Arbitration Updates – March, 2023
By Gunjan Chhabra
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1. 𝐂𝐚𝐧 𝐚𝐧 𝐚𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐛𝐞 𝐡𝐞𝐥𝐝 𝐛𝐢𝐚𝐬𝐞𝐝 𝐚𝐠𝐚𝐢𝐧𝐬𝐭 𝐩𝐚𝐫𝐭𝐲 𝐰𝐡𝐨 𝐝𝐨𝐞𝐬 𝐧𝐨𝐭 𝐚𝐜𝐜𝐞𝐩𝐭 𝐮𝐧𝐢𝐥𝐚𝐭𝐞𝐫𝐚𝐥 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞 𝐢𝐧 𝐟𝐞𝐞𝐬?
This issue came up before the Supreme Court of India in Chennai Metro Rail Limited Administrative Building Versus M/S Transtonnelstroy Afcons (JV) (Order dated 20.02.2023). The rival contentions considered by Court while looking into this issue were as below:
- It has been previously held that if an arbitrator unilaterally increases his fee, which is opposed by one party and accepted by others, there is likelihood of bias in mind of Arbitrators against a party who opposed it. (Union of India vs. Singh Builders Syndicate (2009) 4 SCC 523 and Oil – 2 judge bench & Natural Gas Corporation Ltd. vs. Afcons Gunanusa JV (2022) ibclaw.in 168 SC) – 3 judge bench).
- On the other hand, If a case of the parties is based on bias then it will be covered under Section 13 of the Arbitration & Conciliation Act, (“A&C Act”), and it can only be raised after the award has been passed. This is because the case of bias is not covered under Section 14 leading to automatic termination of mandate. (HRD Corporation (Marcus Oil and Chemical Division) vs. Gail (India limited (Formerly Gas Authority of India Limited) (2017) ibclaw.in 234 SC – 2 judge bench)
Considering the above, and also considering that the decision on the issue would have wider ramifications, the matter was directed to be placed before the Chief Justice of India to decide whether this issue could be taken up by Special Bench who was taking up arbitration matters.
2. 𝐂𝐚𝐧 𝐚 𝐏𝐚𝐫𝐭𝐲 𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭𝐮𝐚𝐥𝐥𝐲 𝐋𝐢𝐦𝐢𝐭 𝐭𝐡𝐞 𝐓𝐢𝐦𝐞 𝐟𝐨𝐫 𝐫𝐚𝐢𝐬𝐢𝐧𝐠 𝐚 𝐂𝐥𝐚𝐢𝐦
The case of Municipal Corporation of Delhi v. Natraj Construction Company (Delhi High Court, decided on 22.03.2023), reported at (2023) ibclaw.in 150 HC was an Appeal under Section 37 against an Order passed in an objection Petition under Section 34 of the Arbitration & Conciliation Act, 1996 (“A&C Act”).
Here MCD had contracted with the Respondent for providing and fixing Retro-reflective Sign Boards on a Road in New Delhi. The bills raised by the Respondent had remained unpaid by MCD due to various reasons owing to which disputes had arisen between parties.
In the arbitration proceedings between the parties, the Respondent was awarded some part of its claims.
This award was challenged by MCD, and one of the key contentions raised was that under Clause 25 of the Contract Agreement, any challenge/invocation of arbitration was to be raised by the Respondent within time limit of 120 days which the clause mandated.
The Court observed as follows:
- The effect of Section 28 of the Indian Contract Act is that any contract by which a party reduces the period of limitation as provided under the law, then such contract cannot have the effect of extinguishing the rights of the party to approach proper forum/court within the period being statutory limitation period. In other words, party by contract cannot limit the limitation period which is otherwise provided by law. (Reliance placed on M/s. Smart Commodity Broker Pvt. Ltd. v. Beant Singh reported as 2017 SCC OnLine Del 10591).
- In view of Section 28 of the Indian Contract Act 1872, MCD could not be permitted to press Clause 25 of the Contract Agreement and restrict the period of limitation for invoking arbitration to 120 days. The contention was meritless.
In light of the above and having regard to other considerations including the limited scope of interference in a Section 37 Appeal, the award was upheld, and the Appeal was dismissed.
3. 𝐃𝐨𝐞𝐬 𝐑𝐞𝐬-𝐣𝐮𝐝𝐢𝐜𝐚𝐭𝐚 𝐀𝐩𝐩𝐥𝐲 𝐎𝐧 𝐭𝐡𝐞 𝐛𝐚𝐬𝐢𝐬 𝐨𝐟 𝐚𝐧 𝐎𝐯𝐞𝐫𝐫𝐮𝐥𝐞𝐝 𝐉𝐮𝐝𝐠𝐦𝐞𝐧𝐭, 𝐢𝐧 𝐚 𝐒𝐞𝐜𝐭𝐢𝐨𝐧 11 𝐏𝐞𝐭𝐢𝐭𝐢𝐨𝐧 (𝐟𝐨𝐫 𝐀𝐩𝐩𝐨𝐢𝐧𝐭𝐦𝐞𝐧𝐭 𝐨𝐟 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫)?
Antique Art Export Pvt. Ltd V. United India Insurance Company Ltd. (Delhi High Court, decided on 22.02.2023) was a petition under section 11(6) of the Arbitration and Conciliation Act 1996 (“A&C Act”) For the purpose of appointment of Arbitrator.
