Recent Judgements Affecting the Arbitration Regime

The Madras High Court in 2016 held that mere designation of seat by parties does not oust the jurisdiction of other courts. However within few days, the Apex Court overruled the Madras High Court judgment stating that when parties have agreed to ‘venue’ of arbitration no other court will have jurisdiction. With this background, we are delighted to share our newsletter on arbitration covering the recent judgements affecting the arbitration regime of India.

When Arbitration Agreement provides for ‘venue’ of arbitration, jurisdiction of all other courts can be excluded: SC

The Supreme Court in the case of Brahmani River Pillets Limited v. Kamachi Industries Limited Appeal No. 5850 Of 2019 held that the Madras High Court cannot exercise jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996 where the agreement contains the clause that “venue of arbitration shall be Bhubaneswar”. In this case Brahmani River Pillets ltd (Appellant) entered into an agreement for the sale of 40,000 WMT Iron Ore Pillets with the Kamachi Industries LTD (Respondents) and the payment was to be made by a letter of’ credit in Bhubaneswar . The clause 18 of arbitration agreement stated that the venue of Arbitration shall be in Bhubaneswar .The dispute arose regarding price and payment terms. The Respondent invoked arbitration clause in Madras High Court under Section 11(6) of the Act. The Madras High Court appointed arbitrator and the appellant argued on the ground that parties have agreed Arbitration to be in Bhubaneswar. The Madras High Court held that mere designation of seat by parties does not oust the jurisdiction of other courts. The Supreme Court held that when the parties have agreed to have the “venue” of arbitration at Bhubaneswar, the Madras High Court erred in assuming the jurisdiction under Section 11(6) of the Act. Since only Orissa High Court will have the jurisdiction to entertain the petition filed under Section 11(6) of the Act.

Our Comments:

The fundamental error committed by the Supreme Court was not appreciating the well settled distinction between “seat” and “venue” of arbitration which was recognised in Indus Mobile Case. In the present case, there appears to have been nothing in the facts of the arbitration agreement which would imply that reference to venue ought to be construed as exclusive jurisdiction clause. Hence the said judgement appears to be inadvertent to the larger bench decision in Hardy Exploration case. In our opinion, the parties while drafting the arbitration clause in the agreement should clearly mention the seat of the arbitration.

National Highway Act will prevail over Arbitration and Conciliation Act: SC

The Supreme Court in the case of National Highway Authority of India v. Sayedabad Tea Estate Civil Appeal No. 69656966 OF 2009 decided on 27th August, 2019 held that an application under Section 11 of the Arbitration and Conciliation Act, 1996 (Act 1996) for appointment of an arbitrator in relation to disputes with National Highway Authority of India (NHAI) is not maintainable in view of Section 3G(5) of the National Highway Act, 1956(Act 1956) which provides for such appointed by Central Government. In this case, the Appellant (NHAI) acquired land in Sayedabad Tea Estate for the purpose construction of the Highways. The Act 1956 provides for acquisition and determination of compensation by the competent authority in accordance with Section 3G(5) of the Act 1956. If the amount so determined by the competent authority is not acceptable to either of the parties the amount shall on the application by either of the parties, be determined by the Arbitrator appointed by Central Government. The Respondent being unsatisfied with the award of compensation filed application for appointment of an Arbitrator in terms of Section 3G(5) to the Central Government(CG). The CG did not respond to request, application was filed to Chief Justice for appointment of Arbitrator invoking Section 11(6). The CG then appointed an Arbitrator as per Section 3G(5) of 1956 Act after the appointment of sole arbitrator under Section 11(6) of 1996 Act. In Appeal to SC, the Court held that the expression ‘subject to’ clearly indicates that the legislation intended to give overriding effect to the provisions of the Act, 1956 where it relates to disputes pertaining to determination of amount of compensation, but the appointment is to be made by CG. Therefore the SC held that Section 11 has no application in the present case.

Our Comments:

The essential element to file Section 11 petition for appointment of Arbitrator is absence of parties’ agreement to the appointment procedure or their inability to comply with the agreed procedure to appoint the arbitrator. In this case, the parties chose the appointment procedure as the National Highway Act, 1956 was part of the Agreement and therefore the Court was correct in arriving at such conclusion.

