December 7, 2023

Arbitration News Letter - December 2023

Shaping India’s Legal Fabric

In the 90 years of his lifetime, Mr. D.C. Singhania was known to be a philanthropist, educator and most importantly a visionary. In these 65 years of legal practice, his vision and far sightedness helped the Indian Judiciary pronounce some landmark decisions that the legal fraternity still relies on. To celebrate his legal legacy, we have prepared a short summary of his top 4 landmark cases. 

Erusian Equipment & Chemicals Ltd v the State of West Bengal (1975) 1 SCC 70 being one of his first high-profile cases. The case dealt with Article 14, of the Constitution of India wherein he was representing the Petitioners Erusian Equipment and was successful in getting a favorable order for his client. This case was pivotal in ensuring that a ‘right of opportunity to be heard’ was given to the concerned person before putting them on the black list. Mr. Singhania also represented Singer in the landmark case of NTPC v Singer (1992) AIR 1993 SC 998 where after a hard-fought battle and post getting a favorable order before the single and division benches of the Hon’ble Delhi High Court in 1992, the Hon’ble Supreme Court passed a decision against Mr. Singhania’s client Singer. The ratio of the judgment tells us that drafting of the arbitration clause is extremely significant. The best solution would be to mention three separate schemes of laws in the arbitration agreement i.e., law governing the main contract, law governing the arbitration agreement, and the choice of seat of the arbitration. Henceforth, such criticism of the decision gave rise to the present-day Arbitration and Conciliation Act 1996 which has strengthened the cause of Arbitration in India.

Mr. Singhania’s contribution to these landmark cases and as part of the Arbitration committee has not only championed the cause and success of arbitration in India but has also shaped the present day Arbitration landscape which is being lauded for its pro-arbitration approach.

 

COSID, Inc. (U.S.) v. Steel Authority of India, Ltd. (India) [1985] 11 Y.B. Comm. Arb. 502 (1986)

Date of Judgement: 12 July 1985

Principle of Law: Foreign award cannot be enforced if the matter involves violation of the Indian law under the public policy doctrine of India.

Referred in:

  1.   Cottonex Anstalt vs. Comilla Spinning Mills Ltd [26 BLC (2021) 276]

Facts– Steel Authority of India, Ltd. (SAIL) (defendant), a firm  partially owned by the Indian government, exchanged letters with COSID, Inc. and agreed to sell steel sheet coils to COSID.

  • The sale agreement’s terms and conditions stated that any disputes would be arbitrated by the International Chamber of Commerce (ICC) in London, England.
  • A disagreement emerged regarding the delivery of the coils, and COSID sought arbitration at ICC in London. The ICC arbitration ended in a victory for COSID.
  • COSID approached the High Court of Justice of England and Wales, for the award to be enforced as a judgment. COSID’s plea for an order of enforceability was granted by the Supreme Court.
  • COSID subsequently filed a case in the Delhi High Court to enforce the English award Foreign Awards (Recognition and Enforcement) Act, 1961 .
  • SAIL filed an objection petition and contended that the award could not be recognized and executed in India because an order establishing the award’s enforceability had already been given by an English court. Resultantly, SAIL contended, the award was absorbed into the English judgment and was no longer actionable.

 Issues:

  1. The primary issue in this case was whether the arbitrator’s award (Foreign Award) is unenforceable for the reasons and objections stated in the objection petition filed by SAIL?

Held: The Delhi High Court in the context of the 1961 Act, held that contravention of export policy contravenes the public policy of India. Wadhwa J. concluded that he could interfere with the findings of the arbitrator unless a specific question had been referred to him and answered. 

He also held that enforcement of the award would be against public policy principally for two reasons: one, because under its Articles of Association, SAIL was bound by the directive/order of the Government and, two, the Government’s decision to ban the export was given the acute shortage of HR Coils existing in the country at that time.

Therefore, the arbitrator’s award could not be recognized and executed in India.

 

 

Marwar Tent Factory Vs. Union of India (UOI) and Ors.  [MANU/SC/0354/1989]

Date of Judgement: 09th November, 1989

Principle of Law- Non-fulfillment of contractual obligations allows the   injured party to claim interest on the unpaid amount, even if not expressly demanded in the notice served.

