This article highlights 30 notable judgments passed by the Indian Courts on arbitration law from January to June 2023.
Whether the non-signatory defendants be referred to arbitration under Section 8 of the A&C Act?
The Karnataka High Court held that non-signatory defendants cannot be compelled to participate in arbitration under Section 8 of the A&C Act. The Court stated that if there is an arbitration agreement between the plaintiff and one defendant, but the remaining defendants are not party to that agreement, the Court will not entertain an application under Section 8. In cases where the cause of action cannot be bifurcated, dividing the proceedings to allow arbitration for some defendants and a suit for others would lead to multiple proceedings, delays, increased costs, and conflicting judgments. Therefore, the only viable option in such situations is to proceed with the lawsuit against all defendants.
Whether a Third-Party Funder can be made liable for payment of Adverse Award?
The Delhi High Court held that a funder cannot be held responsible for an arbitral award and thus is not obligated to provide security for its enforcement. It further emphasized that the funder should not be subjected to liability for something it neither assumed nor had knowledge of. The Court held that a third-party funder, that is, a non-signatory to arbitration agreement, who is not a party to the arbitral proceedings or the award, cannot be held liable for the awarded amount merely because it has funded a party in arbitral proceedings.
Whether an arbitration agreement contained in an unstamped agreement can be acted upon?
The Supreme Court ruled that an unstamped instrument without the required stamp duty is not legally enforceable. If such an instrument with an arbitration clause is presented in a Section 11 petition under the A&C Act, the Court must seize it. Only after impounding the instrument, ensuring payment of stamp duty, and obtaining the endorsement under Section 42 of the Stamp Act can the Court proceed with the petition. Without proper stamping, the arbitration agreement within the unstamped instrument has no legal validity.
Referring to Sections 2(h) and 2(g) of the Contract Act and Sections 33 and 35 of the Stamp Act, the Court concluded that an unstamped agreement lacks legal enforceability and cannot be used as evidence in court or before a public authority. Until properly stamped in accordance with the Stamp Act, an agreement without the necessary stamp or insufficient stamping is considered void and non-existent in legal terms.
Whether the illegality of the appointment procedure would make the entire arbitration clause invalid?
The Bombay High Court held that the illegality of the appointment procedure does not invalidate the entire arbitration agreement. If an arbitration clause is partially invalid, the Court can remove the illegal portion while preserving the valid portion if the intention to arbitrate is clear.
Whether negotiations between the parties would postpone for cause of action for the purpose of limitation?
The Supreme Court held that the three-year limitation period for filing a Section 11 application starts from the date the cause of action initially arose. Subsequent negotiations between the parties will not delay the cause of action for the purpose of calculating the limitation period.
In situations where parties engage in serious negotiations to amicably settle the dispute, the Court must determine the “breaking point” when such efforts would have been abandoned. However, to calculate the limitation period, the entire history of negotiation must be presented and recorded for the Court to determine the “breaking point.”
Whether the period of limitation for invoking arbitration can be restricted to a period lesser than that provided under the Limitation Act?
The Delhi High Court held that the period of limitation for invoking arbitration cannot be restricted to a lesser period than the one provided under the Limitation Act. It further held that any agreement/clause between the parties providing for a lesser limitation period would be hit by Section 28(2) of the Indian Contract Act, and would therefore be invalid.
Whether a High Court is competent to review an order passed under section 11 of the Act?
The Calcutta High Court held that the power to review is a not an inherent power but rather has to be established by a statute. The Court held that the Arbitration & Conciliation Act, 1996 is a complete code which means that power to entertain a review petition has not been conferred upon the High Court under Section 11 or under any other provision of the Act. Furthermore, the review petition before the High Court is not maintainable under Section 11 of the Arbitration & Conciliation Act, given that the grounds for review under Order XLVII Rule 1 of the Civil Procedure Code, 1908 do not stand fulfilled in the instant case.
Whether an insurance dispute would be referred to arbitration when the insurer dispute liability qua one of the claims and not the entire liability?
The Delhi High Court held that since one of the heads of the claim is disputed, the dispute as to quantum to be paid under the policy is arbitrable.
Whether the provisions of Special Economic Zones Act would override the provisions of A&C Act?
The Telangana High Court held that arbitration conducted under Section 42 of the Special Economic Zones Act, 2005 prevails over a contractual arbitration clause. The Court emphasized that the Special Economic Zones Act, 2005 is distinct and holds superior authority under Sections 42 and 51. Section 42 establishes a statutory arbitration process where the Central Government appoints the arbitrator. Consequently, this provision supersedes the Arbitration and Conciliation Act, making an application under Section 11 of the Act not maintainable.
Whether the issue of accord and satisfaction be determined under Section 11 of the A&C Act?
The Calcutta High Court held that the scope of inquiry under Section 11 of the A&C Act is limited to the prima facie examination of the existence of the arbitration and the determination of the issue of ‘actual accord and full satisfaction was reached’ falls outside such scope.
