Survey on Arbitration Law in India 2020

A survey of significant legal developments in India in arbitration law in the year 2020.
Survey on Arbitration Law in India 2020

Here is a summary of some of the important rulings in the field of arbitration passed in 2020.

Extension of time period due to pandemic

The beginning half of last year witnessed restrictions on the functioning of the courts due to COVID-19. The Supreme Court, vide an order dated March 23, 2020, extended the time period of limitation with effect from March 15 until further orders.

In Re: Cognizance for Extension of Limitation- Supreme Court of India, [2020 SCC OnLine SC 343]

Subsequently, it was clarified on May 6, 2020, that all periods of limitation under the Arbitration and Conciliation Act, 1996 shall also be extended.

In Re: Cognizance for Extension of Limitation- Supreme Court of India, [2020 SCC OnLine SC 434].

In its order dated July 10, 2020, the Supreme Court noted that the Section 29A of the Act does not prescribe a period of limitation, but fixes a time to make an arbitral award within a prescribed time. Similarly, Section 23(4) of the Act provides for time period of 6 months for completion of statement of claim and defence. Thus, (a) time limit for passing an arbitral award and (b) time period for completion of pleadings also stand extended, subject to further orders.

Interim relief from Court and Force Majeure

As a result of the nationwide lockdown, arguments based on force majeure and frustration of contract were raised in various petitions filed under Section 9 of the Act. However, no relief was granted by the courts.

In Halliburton Offshore Services v. Vedanta, [OMP (I) (COMM.) No. 88/2020 decided on May 29, 2020], the Delhi High Court narrowly interpreted the force majeure clause and refused injunction against invocation of bank guarantees. It was held that past non-performance, prior to lockdown, was non-condonable.

In KL Enterprises v. Bajaj Finance, [O.M.P. (I) (COMM.) 102/2020 decided on July 6, 2020], the Delhi High Court also declined a request for injunction on transfer of shares pledged as security for a loan, when the fall in security margin had started in December 2019.

The High Court also held that it has no power to introduce a clause akin to a force majeure clause into the contracts. [Cyquator Media Services v. IDBI Trusteeship Services, 2020 SCC OnLine Del 683].

In Rashmi Cement v. World Metals & Alloys [O.M.P. (I) (COMM.) 102/2020, decided on July 6, 2020], the Delhi High Court rejected the plea that without insisting on payment of demurrage, cargo be released, because the buyer stood absolved from taking delivery immediately on the arrival of the vessel at the port after lockdown. It held that the force majeure clause cannot be invoked merely because performing the obligations was difficult.

The Bombay High Court refused to accept that contracts with the seller stood terminated and unenforceable on account of frustration and impossibility due to lockdown. It stated that buyer did not stand to gain from the force majeure clause. It was irrelevant that the buyer would not be able to perform its obligations for its own purchasers and/or it would suffer damages. [Standard Retail v. GS Global Corp, Commercial Arbitration Petition (L) No. 404 Of 2020 decided on April 8, 2020]

Scope of Section 9 of the Act

In Avantha Holdings v. Vistra ITCL India, [O.M.P.(I) (COMM.) 177/2020 decided on August 14, 2020], the Delhi High Court held that emergent necessity, which cannot await the constitution of an arbitral tribunal and consideration of interim relief by a tribunal, is sine qua non to obtain any order from the Court at pre-arbitration stage.

On the similar lines, in Ashwani Minda & M/s Jay Ushin v. M/s U-Shin Limited & M/s Minebea Mitsumi [2020 SCC OnLine Del 72], in a Japan-seated arbitration, it was held that an application for interim relief from the Court was unenforceable after the petitioner had failed to obtain similar relief from an emergency arbitrator.

Anti-arbitration injunction suit

A Single Judge of the Delhi High Court dismissed suits seeking injunction against emergency arbitration proceedings initiated on issues related to a trust deed. It was held that principles pertaining to anti-suit injunctions cannot be made applicable to anti-arbitration injunction suits. The Court gave full autonomy to the arbitral tribunal to decide even questions of the Court’s jurisdiction. [Bina Modi v. Lalit Modi, 2020 SCC OnLine Del 901]

However, in appeal, the Division Bench of the High Court set aside the order. It held that the Court would have jurisdiction to grant anti-arbitration injunction, where the party seeking the injunction can demonstrably show that the agreement is null and void, inoperative, or incapable of being performed. It was held that a Trust Deed is not an arbitration agreement and disputes under the Trusts Act are not arbitrable. [Bina Modi v. Lalit Modi, RFA (OS) No. 21 of 2020 decided on December 24, 2020]

Likewise, the Calcutta High Court had also stated earlier that the arbitral tribunal cannot have the sole authority to determine jurisdiction, to the exclusion of a civil court. [Balasore Alloys vs. Medima LLC, 2020 SCC OnLine Cal 1699]

Validity of emergency arbitration

In Future Retail Ltd. v. Amazon.Com Investment Holdings [CS(COMM) No. 493/2020 decided on December 21, 2020], the Delhi High Court held that the concept of Emergency Arbitration in an international commercial arbitration is not contrary to the scheme of the Act. The Court noted that the SIAC rules themselves recognize and uphold the right of a party to avail interim relief under Section 9 of the Act. The SIAC rules provide an option to the aggrieved party to either approach the emergency arbitrator for interim relief, or to approach a judicial authority for the same, prior to the constitution of the Tribunal. Thus, the Court held that the SIAC Rules do not take away the substantive right of the parties to approach the courts in India for interim relief.