In this case, the petitioner was engaged in the business of carpets, Rugs and had availed insurance policy from the respondent. During the pendency of the insurance policy the petitioners factory caught on fire. The respondent after surveyor inspection of the property sent approval of certain claim amounts. The respondent claimed that the petitioner had discharged all claims after accepting the said approval. The petitioner on the other hand claimed fraud coercion and undue influence.
When this dispute had arisen the Petitioner had approached the Delhi High Court for appointment of Arbitrator. In that Petition the High Court appointed an arbitrator. The order was then appealed before the Supreme Court of India (“SC”) which set aside the order of the High Court stating that no arbitrable claim subsisted due to “accord & satisfaction”. The Petitioner also thereafter filed a review petition against this decision of the Supreme Court of India which was also dismissed.
Subsequently the aforementioned SC decision was overruled by a three judge bench of SC in a separate judgment, Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman reported at (2019) ibclaw.in 171 SC (“Mayavati”) stating that despite issue of accord and satisfaction Court is required to restrict itself to the examination of existence of Arbitration Agreement under Section 11(6) of the A&C Act for appointment of Arbitrator.
The Petitioner therefore was currently alleging before the Delhi HC, that since the previous order of SC in the current dispute was already overruled in Mayavati, the Petitioner should be entitled to take benefit of the same and now Court should appoint an arbitrator. The Respondent on the other hand was alleging Res Judicata.
The Court observed as follows:
- Despite the fact that the SC judgement in the present dispute had been overruled by Mayavati, the fact remains that the dispute/issue inter-se parties with regard to appointment of arbitrator in the present dispute has attained finality with the decision of the SC.
- Even the proceedings under section 11 of the A&C Act are governed by the principle of res judicata (reliance placed on Anil, S/o Jagannath Rana & Ors. v. Rajendra. S/o Radhakrishan Rana and Ors. (2017) ibclaw.in 514 SC).
- SC by a detailed judgment has already held that no arbitrable dispute subsists between the parties. Such a finding is binding on the parties and any subsequent litigation would be barred by res-judicata.
- Reconsideration of a judgment which has attainted finality is not permissible by re-opening concluded jugements of the Court, merely because SC took a different view thereafter in some other case. (Reliance placed on Union of India and Ors. v. Sarawati Marble & Granite Industries Pvt. Ltd, (2020) 20 SCC 810; Neelima Srivastava v. State of Uttar Pradesh and Ors., 2021 SCC OnLine SC 610).
In view of the above, the Petitions were held not maintainable and were dismissed.
4. 𝐂𝐚𝐧 𝐭𝐡𝐞 𝐆𝐫𝐨𝐮𝐧𝐝 𝐨𝐟 𝐔𝐧𝐢𝐥𝐚𝐭𝐞𝐫𝐚𝐥 𝐀𝐩𝐩𝐨𝐢𝐧𝐭𝐦𝐞𝐧𝐭 𝐨𝐟 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐛𝐞 𝐭𝐚𝐤𝐞𝐧 𝐟𝐨𝐫 𝐭𝐡𝐞 𝐅𝐢𝐫𝐬𝐭 𝐓𝐢𝐦𝐞 𝐢𝐧 𝐚 𝐒𝐞𝐜𝐭𝐢𝐨𝐧 34 𝐏𝐞𝐭𝐢𝐭𝐢𝐨𝐧 (𝐂𝐡𝐚𝐥𝐥𝐞𝐧𝐠𝐢𝐧𝐠 𝐭𝐡𝐞 𝐚𝐰𝐚𝐫𝐝)?
Hanuman Motors Pvt. Ltd. v. M/s Tata Motors Finance Ltd. (Bombay High Court, decided on 01.03.2023) was a petition challenging an award, under section 34 of the Arbitration & Conciliation Act, 1996 (“A&C Act”).
Here the facts were that when disputes had arisen between the parties, the Respondent had unilaterally appointed an arbitrator claiming it to be on the basis of an arbitration agreement. The Petitioner did not participate in the proceedings but objected to the agreement being a forged document.
The arbitrator appointed by the Respondent went on to pass an award in favour of the Respondent. The Petitioner then filed the present petition under Section 34 challenging the award.
The main contention of the Petitioner was that the unilateral appointment of the arbitrator was invalid as it was hit by Section 12(5) of the A&C Act. The Respondent on the other hand contended that such a contention could not be raised for the first time in a Section 34 Petition.
The Court observed as follows:
- Whenever either party had exclusive power to appoint a sole arbitrator, a situation is created where serious doubts would arise about eligibility of said arbitrator, which vitiates the entire proceedings. (Reliance placed on Bharat Broadband Network Limited Vs. United Telecoms Limited (2019) ibclaw.in 153 SC).
- Even if the Petitioner had participated in the arbitration proceedings, mere participation could not result in an implied waiver of the Petitioner’s right to raise the objection of unilateral appointment of arbitrator. Such waiver can only be in writing. (Reliance placed on Naresh Kanayalal Rajwani and Ors. Vs. Kotak Mahindra Bank Ltd. & Anr (2022) ibclaw.in 449 HC).
- It is not necessary to raise such an objection before the arbitrator to be able to raise it under Section 34. (Reliance placed on Govind Singh Vs. Satya Group Pvt. Ltd. and Anr 2023 SCC Online Del 37).
Such an objection goes to the very root of the matter so that the arbitrator could not have entered reference itself.
In view of the above, the Petition was allowed and the award was set aside.
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