The year 2021 has seen some important case law developments in arbitration law in India. Highlights of 40 important decisions delivered by the Indian Courts on Arbitration law from June, 2021 to December, 2021 are as follows:
Whether an arbitration clause that allows the arbitration proceeding to be abandoned at the will of one party would be valid in law?
(Judgment dated 24.11.2021 in FAO(OS) 40/2020)
The High Court of Delhi held that an arbitration agreement that confers unequal power on one party to unilaterally abandon the arbitration proceedings, would be invalid in law, as such an agreement would lack ‘mutuality’, which is an essential feature of an arbitration agreement. The court further held that an arbitration agreement which provides for arbitration of the claims of one party and providing for a remedy of court or any other for a for the claim of the other party would also be invalid in law as the same would not only result in splitting of the claims and cause of action but also in the multiplicity of proceedings and conflicting decisions on the same cause of action.
Whether a party can file a writ petition against an order referring the parties to arbitration under Section 8 of the Act?
(Judgment dated 09.11.2021 in CM(M) 1520/2018)
The High Court of Delhi held that a petition under Article 227 would not be maintainable against an order referring the parties to arbitration under Section 8. The court observed that no provision for appeal against an order allowing Section 8 application is there in the act, therefore, the legislative intent is clear in terms that if there is a valid arbitration agreement, the court must refer the parties to arbitration and all the issues related to existence and validity of the arbitration agreement must be raised before the tribunal.
Whether the embargo under Section 9(3) would apply to an application already ‘entertained’ by the court?
(Judgment dated 14.09.2021 in SLP(C) No. 13129/2021)
The Supreme Court held that the bar under Section 9(3) would be inoperative if the court has already entertained an application and taken it up for consideration. The purpose of Section 9(3) is not to turn back the clock and refer the already decided applications under Section 9(1) to the Tribunal for fresh consideration under Section 17.
What is the meaning that is to be ascribed to the term “constitution of the tribunal.”?
(Judgment dated 03.06.2021 in APO 29 of 2021)
The Calcutta High Court held that the constitution of the tribunal has to be given a wider interpretation so as to include assumption of jurisdiction by the arbitral tribunal after the arbitral proceedings have commenced in terms of Section 21 of the Arbitration Act, 1996.
Whether the court can determine the substantial issues while dealing with an application under Section 9 of the Act?
(Judgment dated 22.07.2021 in FAO(OS) (COMM) 63/2020)
The High Court of Delhi held the scope of Section 9 of the Act is to merely preserve the subject matter of dispute till the arbitral tribunal is constituted and the same cannot be extended to directing specific performance of the contract itself. The Substantive questions and issues relating to illegality of action, entitlement, liability, damages, etc. have to be left for the Tribunal to adjudicate upon.
Whether the right of a party to appoint an arbitrator gets forfeited in case it fails to appoint an arbitrator prior to the filing of the petition u/s 11 of the Act?
(Judgment dated 22.07.2021 in ARB.P. 327/2021)
Relying on Datar Switchgears v. Tata Finance Ltd., the Delhi High Court held that a party forfeits its right to make an appointment once the petition under section 11 is filed. Further, it held that the party cannot unilaterally make an appointment in view of the law laid down in Perkins Eastman.
Whether the right of a party to invoke arbitration can be restricted to a lesser period than provided under the limitation act?
(Judgment dated 06.10.2021 in ARB.P. 856/2021)
The High Court of Delhi held that a party cannot restrict the right of the other party to invoke arbitration to a lesser period than provided under the Arbitration Act. It held that the right of the party to invoke arbitration would be three years from the date when cause of action arises, the parties cannot circumscribe it to a lesser period through an agreement. The court relied on the judgment of the Supreme Court in National Insurance Co. v. Sujir Ganesh Nayak to hold that an agreement that restrict the period of limitation would be void under Section 28 of the Indian Contract Act. The court held that the right of the party to invoke arbitration would be three years from the date when cause of action arises, the parties cannot circumscribe it to a lesser period through an agreement.