The Court held that an arbitrator’s authority to act is implied from the agreement to arbitrate itself, and the same cannot be restricted to mean that the parties agreed to arbitrate before an arbitral tribunal only and not before an Emergency Arbitrator.

Fraud and arbitration proceedings

The Supreme Court limited the scope of allegations of “fraud” raised to avoid arbitration proceedings. It was held that “serious allegations of fraud” can be considered only if (a) the arbitration clause or agreement itself cannot be said to exist, or (b) allegations are against the State for arbitrary, fraudulent, or malafide conduct. [Avitel Post Studioz vs. HSBC Pi Holdings (Mauritius), 2020 SCC OnLine SC 656].

In Deccan Paper Mills v. Regency Mahavir Properties [2020 SCC Online SC 655], the Court also held that the mere fact that criminal proceedings can or have been instituted with respect to the same subject matter would not, ipso facto, make an otherwise arbitrable dispute, non-arbitrable.

Enforcement of Foreign Arbitral Awards

The Supreme Court held that the period of limitation for enforcing a foreign arbitral award would be three years from when the “right to apply accrues.” An application for condonation of delay under the general law of limitation can also be made for enforcement, which cannot be done in case of a domestic award. [Government of India v. Vedanta, 2020 SCC OnLine SC 749]

In Vijay Karia v. Prsymian Cavi E Sistemi SRL, [2020 SCC OnLine SC 177], the Supreme Court narrowly interpreted the expression “was otherwise unable to present his case” occurring in Section 48(1)(b) of the Act. The Court upheld the foreign arbitral award by holding that a foreign award could be set aside only if a fair hearing was not given by the arbitrator or factors outside the party’s control combined in denial of a fair hearing.

In Centrotrade Minerals and Metals v. Hindustan Copper, [2020 SCC OnLine SC 479], the respondent chose not to appear before the arbitrator, and did not follow timelines granted by the arbitrator for documents and legal submissions. The Supreme Court held that the foreign award was valid.

A discordant note was, however, struck by the Supreme Court in National Agricultural Cooperative Marketing Federation of India v. Alimenta S.A. [2020 SCC OnLine SC 381], wherein a foreign award was not enforced since it was held to be opposed to the fundamental policy of India relating to exports, for which permission of the Indian government was necessary.

Landlord-tenant disputes under Transfer Of Property Act arbitrable

In Vidya Drolia v. Durga Trading Corporation, [Civil Appeal No. 2402 of 2019 decided on December 14, 2020], the Supreme Court held that landlord-tenant disputes are arbitrable except when they are covered by a specific forum created by rent control laws. The three-judge Bench held that landlord-tenant disputes are not actions in rem but pertain to subordinate rights in personam that arise from rights in rem. It further held that an award passed in such disputes can be executed and enforced like a decree of the civil court.

Setting aside of an arbitral award

In Mohan Steels Limited v. Steel Authority of India, [O.M.P. No. 488 of 2015 decided on March 4, 2020], the Delhi High Court held that the arbitrator committed a patent illegality by placing reliance on the circulars which were never a part of the tender conditions or the contract. Further, it was held that since the circulars were beyond the terms of the contract and were not within the knowledge of the parties, they could not be relied upon for interpreting the clauses of the contract.

The Supreme Court also set aside an arbitral award on the grounds that the arbitrator arrived at findings by taking into account irrelevant factors and by ignoring vital clauses. The Court held that the award was perverse since the view taken by the arbitrator was not even possible, on a holistic reading of all the terms and conditions of the contract. [Patel Engg. Ltd. v. North Eastern Electric Power Corpn. Ltd., (2020) 7 SCC 167]

In South East Asia Marine Engg. & Constructions Ltd. v. Oil India Ltd., [(2020) 5 SCC 164], the Supreme Court set aside an award on the ground that the interpretation placed by the Arbitral Tribunal would completely defeat the explicit wordings and purpose of the contract. It was held that interpretation of the contract by the Tribunal was not a possible interpretation.

Legislative developments

The President of India, in November, 2020, promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2020 amending the Act. A specific proviso has been added for unconditional stay of enforcement of arbitral awards if the underlying arbitration agreement or contract or making of the arbitral award are induced by fraud or corruption by amending Section 36 of the Act. Further, the qualifications and experience of an Arbitrator, which were introduced through the Eighth Schedule in the year 2019 have been deleted.

Also Read
President promulgates Arbitration and Conciliation Ordinance, 2020: Now, unconditional stay on awards prima facie induced by fraud or corruption

Amit Gupta is a graduate from Oxford and Columbia Universities and a litigator based in New Delhi, and Mansi Kukreja is a law graduate from Delhi University.

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