Whether the participation in the arbitral proceeding can be considered to be the waiver of Section 12(5) of the A&C Act?
The Delhi High Court has determined that mere participation in arbitration proceedings does not amount to a waiver of the provisions of Section 12(5), which pertains to the disqualification of an arbitrator. The Court held that the application of Section 12(5) can only be waived through an explicit agreement and not through the parties' conduct alone including the participation in the arbitral proceedings.
Whether the mandate of the arbitrator can be terminated if the grounds of bias falls outside the VII Schedule?
The Delhi High Court held that an arbitrator can only be removed based on de jure ineligibility under Section 14(1)(a) if their appointment falls within the specific grounds mentioned in the VII Schedule. The Court further held that the mandate of an arbitrator cannot be terminated on the grounds of bias and prejudice unless the criteria outlined in Schedule VII are met, as those specific grounds are the sole circumstances that establish an arbitrator's de jure ineligibility to serve as an arbitrator.
Whether all unilateral appointments of arbitrator per se invalid?
The Calcutta High Court held that an arbitrator does not simply become ineligible to continue with the arbitration proceeding because he was appointed by one of the parties to the dispute unless his appointment is hit by any of the grounds mentioned under the Seventh Schedule. The court also noted that the petitioners continued to participate in the arbitration despite having knowledge of the curable invalidity of the arbitration agreement.
Whether the ‘Venue’ would become the ‘Seat’ of Arbitration when exclusive jurisdiction is conferred on a Court in different place?
The High Court held that when an agreement grants exclusive jurisdiction to a different court, the venue of arbitration does not automatically become the seat of arbitration. The Court observed that the inclusion of a clause granting exclusive jurisdiction to a court located in a different place than the designated venue of arbitration constitutes a 'Contrary Indicia' that prevents the venue of arbitration from being recognized as the seat.
Whether the location of the Facilitation Council under the MSMED Act would seat of arbitration when the contract confers jurisdiction on a different court?
The Delhi High Court held that when parties have assigned exclusive jurisdiction to a court in a different location, the Facilitation Council’s location under Section 18 of the MSMED Act, 2006 does not become the seat of arbitration but merely serves as the venue. The Court clarified that the provisions of the MSMED Act only impact the procedure for establishing the Arbitral Tribunal and do not supersede the parties’ agreement to grant exclusive jurisdiction to a specific court.
Whether the period of 12 months under Section 29A of the A&C Act is also applicable to International Commercial Arbitration?
The Supreme Court held that the time limit of 12 months provided under Section 29A for making an award is only applicable to domestic arbitrations and does not apply to International Commercial Arbitrations. The Court further held that in terms of the proviso to Section 29A(1), the 12 months for making an award from the date of completion of pleadings is not a mandatory requirement.
Whether the order of the tribunal rejecting an application for impleadment constitutes an ‘interim award’?
According to the Delhi High Court, the decision of the Arbitral Tribunal to reject an application for the impleadment of parties in the arbitral proceedings does not qualify as an “interim award” under the A&C Act. This is because such a decision does not address any substantive legal issue or delve into the merits of the case, more so when the party sought to be impleaded was neither a proper nor the necessary party.
Whether the delivery of the award to the employee/agent of a party constitute a valid deliver under the A&C Act?
The Delhi High Court has ruled that for the delivery of an arbitral award to be considered effective under the Arbitration and Conciliation Act, 1996 (A&C Act), it must be provided to an individual with direct knowledge of the arbitral proceedings. The Court held that the term "party" mentioned in Section 34(3) of the A&C Act specifically refers to a participant involved in the arbitral proceedings and does not encompass an agent representing the party.
The Telangana High Court held that an arbitral tribunal cannot recall an order terminating arbitral proceedings due to non-payment of tribunal fees. Once the termination order is issued, the tribunal lacks the authority to reverse it as it becomes functus officio. The Court emphasized that the proviso to Section 38(2) grants the tribunal the power to terminate proceedings if parties fail to pay their fees and costs. Furthermore, Section 32(2)(c) empowers the tribunal to terminate proceedings if their continuation is unnecessary or impossible.
Whether the arbitrator can fix separate fees for claim and counter-claims contrary to the agreement between the parties?
The High Court of Delhi held that though ONGC v. Afcons (2022) established that the term “sum in dispute” in the Fourth Schedule should be assessed separately for the claim and counter-claim, however, the same was made subject to any agreement between the parties to the contrary. The Court held that an arbitrator cannot demand separate fees for claims and counter-claims contrary to the express understanding of the parties.
Whether the delay in delivering the award after it has been reserved makes it susceptible to challenge under Section 34 of the Act?
