e. Jayesh Electricals.

On appeal to the Commercial Court at Ahmedabad by Inox Renewables Ltd., the Court held that based on the business transfer agreement, the courts of Vadodara alone had jurisdiction. On further appeal to the Gujarat High Court, it affirmed the findings of the Ahmedabad Court, in so far as it did not have jurisdiction. However, the HC held that it was the court at Jaipur which had jurisdiction, and not the Vadodara Court.

An appeal from this decision was preferred to the Supreme Court. The Court held that when parties change the venue or place of arbitration by mutual agreement, the new venue or place of arbitration will become the “seat of arbitration”.

SC holds: Sole proprietorship will fall under international commercial arbitration if the proprietor is a habitual resident of a foreign country, notwithstanding that the proprietary concern is carrying on business through a business office in India

In the case of Amway India v. Ravindranath Rao and another., the Supreme Court set aside the order of Delhi High Court where it was held that since the central management and control of this association or body of individuals is exercised only in India under Section 2(1)(f)(iii), the dispute is not an international commercial arbitration, as a result of which the High Court has jurisdiction under Section 11(6) to appoint an arbitrator.

The SC while holding that the Delhi High Court had no jurisdiction to appoint an arbitrator in the facts of this case, laid down the following:

“Indeed, an analysis of Section 2(1)(f) would show that whatever be the transaction between the parties, if it happens to be entered into between persons, at least one of whom is either a foreign national, or habitually resident in, any country other than India; or by a body corporate which is incorporated in any country other than India; or by the Government of a foreign country, the arbitration becomes an international commercial arbitration notwithstanding the fact that the individual, body corporate, or government of a foreign country referred to in Section 2(1)(f) carry on business in India through a business office in India.”

Indus Biotech Private Limited v. Kotak India Venture (Offshore) Fund (earlier known as Kotak India Venture Limited) & Ors

In this case, the Appellant had filed a petition under Section 7 of IBC before the NCLT seeking appointment of Resolution Professional. The respondents filed a Miscellaneous Application under Section 8 of the Act, 1996 seeking a direction to refer the parties to arbitration. The NCLT allowed the said application and also dismissed the petition under Section 7 IBC observing that there is no default. In response to this, the Appellants filed an SLP challenging the order.

The Supreme Court held that, ‘in any proceeding which is pending before the Adjudicating Authority under Section 7 of IB Code, if such petition is admitted upon the Adjudicating Authority recording the satisfaction with regard to the default and the debt being due from the corporate debtor, any application under Section 8 of the Act, 1996 made thereafter will not be maintainable. In a situation where the petition under Section 7 of IB Code is yet to be admitted and, in such proceedings, if an application under Section 8 of the Act, 1996 is filed, the Adjudicating Authority is duty bound to first decide the application under Section 7 of the IB Code by recording a satisfaction with regard to there being default or not, even if the application under Section 8 of Act, 1996 is kept along for consideration.’

Naresh Kanayalal Rajwani & Ors. v. M/s Kotak Mahindra Bank Ltd. & Anr

The Petitioners filed an Arbitration Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (for short the “Arbitration Act”) challenging the Award passed by a sole arbitrator. The respondent argued that the Court does not have jurisdiction to entertain the petition filed under Section 34 of the Arbitration Act, as per Section 42 of the Arbitration Act, 1996 (the Act) at subsequent stages of proceedings, after initially submitting to litigation.

The Bombay High Court while deciding the matter held that it is now well settled that when an objection to the territorial jurisdiction of a Court is not taken by a party, he is deemed to have waived it and cannot raise that issue/objection in subsequent proceedings.

**SC: Order refusing to condone the delay under Section 34(3) of the Arbitration and Conciliation Act, 1996 is appealable under Section 37 of the Act.**

In the case of Chintels India Ltd v. Bhayana Builders Pvt Ltd, the petitioner approached the Delhi High Court to set aside an award under Section 34 of the Act. The single judge of the HC dismissed the petition as although the petition was filed within the prescribed time limit in the proviso of section 34 (3), the application for condonation of delay was filed after the period of 120 days.

The question before the Supreme Court was whether the order refusing to condone an appellant’s delay in filing an application under Section 34 is appealable under Section 37. The Supreme court answered in the affirmative.

Arbitration Newsletter- March & April 2021