Referred in:

  1. Maharashtra State Power Generation Company Ltd. and Ors. vs. Mahanadi Coalfields Ltd. and Ors. (24.03.2017 – CCI): MANU/CO/0028/2017
  2. Star Paper Mills Limited vs. State of U.P. (07.01.2014 – ALLAHABAD HC): MANU/UP/1889/2014
  3. Vijai Shree Pvt. Ltd. vs. Union of India and Ors. (07.09.2021 – CALHC): MANU/WB/0589/2021

And many more cases….

Facts:

  • In March 1986, M/S Marwar Tent Factory, a Jodhpur-based supplier to India’s defense services, won a tender to produce 19,100 tents.
  • When 224 tents were allegedly missing from a 1500-tent cargo sent C.O.D., Kanpur  (Central Ordnance Depot), a controversy erupted.
  • Despite receiving 95% payment, Rs. 51,912 was withheld for the missing tents, causing the appellant to file a lawsuit. The trial court awarded Rs. 2,475 plus interest for 11 confessed shortfalls.
  • The main issue is the transfer of property and risk from the seller to the buyer. The trial court ruled that F.O.R. Jodhpur did not shift risk until delivery in Kanpur, which the High Court upheld.
  • The appellant sought Special Leave, emphasizing the importance of wrong interpretation of the F.O.R. Jodhpur  in settling the dispute.

Issues: 

  1. . Whether the seller is entitled to get the full payment of the goods sold with an interest rate charged on the same?
  2. . Whether the buyer had breached the contract?

Held:

  • The Supreme Court in the case of Marwar Tent Factory v. Union of India (1989) observed that an award of interest to a seller on an amount of price not paid by the buyer within a reasonable time cannot be denied merely because in the notice served under Section 80 of the Code of Civil Procedure (CPC), the seller had not claimed interest.
  • The Court held that, on the facts, the seller is entitled to a decree of interest at a rate of 6 percent per annum on the unpaid price from the date of delivery of goods.
  • The Buyer had breached the contract in the current case and henceforth, was required to pay the unpaid price with an extra  interest charge. 

 

 

National Thermal Power Corp v. Singer Company and ors, 23 May 1990

Date of Judgement: 23rd May, 1990

Principle of Law- The law governing the main contract will govern the arbitration agreement and determine the seat of arbitration. The court applied the ‘closest and most intimate connection test’ in determining the supremacy jurisdiction of the Indian courts. 

 Glossary of legal terminologies: 

  • Lex arbitri- The lex arbitri is the law chosen by the parties to govern arbitral procedure, or the procedural law governing the conduct of the arbitration. For example,  the rules of arbitral institutions.
  • Lex Fori- Lex fori is Latin for the laws of a forum and is a legal term used in the conflict of laws to refer to the laws of the jurisdiction in which a legal action is brought. For example,  in a legal dispute between two parties in India, the ‘lex fori’ would be the law of India, rather than the law of a foreign country.
  • Lex Contractus- “Law of the contract.” The choice of law designated in an agreement. For example, if a contract is signed in New York but performed in California, the lex contractus is California law. 

  

 FACTS:

  • National Thermal Power Corporation (NTPC) entered in two contracts with the respondent Singer Company (“Singer”) for the supply of equipment and commissioning of certain works in India, the General Terms and Conditions of which provided for arbitration under the auspices of the International Chamber of Commerce (“ICC”).
  •     The General Terms and Conditions expressly stated that the contract was governed by Indian law. A dispute arose which was referred to arbitration under the ICC Rules.
  •     As the parties had not agreed to a seat for the arbitral tribunal, the ICC Court decided that the arbitration would have its seat in London.

HELD:

  • ·      An interim award was rendered which NTPC sought to set aside in India, relying on Sections 14, 30 and 33 of the Indian Arbitration Act 1940 (the “1940 Act”), a statute which applied to domestic awards.
  • ·      The High Court of Delhi rejected NTPC’s argument, holding that the law governing the arbitration agreement was the law of the seat of the arbitral tribunal and, consequently, that no challenge could be mounted against the award on the basis of the 1940 Act.

THIS WAS REVERSED IN-

National Thermal Power Corp v. Singer Company and ors, [1992 (1992) 3 SCC 551].

