Summarized below are some notable judgments of the Bombay High Court during the year 2020 on the Arbitration and Conciliation Act, 1996.
Section 11 cannot be invoked twice.
The petitioner had invoked arbitration for adjudication of disputes arising out of a facility or loan agreement dated June 21, 2013. The sole arbitrator entered reference on April 4, 2018. A statement of claim and a statement of defence were filed, but nothing happened thereafter. By efflux of time, the mandate of the sole arbitrator expired. The petitioner belatedly filed an application under Section 29-A (for extension), but the same was dismissed.
The petitioner thereafter filed a fresh application under Section 11 for appointment of an arbitrator, for the same dispute. The High Court dismissed the application holding, inter alia, that an arbitration clause cannot be constantly revived and brought back to life again and again.
Review against an order appointing arbitrators under Section 11 is not maintainable
In this case, the respondent, having failed to raise a jurisdictional objection on time, filed a review petition before the Bombay High Court, challenging the appointment of arbitrators, eight years after the order was passed. The Single Judge allowed the review petition and condoned the delay of 2,680 days on the grounds that: (a) the arbitration in question was an international arbitration; (b) the High Court therefore lacked jurisdiction to appoint arbitrators and the order dated April 21, 2011 (appointing arbitrators) was non est; and (c) the review in question was a procedural review and the power of review of High Courts being courts of record is inherent.
The Division Bench allowed the appeal and reversed the findings of the Single Judge, inter alia, on the following grounds:
(a) The Single Judge had assigned no reason for exercising procedural review jurisdiction.
(b) The Single Judge, while disposing the arbitration application on April 21, 2011, was exercising the power as that of a delegate of the Chief Justice of the High Court and not the power of a ‘Court’. A review in the given set of circumstances would not be maintainable.
(c) The respondent did not challenge the order dated April 21, 2011 before the Supreme Court (under Article 136 of the Constitution of India). It participated in the arbitration proceedings and at a belated stage, attempted to wriggle out of the proceedings.
(d) The Single Judge did not deal with the ‘sufficiency of cause’ shown in the pleadings for condonation of delay.
Seat of arbitration
An arbitrator was appointed by the High Court for adjudicating disputes between the parties in respect of a partnership deed dated April 1, 1997. The dispute resolution clause in the partnership deed provided for arbitration, without specifying the seat. Pursuant to the order dated May 6, 2015 of the High Court, proceedings took place at Nagpur and the award was rendered at Nagpur. The petitioner challenged the award under Section 34 of the Arbitration Act before the trial court at Malakpur. The trial court rejected the application under Section 34 stating it had no jurisdiction because the place/seat of arbitration was at Nagpur and the award was pronounced at Nagpur.
Considering Sections 2(f), 20, 31(4) and 42 of the Arbitration Act and relying on the Supreme Court’s judgments in BALCO and Soma JV, the Nagpur Bench of the High Court held that once it becomes clear that the place of arbitration was Nagpur, the dispute resolution clause operated as a clause vesting ‘exclusive jurisdiction’ in the courts at Nagpur and the trial court at Malakpur was right in holding that it did not have jurisdiction to entertain the application under Section 34 of the Arbitration Act.
Use of ‘shall’ and ‘may’ in a dispute resolution clause
In this case, the parties to a software distribution agreement had agreed to the following dispute resolution clause:
"All disputes under this Agreement shall be amicably discussed for resolution by the designated personnel of each party, and if such dispute/s cannot be resolved within 30 days, the same may be referred to arbitration as stated below."
Construing the above clause, the High Court held that the words ‘shall’ and ‘may’ have been inserted by the parties consciously and the parties were aware of the clear difference between the words. The Court also held that the Zhejiang case would not support the petitioner’s case for invoking arbitration, as there was no pre-existing agreement between the parties that they ‘should’ or they ‘will’ refer the disputes to arbitration or to the Court. The petition was dismissed, and it was held in conclusion that the dispute resolution clause could not be unilaterally invoked if both the parties did not agree to refer their disputes to arbitration.
A writ petition cannot be filed to force a contracting party to agree for arbitration
The petitioners were awarded toll contracts by the Maharashtra State Road Transport Corporation (MSRTC). The contracts did not contain any arbitration clause. The Government of Maharashtra had issued a notification dated October 13, 2016 for, inter alia, having an ‘Institutional Arbitration Policy’ as a preferred mode of dispute resolution in respect of government contracts. The petitioners contended that by virtue of this notification, the existing contract with MSRTC ought to be amended or ‘read as an arbitration clause’ (despite there being no arbitration clause in the contract) and that the State government be directed to introduce institutional arbitration in the existing contracts of the Petitioners with MSRTC. Admittedly, the petitioners had no claims against the MSRTC, and the contract period had also ended.
The High Court observed that the remedy under Articles 226 and 227 cannot be invoked in such a fashion to force contracting parties to consent to arbitration. When a party invokes the jurisdiction of the High Court under Article 226 it is taking recourse to a public law remedy. A writ would not be issued by the court to incorporate and/or to introduce a new term and conditions in a contract executed between the parties.