Whether the Court while exercising the jurisdiction under Section 11 can determine if the arbitration agreement correlate with the dispute?
(Judgment dated 22.09.2021 in ARBITRATION PETITION (CIVIL) NO. 16 OF 2020)
The Supreme Court widened the scope of examination of the arbitration agreement at the pre-arbitral stage to hold that the Courts while appointing an arbitrator must not act mechanically and relegate the parties to arbitration, but must examine the arbitration agreement to ensure that the arbitration agreement must correlate to the dispute at hand and the courts can decline the reference if there is no correlation. The court observed that it would not be usurping the jurisdiction of the arbitrator, but would only be streamlining the process of arbitration.
(Judgment dated 06.12.2021 in ARB. P. 361/2020)
The High Court of Delhi declined to refer the parties to arbitration after coming to the conclusion that subject matter of the dispute is outside the scope of arbitration agreement. The Court relied on the judgments of the Supreme Court in Vidya Drolia to hold that limited scope of examination of arbitration agreement at pre-arbitral stage also includes an ex-facie view on the arbitrability of dispute and the court can decline to refer the parties to arbitration if it finds that the dispute does not correlate to the arbitration agreement.
Whether a party invoking arbitration can bifurcate its claims, choosing to refer some claims at one stage and others at a later stage?
(Judgment dated 12.10.2021 in ARB.P. 245/2020)
The High Court of Delhi held that a party invoking arbitration cannot bifurcate its claims, choosing to refer some claims at one stage and others at a later stage. A party must specify in the notice invoking arbitration all existing disputes. However, if the arbitration agreement does not mandate that all the claims are to be made in one go, then the parties are not barred from raising them in different proceedings.
Whether the Pre-Arbitral steps are mandatory in nature?
(Judgment dated 01.10.2021 in ARB.P. 408/2021)
The High Court of Delhi held that if the arbitration agreement mandates pre-arbitral conciliation, then the parties cannot circumvent the conciliation process and directly approach the court for appointment of an arbitrator. The parties must first make efforts to amicably resolve dispute through conciliation, and only after the efforts fail and no scope for conciliation remains, the court can directly appoint an arbitrator.
Whether the entire agreement between the parties to refer the dispute to arbitration will be void or non-existent in case the appointment mechanism is considered to be void?
The High Court of Delhi held that the arbitration agreement will not become void or non-est, merely because the process of appointment of arbitrator enshrined under the agreement has become invalid. The court held that such appointment procedure is only ancillary to the agreement and could be severed from the rest of the valid agreement, without affecting the rest of the agreement.
Whether the court can draw an interference against a party that chooses not to appear before the court in a Section 11 petition and appoint an arbitrator?
(Judgment dated 05.07.2021 in ARB.P. 241/2021)
The High Court of Delhi held that when the notice invoking arbitration made a categorical assertion that the arbitration agreement is valid and when both the notice invoking arbitration and the notice of the petition were duly served on the other party and it still choose to not appear before the court, the court can draw an interference that the other party has accepted the validity of the arbitration agreement.
Whether a party can approach the tribunal under a Special Statute in relation to an issue that has already raised before the arbitrator appointed by the High Court?
(Judgment dated 03.12.2021 in Civil Appeal No. 6768/2021)
The Supreme Court held that a party who participated in the arbitral proceedings and voluntarily raised an issue before the arbitrator appointed by the High Court, cannot re-agitate the same before a tribunal constituted under a special statute. The arbitral proceedings before the arbitrator appointed by the Court would not be non-est, after the participation of the parties without any demur or objection, the doctrine of ‘Issue Estoppel’ would apply and the party would be precluded from raising the same issue again.
Whether the panel of Arbitrators maintained by the Respondent will be hit by Section12 of the Act?