No extension of time if the right is waived by the Parties: SC

The Supreme Court in the case of Jayesh Pandya & Anr v. Subhtex India Ltd & Ors Appeal No. 6300 OF 2009 held that the Appellants have waived their right to the extension of time for the completion of arbitration proceedings, beyond the stipulated period of 4 months. In this case the appellants are partners of a partnership firm by the name of Hetali Construction Company and the Respondent is a company incorporated under Companies Act, 1956. The first Respondent Subhtex India Ltd instituted an application under Section 11 of Arbitration and Conciliation Act, 1996 according to the arbitration agreement dated 28th April, 2000 the Arbitrator was appointed by order dated 14th Nov, 2003. The Arbitrator was under an obligation to make his award within a period of 4 months from the date of service of copy of agreement and would have power to extend the period by consent of the parties. The Appellants had rejected to consent for the extension of time. In Appeal the Supreme Court held that the Arbitrator became de jure unable to perform his functions after the completion of time prescribed in arbitration agreement as it was not extended by the consent of parties and the mandate to act as an Arbitrator in the arbitration proceedings between parties stood terminated.

Our Comments:

This judgment highlights the importance of the agreed time limits between the Parties for completion of arbitral proceedings and also that Arbitrators should follow the time specified for completion of arbitral proceedings.

Arbitrator fees agreed between parties will prevail over the Fourth Schedule: SC

The Supreme Court in the case of National Highway Authority Of India (Appellant) v. Gayatri Jhansi Roadways (Respondent) Civil Appeal No.5383 OF 2019 with Gammon Engineers and Contractors v. National Highway Authority of India Civil Appeal No. 5384 of 2019 held that the Section 31(8) and 31A of Arbitration and Conciliation Act does not prevent parties from agreeing on a fee structure for the arbitrators. In this case the Appellant entered into a contract on 7th Feb, 2016 with the Respondent. The Contract contained an arbitration clause that fixed fees should be paid to the arbitrators under the policy circular issued by National Highway Authority. The tribunal considered the application and held that the fees shall be fixed as per Fourth Schedule proposed by the amendment act. The Delhi High Court in Gayatri Jhansi case held that arbitrator fees must be fixed in accordance with Fourth Schedule, irrespective of an agreement fixed by the parties. The Delhi High Court in Gammon Engineers case differed with the findings of Gayatri Jhansi Judgement and held that deletion of words ‘unless otherwise agreed by the parties in Section 31A only signifies that parties, by an agreement cannot contract out of payment of ‘cost’. Thus the Delhi High Court held that Amendment act does not take away earlier position under the Arbitration and Conciliation Act and parties are free to agree on the fees of the arbitrator. The Supreme Court upheld the Gammon High Court Judgment on Section 31(8) and 31A and set aside Gayatri Jhansi High Court Judgment.

Our Comments:

The Judgment of the Court is appreciated as the Fourth Schedule of the Act is not mandatory but only suggestive in nature. Also, the mandate of the Arbitrator cannot be terminated if the arbitrator disregards the agreement between the parties.

Foreign awards need not be stamped: Delhi High Court

The Delhi High Court in the case of Glencore International AG v. Indian Potash Limited (Ipl) and Anr EX.P.99/2015 ruled that foreign awards need not be stamped. In this case Glencore executed an agreement with IPL. As per this agreement, IPL was required to deliver 40,000 Wet Metric Tonnes (WMT) iron ore. One of the conditions incorporated in the Contract was that the iron ore should have iron content equivalent to at least 61 percent, if iron content was below 60 percent, Glencore was to reject the cargo in terms of the penalty specifications obtaining in Schedule 1 of the contract obtaining between the parties. IPL objected that the awards which include the Final Award and the Cost Award are not stamped also since the awards are unstamped they would have to be impounded and that enforcement proceedings could be commenced only after they are stamped. The Supreme Court in M/s Shriram EPC Limited v. Rioglass Solar SA, passed in Civil Appeal No. 9515/2018, has already ruled that foreign awards are not required to be stamped under the Stamp Act. The Delhi High in the present ongoing case ruled that “foreign seated arbitration need not be to stamped under Indian Stamp Act”.

Our Comments:

The Judgement of the Court is appreciated as in India we have different rates for stamp duty, it would be well impossible for the enforcer to pay stamp duty in every State before seeking enforcement of a foreign award. Therefore, Stamping is not a pre -requisite for enforceability of foreign awards in India.