Insolvency of borrower does not absolve the guarantors and they would be bound by the arbitration clause
The respondents executed a loan-cum-hypothecation guarantee agreement on February 4, 2019. While the first respondent (Vaishno Devi Food Products Private Limited) was a borrower, respondents Nos. 2 and 3 (the Hakanis) themselves signed this document as guarantors. The loan and interest were secured to the petitioner by a hypothecation of the first respondent’s machinery and equipment, all purchased from this borrowing. Additional collateral security took the form of an exclusive charge on an escrow of receivables from Havmor Ice Creams Pvt Ltd.
Respondent No.1 allegedly defaulted under the said agreement and a petition was filed under Section 9 of the Arbitration Act seeking an order of deposit against Respondents Nos. 2 and 3 for the amount of Rs. 7,40,03,160/- and further interest thereon, as the respondent No.1 was under insolvency proceedings. There were other unpaid creditors as well.
The High Court held that the arbitration clause contained in the agreement would be binding on the Hakanis, being the guarantors, and directed them to deposit an amount of Rs. 7.40 crore (in the form of a bank guarantee) to the Prothonotary and Senior Master. The Court also appointed an arbitrator to adjudicate disputes between the parties. The Court held,
"...the liability of the guarantors is co-terminus with the liability of the principle debtor. The liability is joint and several and there is no question of the guarantors being excused from the performance of their obligation to repay the entire debt merely because the 1st Respondent is facing an insolvency proceedings."
Delay of more than 120 days in filing an appeal under Section 37 of the Arbitration Act cannot be condoned
The petitioner in this case sought condonation of delay in filing an appeal under Section 37 of the Arbitration on the ground that unlike Section 34, there is no limitation prescribed for filing an appeal under Section 37. Further, by virtue of Section 43, the provisions of the Limitation Act, 1963 would be applicable and the Court would be empowered to condone the delay.
The Aurangabad Bench of the High Court, relying on the NV International case held that any delay beyond 120 days in preferring an appeal under Section 37 cannot be condoned. The Court would not have the powers to condone any delay that is beyond the outer-limit of 120 days.
Change in officers cannot be a ground to wriggle out of a validly executed settlement agreement
The subject matter of these cross commercial arbitration petitions pertained to a contract for collection and transportation of municipal waste. Both the parties had challenged the award of the arbitrator. During the pendency of the arbitration petitions, the parties arrived at a settlement that was approved by the respondent corporation through a Standing Committee and by the Municipal Commissioner, in accordance with Section 481(1)(h) of the Mumbai Municipal Corporation (MMC) Act, 1888. During the COVID-19 lockdown, the Municipal Commissioner demitted office and the new Commissioner attempted to renege out of the already signed settlement.
However, the Bombay High Court held that the settlement agreement/consent terms between the parties was a validly concluded contract between the party and was executed in compliance of Section 481(1)(h) of the MMC Act, and therefore, the new Municipal Commissioner could not wriggle out of such agreement/terms.
Award cannot be challenged under writ jurisdiction merely because limitation had lapsed under Section 34
The Central Railways had challenged an award in relation to its contract with the respondent company for extension of the railway foot short bridge. The petitioner had failed to challenge the award within the timeline stipulated in Section 34 of the Arbitration Act and had therefore approached the High Court, inter alia, on the grounds that: (a) the award was without jurisdiction and therefore a nullity so as to make it amenable under Articles 226 and 227; (b) powers under Article 226 and 227 are wide enough to examine correctness of an arbitral award notwithstanding the limitation contained in Section 34; (c) and when government is a party to an arbitration, it ought to be treated differently.
A preliminary objection as to the maintainability of the writ petition was raised. The High Court refused to examine the correctness of the award, holding that the petitioner was required to comply with the timelines set out in the Arbitration Act, and that a writ petition was not the remedy to address the petitioner’s grievances. The Court held that the Arbitration Act does not provide for any such provision of special treatment to State parties.
Interplay between Arbitration Act and Commercial Courts Act
An ad-hoc Senior Civil Judge at Panaji returned an application under Section 9 of the Arbitration Act to be presented before the proper court, stating that it was not the ‘commercial court’ for the purposes of a Section 9 application. The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 provides that applications relating to the Arbitration Act are to be heard by ‘commercial courts’.
The Goa Bench of the High Court discussed the interplay between the Arbitration Act and the Commercial Courts Act and held that both are Central enactments and have employed the ‘non-obstante clause’ at more than one place. The Arbitration Act prevails when it concerns the substantive rights of the parties and the Commercial Courts Act, 2015 prevails when it concerns the parties’ procedural rights.
The Court discussed at great length, the Kandla Export Corporation judgment. It was held by the High Court that in the State of Goa, the designated district courts are the ‘Appellate Commercial Courts’, and the Senior Civil Judges are the ‘Commercial Courts’. Adjudication of an application under Section 9 of the Arbitration Act must be before the commercial court and that commercial court need not be the principal civil court of original jurisdiction.
The author is an Associate Partner at P&A Law Offices, Mumbai.