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The Delhi High Court this week dismissed an application seeking refusal of enforcement of an arbitral award passed by the China International Economic and Trade Arbitration Commission (CIETAC) against Hindustan Clean Energy Limited.
The primary reason behind the challenge was the split of the arbitration institution both parties had agreed upon – the CIETAC. The Shanghai division of the CIETAC, Shanghai International Arbitration Centre, had become independent in 2012 and had since framed its own arbitration rules.
By way of background, LDK Solar, the decree-holder, had entered into an agreement with Enertec Trading FZE to supply solar panels to be used in various projects in India. Hindustan Clean Energy, the judgment debtor, stood as guarantor for Enertec. On Enertec’s failure to discharge its liability, HDK Solar invoked arbitration against Hindustan Clean Energy. The parties had agreed on Shanghai as the place of arbitration.
The dispute came up before the CIETAC, Shanghai, which granted an award in excess of $15 million in favour of LDK Solar, which then filed a petition for execution of the decree in the Delhi High Court. Countering the same, Hindustan Clean Energy filed an application under Section 48 of the Arbitration Act, praying that the enforcement of the arbitral award be refused by the High Court.
Appearing for the judgment-debtor, Senior Advocate PV Kapur contended that the award was bound to be set aside since CIETAC had no jurisdiction to entertain the claims. It was argued that CIETAC Shanghai Sub-Commission, which is also referred to as Shanghai International Arbitration Centre (SIAC), became independent of CIETAC and implemented its own arbitration rules. Therefore, only the SIAC could entertain the claims, and not the CIETAC, Beijing, as was resorted to by the decree-holder.
It was further argued that CIETAC had wrongly rejected a challenge to its jurisdiction in the matter. Further, Kapur pointed out that the Supreme People’s Court of China has also held that where the Arbitration Agreement provides for reference of the disputes to CIETAC Shanghai Sub-Commission, the Shanghai International Economic and Trade Arbitration Commission alone shall have jurisdiction to arbitrate such disputes.
Promod Nair of Arista Law Chambers appeared for LDK Solar.
However, the Delhi High Court Bench of Justice Navin Chawla did not agree with these submissions. The judge found that the arbitration agreement provides that arbitration shall be conducted by CIETAC and the place of arbitration shall be Shanghai.
“It does not state that it would be CIETAC Shanghai Sub-Commission that would conduct the arbitration proceedings…If the parties wanted their disputes to be arbitrated only by Shanghai Sub Commission they would have mentioned it in their Agreement. On the contrary, as is evident from Article 13 of the Agreement, they had agreed for arbitration by CIETAC.”
In this light, it was held that the opinion of the Supreme People’s Court at China relied upon by Kapur was not relevant.
Kapur also raised issues surrounding the appointment of the substitute arbitrator and pointed out to violations of the principles of natural justice in that his client was not given sufficient notice. The Court refused to entertain these claims, noting that the applicant was merely “trying to take advantage of an inconsequential issue to challenge the Arbitral Award”.
Therefore, the Court held that the challenge does not fall under the ambit of Section 48 of the Act. It further ordered the judgment debtor to pay the awarded amount to the decree-holder within a period of four weeks.
Read the judgment: