Commercial Law and Procedures in Recent Cases in Dispute Resolution – August 2023 -Part 2 -By Gunjan Chhabra

Commercial Law and Procedures in Recent Cases in Dispute Resolution – August 2023 -Part 2

By Gunjan Chhabra
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Understanding the Level of Scrutiny of an Award Passed by a Technical Tribunal in HCC v. NHAI

In the case of Hindustan Construction Company Ltd. (HCC) v. National Highways Authority of India (NHAI), (2023) 96 SC decided on 24th August 2023 by the Supreme Court of India, the matter pertained to a Special Leave Petition (SLP) filed against a Section 37 Appeal.

The arbitration proceedings revolved around disputes arising from a contract for the construction of a bypass in Allahabad, which NHAI had awarded to HCC. The arbitration tribunal rendered a unanimous decision on most issues, with a dissenting opinion from one arbitrator out of the three on certain matters. One such contentious issue was the methodology for measuring embankment works, specifically, whether to measure them together or separately when involving soil and pond ash.

When HCC challenged the award by filing an objection petition under Section 34 of the Arbitration & Conciliation Act, 1996, the single judge dismissed the petition. On appeal to the Division Bench, it was held that the majority’s interpretation of the contract was implausible. Consequently, an appeal was made to the Supreme Court.

The Supreme Court’s key observations in this matter were as follows:

1. The majority’s approach in the award, involving composite measurement, had been adopted in several other awards and aligned with the views of Dispute Review Boards/Dispute Resolution Panels in other contracts (relying on Oriental Structural Engineers (P) Ltd. v. NHAI CA No. 4662/2023).

2. Technical arbitrators’ awards should not be scrutinized in the same manner as legally trained minds (relying on Voestalpine Schienen GmbH v. DMRC (2017) 270 SC and Delhi Airport Metro Express (P) Ltd v. DMRC (2021) 210 SC.

3. The Division Bench’s extensive appellate review under Section 37 resulted in replacing the majority’s view with the minority view.

4. As long as the majority’s view was plausible, such substitution was impermissible (relying on State of UP v. Allied Constructions 2003 Supp (2) SCR 55).

5. The dissenting opinion did not constitute an award but served as information for the parties (relying on Russell and Gary Born, emphasizing the importance of the dissenting opinion in the arbitration process).

Considering these observations, the awards were upheld and reinstated, overturning the Division Bench’s decision.

Can Part of an Award be Set Aside under Section 34 Petition?

In the case of National Highways Authority of India v. Trichy Thanjavur Expressway Ltd. (2023) 707 HC, decided on 21st August 2023 by the Delhi High Court, the court addressed the question of whether part of an award could be set aside or modified under Section 34 of the Arbitration & Conciliation Act, 1996.

The court conducted a comprehensive analysis of relevant provisions, global jurisprudence, and input from stakeholders. Here is a summary of the conclusions:

1. Courts must respect the principle of minimal intervention in awards, preserving party autonomy.

2. Section 34 strikes a balance between minimal intervention and grounds for interfering with an award due to serious irregularities or patent illegality.

3. Section 34(2)(a)(iii) permits the excision of part of an award from the rest, retaining the court’s power.

4. Grounds for setting aside an award under Section 34(2)(a) challenge the core of arbitral proceedings, rendering them void ab initio.

5. Section 34(2)(a)(iv) allows for situations where some parts of the award are invalid, and others are valid, preserving valid portions of the award.

6. Section 34(2)(b) does not address fundamental invalidity.

7. Each claim, even if arising from the same contract, may stand independently without reliance on other claims, potentially constituting separate and binding decisions.

8.  When components of an award are distinct, courts can apply the doctrine of severability to partly set aside an award.

9. Partial setting aside is different from modifying the award, and the power to modify is not available to courts under Section 34 (relying on NHAI vs. M. Hakeem (2021) 203 SC.

10. The power to modify under Section 34(4) is limited to curative measures within Section 33, without altering the fundamental structure of the award (relying on Dyna Technologies Pvt. Ltd. v. Crompton Greaves (2019) 186 SC & I-Pay Clearing Services v. ICICI Bank (2022) 77 SC.

11. Section 34(4) can also be used when an arbitral tribunal is asked to render an award on a previously omitted claim, provided the claim is independent and unrelated to other parts of the award.

12. Section 34(4) is applicable for situations where an arbitral tribunal must provide additional reasons to fill gaps (subject to cautions from I-Pay).

13. This interpretation balances various concerns and avoids the prejudice of initiating fresh proceedings.

14. Section 34(4) cannot be used to review findings by the arbitral tribunal, even in cases of apparent errors or fallacies, as it would lead to disputes and contested positions (relying on various cases).

With these observations, the petitions were resolved.

Insufficiently Stamped Instrument Received by Court, how can Court ensure timely Disposal in a Section 11 Petition?

In the case of Splendor Landbase Ltd. v. Aparna Ashram Society & Anr. (2023) 693 HC, decided on 22nd August 2023 by the Delhi High Court, a series of petitions were filed under Section 11 of the Arbitration & Conciliation Act, 1996, seeking the appointment of an arbitrator for instruments that were admittedly unstamped.

Several issues arose, prompting the court to establish guidelines that balanced the 60-day timeline for disposing of Section 11 petitions (Section 11(13)) with the Supreme Court’s directive in NN Global Mercantile v. Indo Unique Flame (2023) 56 SC to align with the Indian Stamp Act, 1899, for unstamped instruments.

The court established the following guidelines:

1. Filing of Original Agreement: Petitioners must submit the original, executed instrument if filing a Section 11 petition based on an unstamped or insufficiently stamped arbitration agreement. However, when the arbitration agreement is adequately stamped, filing the original is not required. The certified copy should clearly indicate proper stamping, and the Section 11 petition must include a statement to this effect.

2. Impounding Unstamped Agreements: Unstamped or insufficiently stamped arbitration agreements must be mandatorily impounded under Section 11. Under Section 33 of the Indian Stamp Act, the court can delegate the examination and impounding of such instruments to an appointed officer (relying on NN Global and Black Pearl Hotels v. Planet M. 2017 SCC OnLine SC 185).

3. Impounding Procedures: After impounding, the court has two options: (a). Forward the impounded instrument to the relevant collector of stamps. Once the duty is levied and endorsed under Section 42 of the Indian Stamp Act, the instrument becomes admissible, and the court can proceed under Section 11 of the A&C Act. (b). Use Section 35 of the Stamp Act to enable the deposit of duty and penalty with the court. This option is suitable when the quantum of duty is not in dispute.

4. Delegating Tasks to the Registrar: Tasks such as instrument examination, impounding, preparation of duty and penalty reports, endorsement for levy, transmission of authenticated copies, and certificates can be delegated to the Registrar by the court.

5. Time-Bound Directions: If the court chooses option (a), it can provide time-bound directions to the collector.

These guidelines aim to address the challenges of handling unstamped instruments within the framework of Section 11 petitions.

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