(Judgment dated 28.10.2021 in ARB.P. 813/2021)
Relying on the judgment in Central Organisation for Railway Electrification, the High Court of Delhi held that merely because the arbitrators on the panel are the ex-employees of one of the parties, it would not make them ineligible to be appointed as arbitrators to decide on the dispute. When the parties agreed on a procedure to appoint the arbitrators, the appointment shall be made in accordance with the agreed procedure only.
Whether the mandate of an officer of the department who is appointed as an Arbitrator owing to his designation, shall come to an end on his retirement?
(Judgment date 20.09.2021 in Civil Appeal No. 6797/2008)
The Supreme Court held that once a person with specific designation has been appointed as the arbitrator, he would not incur disqualification on the retirement of his service, unless the agreement provides otherwise or he incurs disqualification under the Act.
Whether the award passed by an Emergency Arbitrator is an award within the meaning of Section 17 of the Act?
(Judgment dated 06.08.2021 in Civil Appeal 4492-97 of 2021)
The Supreme Court reiterated that party autonomy is an inherent feature of the Arbitration Act. The parties are at liberty to choose Institutional Rules to get their dispute resolved which also includes the power of the Emergency Arbitrator to grant interim reliefs to the parties. An order passed by the Emergency Arbitrator would be an order within the meaning of Section 17(1), enforceable under Section 17(2). Further, it held that there lies no appeal under Section 37 against an order of enforcement under Section 17(2).
Whether the Arbitral Tribunal could conduct a comprehensive examination of the terms of the contract while adjudicating an application for interim measures under Section 17 of the Act?
(Judgment dated 08.11.2021 in ARB. A. (COMM.) 14/2020)
The High Court of Delhi held that an arbitral tribunal while adjudicating on a Section 17 application for interim measures is not supposed to conduct a detailed examination of the terms of the contract. Doing so would amount to pre-trial determination of the issues and would be detrimental to the concept of a dispassionate arbitral process. The tribunal acts on equity and is required to keep in mind a prima facie case, balance of convenience, and irreparable injury, while deciding an application for interim measures. It further held that the appellate court is not required to reassess the evidence and, would not interfere with the discretion of the tribunal unless, the reasoning of the tribunal is ex-facie perverse or patently illegal.
Whether the court can entertain a Section 17 application prior to the filing of the Statement of Claim?
(Judgment dated 05.10.2021 in ARB. A. (COMM.) 15/2020)
The High Court of Delhi held the arbitral tribunal is empowered to deal with a Section 17 application even before a Statement of Claims is filed. The objective of interim measures is to protect the sanctity of the arbitral process and to preserve the subject matter of the dispute. Therefore, the arbitral tribunal is empowered to decide on a Section 17 application before the filing of the Statement of Claims when any possibility of frustration of arbitral process is found to exist.
Whether the Rules of Arbitral Institution would determine the ‘Seat’ of the arbitral proceeding?
(Judgment dated 23.09.2021 in ARB.P. 450/2021)
The High Court of Delhi held that the rules of arbitration would not determine the seat of the arbitration. The seat would still be decided in accordance with the agreement between the parties. It further held that rules are procedural in nature and come into play only after the commencement of arbitration.
Whether the arbitrator could pass an award without taking the evidence of one of the parties on record?
Narinder Singh v. Union of India (Judgment dated 11.18.2021 in Civil Appeal 6734/2021)
The Supreme Court held that unnecessary hurry and haste by the arbitrator which results in the deprivation of a party’s right to produce evidence and cross-examine the witness of the other party, would result in violation of the principles of natural justice and Section 18, 24 and 25 of the Arbitration Act. Such an award would be set aside under Section 34(2)(a)(iii).
Whether a prior agreement of the parties would limit the power of the court to award cost?