The Delhi High Court recently ruled that a significant and unexplained delay of 18 months in delivering an arbitral award after the conclusion of the hearing can lead to a challenge under Section 34(2)(b)(ii) of the Act based on conflict with India’s public policy. The Court stated that such delays undermine the effectiveness of arbitration as a speedy dispute resolution mechanism. The longer the delay, the more it impacts the quality of the award due to fading memories of the arbitrator.
Whether the provisions regarding appointment and disqualifications of arbitrator are also applicable to retired judges?
In a recent ruling, the Madras High Court has determined that the disqualification provisions outlined in the Seventh Schedule of the Arbitration and Conciliation Act apply to all individuals, including retired judges. The Court emphasized that these provisions, pertaining to ineligibility and disqualification, are obligatory and cannot be waived or overlooked.
Whether the invalidity of the Board Resolution authorizing a person to initiate arbitration is a curable defect?
The Bombay High Court held that the necessity of a board resolution granting authorization for an individual to initiate legal action on behalf of a company is a procedural requirement. Therefore, any deficiency in such a resolution would be considered a procedural irregularity and cannot be permitted to undermine the substantive rights of a party and the tribunal would be within its power to allow the party to cure the defect and mere deficiency/defect in such authorization is not a ground to reject the claims of a party.
Whether power under Section 34(4) of the A&C Act can be exercised to consider new material evidence?
The Delhi High Court held that Section 34(4) of the A&C Act cannot be used to allow an arbitral tribunal to reconsider previously overlooked material evidence. The Court clarified that this provision only permits addressing gaps in reasoning or other curable defects. The Court determined that the failure to consider material evidence is not considered a curable defect and therefore does not fall within the scope of Section 34(4). Allowing the tribunal to consider new evidence could potentially alter the outcome, which exceeds the tribunal’s powers as it cannot reverse its decision. The Court emphasized that reconsidering overlooked evidence would be akin to a remand, which is prohibited by law.
Whether a matter can be remitted back to the arbitrator under Section 34(4) after an award is already set aside under Section 34 of the Act?
The Telangana High Court held that once a decision is rendered in a Section 34 application, the Court does not possess the authority to refer the matter back to the Arbitrator while exercising its powers under Section 37 of the Act. The Court observed that the option for the matter to be referred back to the Arbitrator under Section 34(4), is accessible only upon the submission of a written application by one of the parties and not suo-motu. Consequently, once a decision has been reached in a Section 34 application, the question of remitting the matter to the Arbitrator does not arise.
Whether a no-claim certificate in pre-printed form and a pre-condition to the release of payment indicates coercion?
The Delhi High Court ruled that a no-claim certificate is considered to be given under coercion if it is provided in a pre-printed form and serves as a prerequisite for the release of payment under the final bill. The Court held that the dispute between the parties cannot be considered settled through accord and satisfaction solely based on the contractor's submission of a no-claim certificate, particularly when the employer routinely demands all contractors to furnish a pre-printed no-claim certificate as a mandatory requirement for payment release under the final bill.
Whether an order for the enforcement of an award passed by unilaterally appointed arbitrator be refused when it was not set aside under Section 34 of the Act?
The Calcutta High Court held that an arbitration award issued by a unilaterally appointed arbitrator is considered non-existent (“non-est”) and cannot be enforced under Section 36 of the A&C Act, even if it has not been set aside under Section 34. The Court clarified that the executing court lacks the power to interfere with the award but can declare a “unilateral appointment award” legally invalid, treating it as null and void. It can direct the parties to readdress their dispute before an unbiased and impartial arbitral tribunal, as an award from a tribunal lacking inherent jurisdiction is not valid.
Whether the arbitration award is enforceable against the members of the Joint Venture who were not, in their individual capacity, parties to arbitration?
The Delhi High Court held that in a joint venture (JV), all members share joint and several liability towards third parties. The Court stated that a JV is a quasi-partnership, where entities collaborate for mutual profit. While arrangements between JV parties may establish distinct rights and obligations, they do not affect a third party’s right to take legal action against any individual member, including enforcing an award. The Court also determined that all JV members are bound by the outcome of an arbitral award, without the need to include them as separate parties in arbitration proceedings.
Whether the objections provided under Section 47 of CPC can be considered in an enforcement petition under Section 36 of the A&C Act?
The Court clarified that arbitration awards can only be challenged under Section 34 of the Act, with limited grounds for challenge as specified in Section 34(2). The Act does not permit dual challenges, meaning that an award cannot be contested on its merits during enforcement proceedings.
Whether a Consent Foreign Award is enforceable under Part-II (New York Convention) of the A&C Act?
The Delhi High Court held that a Foreign Arbitration Award based on a settlement between parties is enforceable under Part-II of the A&C Act. The Court stated that the New York Convention does not define the term “Award” and does not explicitly exclude a Consent Foreign Award from its scope. It held that the Convention does not prohibit parties from reaching a settlement during arbitration proceedings or the arbitrator from issuing an award based on such settlement.
Tariq Khan is the Registrar of the International Arbitration & Mediation Centre.