Date of judgment: 07th May, 1992

Referred in:

  1.     IMAX Corporation vs. E-City Entertainment (I) Pvt. Ltd. (10.03.2017 – SC): MANU/SC/0263/2017
  2.   Union of India (UOI) vs. Hardy Exploration and Production (India) Inc. (01.05.2018 – SC): MANU/SC/0488/2018
  3.   Bharat Aluminium Company and Ors. vs. Kaiser Aluminium Technical Service, Inc. and Ors. (06.09.2012 – SC): MANU/SC/0722/2012

        And in many more cases.

Supreme Court Held:

The judgment in NTPC v. Singer in essence held:

    • The ICC Court concluded that the arbitration will be held in London because the parties had not agreed on a venue  for the conduction of the arbitration.
    • An interim award was issued, which NTPC sought to have overturned in India, citing Sections 14, 30, and 33 of the Indian Arbitration Act 1940 (the “1940 Act”), which applied to domestic awards.
    • The Supreme Court granted the appeal, ruling that because the award was domestic, Indian courts had authority to overturn it.
    • The Court determined that Section 9 of the 1961 Act plainly stated that a judgment issued in a foreign state might be enforced as a domestic award if the arbitration 
    • Here, the parties intended for Indian law to govern the agreement and the mere fact that the award was given in London was not enough to supersede the overriding jurisdiction and control of Indian courts.agreement was controlled by the law of the enforcing state.
  1.   The Court observed – “It was in Delhi that the agreement was executed. The  form of the agreement is closely related to the system of law in India. Various Indian enactments are specifically mentioned in the agreement as applicable to it in many respects. The contract is to be performed in India with the aid of Indian workmen whose conditions of service are regulated by Indian laws. One of the parties to the contract is a public sector undertaking. The contract has in every respect the closest and most real connection with the Indian system of law and it is by that law that the parties have expressly evinced their intention to be bound in all respects.”
  2.   The court applied the ‘closest and most intimate connection’ test to the entire contract or in other words to the dispute, in determining the supervisory jurisdiction of the courts. [Emphasis supplied by the author].
  3.   The Court held that parties have expressly chosen Indian law and the exclusive jurisdiction of the courts in Delhi, therefore the substantive law was Indian and the arbitral award could not be a foreign award.
  4.   The Court also held that where lex arbitri was not expressly chosen by parties, the same would follow lex contractus, particularly if the arbitration agreement was embodied in the main contract.
  5.   The Court impliedly gave primacy to lex contractus over lex fori.

The court held that where parties have not agreed to the law governing the arbitration agreement and the seat of arbitration.

Erusian Equipment & Chemicals Ltd vs State Of West Bengal & Anr (1975 AIR 266)

Date of Judgement – 11th November 1974 

Principle of law – Every person has the right to be given an opportunity to be heard before being black listed by the Government.

Referred in –

  1.   Arpit Associates vs. BEML Limited and Ors. (20.09.2023 – CGHC): MANU/CG/1631/2023
  2.   Airport Authority of India and Ors. vs. Saptagiri Restaurant Pvt. Ltd. (13.10.2023 – JKHC): MANU/JK/1202/2023
  3.   L. Rama Siva Reddy vs. The Government of Andhra Pradesh and Ors. (04.08.2022 – APHC): MANU/AP/2167/2022

        And in several cases.

Facts –

  • The Petitioners were engaged in the business of exporting cinchona products, their tender to supply the State Government was accepted.
  • However, their final offer was rejected by the State Government even though their offer was the highest.
  • The Petitioners came to know the reason they were rejected was because they were put on the black list by the Government, merely because the Government received some information that they were indulging in malpractices.
  • Such act of black listing someone without being given any notice to be heard was challenged firstly by way of a Writ Petition in the Kolkata High Court and further appealed in the Supreme Court.

Issue- Whether one is entitled to a notice ‘to be heard’ before being put on the black list? 

     Held –

  • The Supreme Court relied on Article 14 of the Constitution of India and held that equality of opportunity should apply to matters of public contract, further highlighted that when one enters into the domain of trading and business it is still bound by the procedural fairness of Article 14 of the Constitution of India, and the government has duty to act in an unbiased manner.
  • Activities carried out by the Government contain a public element in them, and therefore it is expected that the government should act fairly, duty to act fairly is a vital part of the rules of natural justice.
  • The Supreme Court held that the fundamentals of fair play require that the person should be given an opportunity to be heard before putting them on the black list and hence directed the Government of West Bengal to hear the concerned persons before they are blacklisted.

 

 

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