Union of India v. Om Vajrakaya Construction Company (Judgment dated 20.12.2021 in O.M.P. (COMM) 299/2021)
The High Court of Delhi held that unlike the power of the tribunal to award interest, there is no fetter on its power to award costs within the meaning of Section 31A and any agreement of the parties prohibiting the awarding of cost would be inconsequential, unless the parties enter into an agreement after the disputes have arisen.
Whether the arbitrator could award interest, regardless of an agreement of the parties to contrary?
Union of India v. Manraj Enterprises (Judgment dated 18.11.2021 in CIVIL APPEAL NO. 6592 OF 2021)
The Supreme Court held that the Arbitral Tribunal cannot award interest if the parties have expressly prohibited the grant of any such interest. The arbitrator is a creature of the contract therefore, cannot act contrary to the terms of the contract in terms of Section 28 and 31(7) of the Act.
Whether the arbitrator is entitled to charge separate fees on the counter-claims?
NTPC Limited v. Afcons R.N. Shetty and Co.Pvt. Ltd Jv (Judgment dated 06.08.2021 in O.M.P. (T) (COMM.) 37/2021)
The High Court of Delhi held that the arbitrator is entitled to charge fees separately for claims and counter-claims. There is no requirement under the law to consolidate both the amounts in determining the ceiling price. On a conjoint reading of Section 31(8), 31A and 38(1) of the Act, it is amply clear that a separate fee is to be paid for claim and counter-claims.
Whether the Court can modify an award under Section 34 of the Arbitration Act?
National Highway Authority of India v. M.Hakeem (Judgment dated 20.07.2021 in SLP (CIVIL) NO.13020 OF 2020)
The Supreme Court held that the court under Section 34 could only affirm or set aside the arbitral award, there is no power vested in the court to modify an award while exercising jurisdiction under Section 34. The court relied on the judgment in McDermott International Inc. v. Burn Standard Co. Ltd, to observe that power under Section 34 does not extend to modifying Arbitral errors. The legislative intent of minimal interference is clear in terms of Section 34(4) which permits the court to adjourn the proceedings and give the arbitral tribunal a chance to eliminate the grounds for setting aside the award. Further, it held that modifying an award under Section 34 would amount to crossing the ‘Lakshman Rekha’.
Whether a Court under Section 34 application substitute its view with that of the arbitrator when both views are possible?
Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd. (Judgment dated 09.09.2021 in Civil Appeal No. 5628 of 2021)
The Supreme Court held that construction of the contract is within the jurisdiction of the arbitral tribunal only, the court cannot substitute its view with that of the tribunal. Further it held that mere erroneous application of the law or contravention of substantive law by the tribunal would not fall within the rubric ‘Patent Illegality’ if the same does not go to the root of the matter. It is only when the view taken by the Tribunal is not even a possible view or the Tribunal goes beyond the terms of reference or delivers an award on an issue not submitted to it or ignores vital evidence or when the award is based on no evidence at all, the court would set aside the award under Section 34(2A). It further held that contravention of a statute not linked to the public policy or public interest, would not be a ground for setting aside an award under the head of ‘Public Policy’.
Whether the arbitrator could be made a party in a Section 34 application?
Kothari Industrial Corporation Ltd. v. M/S Southern Petrochemicals Industries (Judgment dated 29.09.2021 in OSA (CAD) No.83 of 2021)
The High Court of Madras imposed a cost of Rs. 1 Lakh on the appellants for unnecessarily impleading the arbitrator as a party under Section 34 petition. The court observed that it is absolutely pointless to make the arbitrator a party to a challenge petition, unless specific personal allegations are made which would merit an answer from the arbitrator.
Whether an agreement between the parties can make the 2015 Amendment to the Arbitration Act, 1996 apply retrospectively?
Ratnam Sudesh Iyer v. Jackie Kakubhai Shroff (Judgment dated 10.11.2021 in CIVIL APPEAL NO. 6112 OF 2021)
The Supreme Court held that a general phrase in a contract cannot override the legislative intent of an amendment to apply it prospectively. The court relied on the Judgment of the apex court in BCCI v. Kochi Cricket, Ssangyong v. NHAI and HCC v. UOI to reiterate that the 2015 Amendment Act would only apply to proceedings commenced after 23.10.2015. The mere inclusion of the words ‘or any amendment thereto’ in the agreement would not make the amendment to Section 34 of the Act apply to arbitral proceedings commenced before the amendment.
Whether the requirement to deposit 75% of the awarded amount as a pre-deposit is mandatory in terms of Section 19 of the MSMED Act?
Gujarat State Disaster Management Authority v. M/s Aska Equipments Ltd. (Judgment dated 08.10.2021 in CIVIL APPEAL NO. 6252/2021)
The Supreme Court reiterated that the deposit of 75% awarded amount is sine qua non for filing a Section 34 application. However, the appellate court if satisfied that such a deposit would cause undue hardship to the appellant, can allow the deposit to be made in instalments.
Whether the arbitrator can exercise its power ex debito justitiae to substitute the terms of the contract?
PSA Sical Terminals Pvt. Ltd v. The Board of Trustees of V.O. Chidambranar Port Trust Tuticorin (Judgment dated 28.07.2021 in CIVIL APPEAL NOS. 3699-3700 OF 2018)
The Supreme Court held that the arbitral tribunal being a creature of the terms of reference, cannot exercise its powers ex debito justitiae. The tribunal cannot unilaterally modify the terms of the agreement and foist it on an unwilling party, a party cannot be made to perform something for which it never entered into a contract, doing so would amount to re-writing of the contract. The same would amount to breach of fundamental principles of justice and would shock the conscience of the court.
Board of Control for Cricket in India v. Deccan Chronicle Holdings Ltd. (Judgment dated 16.06.2021 in COMM ARBITRATION PETITION (L) NO. 4466 OF 2020)
The High Court of Bombay held that the arbitrator has to decide the dispute in terms of the contract agreed between the parties, it cannot transgress the four corners of the contract and decide a dispute contrary to the terms agreed to between the parties.
When will the time be the essence of the contract?
Welspun Specialty Solutions Ltd. v. Oil and Natural Gas Corporation Ltd. (Judgment dated 13.11.2021 in CIVIL APPEAL NO. 6834 OF 2021)
The Supreme Court held that merely having an explicit clause would not make the time as the essence of the contract. The same is to be determined from the reading of the complete contract as well as the immediate circumstances. An Extension of Time clause, dilutes the clause making time the essence of the contract. Moreover, granting numerous extensions without imposition of any damages would render such a clause entirely ineffective.
Whether the unilateral appointment of the arbitrator can be challenged for the first time in a Section 34 petition?
Kanodia Infratech Limited v. Dalmia Cement (Bharat) Limited (Judgment dated 08.11.2021 in O.M.P. (COMM) 297/2021)
The High Court of Delhi held that a party who has actively participated in the arbitral proceedings, cannot challenge the unilateral appointment of the arbitrator, for the first time under Section 34 petition. Failure of the party to raise the objection at the earliest possible opportunity under Section 11, 12(5), 14, 15 and 16 of the Act, would deprive him to challenge the appointment under Section 34 application.
Whether the Facilitation Council could pass an award without conducting the arbitral proceedings?
Jharkhand Urja Vikas Nigam Limited v. The State of Rajasthan (Judgment dated 15.12.2021 in CIVIL APPEAL NO.2899 OF 2021)
The Supreme Court held that as per the provisions of the MSMED Act read with the Arbitration Act, the Facilitation Council, on the failure of the conciliation proceedings can only refer the parties to arbitration and not pass an award. The arbitration and facilitation cannot be clubbed together to pass an award. Such an order would be patently illegal and would not constitute an award within the meaning of the Arbitration Act.
Whether the Court would be bound by the principles of Code of Civil Procedure, 1908 while deciding an enforcement petition under Section 36 of the Arbitration Act, 1996?
Toyo Engineering Corporation v. Indian Oil Corporation Limited (Judgment dated 02.08.2021 in SLP (C) No. 11766-11767/2020)
The Supreme Court reiterated that while staying the enforcement of an award under Section 36(3), the court should only be considering the principles laid down under O. 41 R. 5 of the CPC and not swayed by the fact that large amount is to be paid by the government corporations.
Whether the Court could decree a claim in an appeal against an order under Section 34 of the Act?
Punjab State Civil Supplies Corporation Ltd. v. Ramesh Kumar and Co. (Judgment dated 13.11.2021 in Civil Appeal No 6832/2021 )
The Supreme Court held that the power of the High Court while exercising jurisdiction under Section 37 against an order under Section 34 is different from that of the First Appellate Court in a Civil Suit. The court clarified that in arbitration appeal, the court is only required to determine the validity of the order under Section 34, it cannot go to the extent of decreeing a claim.
Whether the appellate court could re-assess the evidence in an appeal against an order under Section 17 of the Arbitration Act, 1996?
Augmont Gold Pvt. Ltd. v. One97 Communication Limited (Judgment dated 27.09.2021 in ARB. A. (COMM) 30/2021)
The High Court of Delhi held that an order passed under Section 17 is discretionary in nature and subject to the final award, therefore, the court of appeal would not reassess the evidence to substitute its view with that of the tribunal. The court would not interfere with the order even if it finds that it had taken a different view, if it had considered the matter at the trial stage. The court would be justified only if the view taken by the tribunal is not even a possible view.
Whether a Foreign State can claim ‘Sovereign Immunity’ against the enforcement of an arbitral award?
KLA Const. Technologies Pvt. Ltd. v. The Embassy of Islamic Republic of Afghanistan (Judgment dated 18.06.2021 in OMP (ENF) (COMM) 82/2019)
The High Court of Delhi held that a Foreign State cannot claim Sovereign immunity while dealing in commercial transactions as the State is not acting in the Sovereign capacity but as a ‘Commercial Entity’. Moreover, by having given consent to enter into a commercial transaction containing an arbitration agreement, the State has waived off its right to claim sovereign immunity against the enforcement of arbitral award.
Whether a party could raise a new ground of challenge in appeal under Section 37?
State Of Chhattisgarh v. M/s Sal Udyog Private Limited (Judgment dated 08.11.2021 in CIVIL APPEAL NO. 4353 OF 2010)
The Supreme Court held that a party is not barred from raising a new ground of challenge in appeal. The Court held that ground of ‘patent illegality’ is equally available under Section 37 of the Act and the same ground can be raised for the first time in appeal as well. There is nothing in the act which restrict the application of Section 34(2A) application to Section 34 petition only.
Whether the Arbitral Award would be binding on the non-signatory to the arbitration agreement?
Gemini Bay Transcription Pvt. Ltd. v. Integrated Sales Service Ltd. (Judgment dated 10.08.2021 in CIVIL APPEAL NOS.8343-8344 OF 2018)
Supreme Court held that a non-signatory who is acting as an alter-ego to the party signatory to the arbitration agreement, would be bound by the arbitral award. The court observed that the word ‘persons’ has been used under Section 46 rather than ‘parties. The objection as to award being not binding does not fit into the grounds enumerated under Section 48 of the act, which are to be interpreted narrowly for the reason that part II of the act has a pro-enforcement bias. The party enforcing the award is not bound to adduce evidence to prove that the non-signatory is a person who is claiming under a party or affected by alter ego doctrine, for the reason that requirement of Section 47 is only procedural in nature. Further, it held that ground of ‘patent illegality’ is not available to awards falling under part-II of the Act.
The author is an Advocate and Registrar at the International Arbitration and Mediation Centre. He can be reached at email@example.com. The author would like to thank Ausaf Ayyub, a third-year law student at Faculty of Law, Jamia Millia Islamia for his assistance.