The year 2020 has seen some important legislative and case law developments in arbitration law in India. The year ended with the following landmark judgments by the Supreme Court.
Landmark judgments by Supreme Court
Vidya Drolia and others v Durga Trading Corporation [Judgment dated 14.12.2020 in CIVIL APPEAL NO. 2402 OF 2019]
The Supreme Court overruled the ratio laid down in Himangni Enterprises v. Kamaljeet Singh Ahluwalia and held that the tenancy disputes are arbitrable as the Transfer of Property Act, 1882 does not foreclose arbitration, save and except for those tenancy disputes which are governed by rent control legislations as specific forums have been given exclusive jurisdiction to decide the special rights and obligations of the parties.
Vijay Karia v. Prysmian Cavi E Sistemi SRL & Ors. [Judgment dated 13.02.2020 in Civil Appeal No. 1544 of 2020]
The Court held that if a foreign award fails to determine a material issue which goes to the root of the matter, the award may shock the conscience of the Court and may be set aside. Also, there should be minimal interference while dealing with foreign awards u/s 48.
Mankastu Impex Private Limited v. Airvisual Limited [Judgment dated 05.03.2020 in Arbitration Petition No. 32 of 2018]
Significance of seat of arbitration is that it determines the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award.
National Agricultural Cooperative Marketing Federation of India v. Alimenta S.A.[Judgment dated 22.04.2020 in Civil Appeal No.667 of 2012]
The Supreme Court allowed the appeal and held that the award would be unenforceable as the contract was rendered unenforceable under Section 32 of the Contract Act, due to which NAFED cannot be held liable to pay damages under foreign award. It was observed that export without permission of the government would have violated the law, thus, enforcement of such award would be violative of the public policy of India.
Avitel Post Studioz Limited & Ors. Vs. HSBC PI Holdings (Mauritius) Limited[Judgment dated 19.08.2020 in Civil Appeal No. 5145 of 2016]
The Court held that serious allegations of fraud arise only in two situations 1) if it can be clearly conculded that the arbitration clause or agreement itself does not exist 2) cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or malafide conduct, thus necessitating the hearing of the case by a writ court.
Government of India v. Vedanta Ltd & Ors. [Judgment dated: 16.09.2020 in Civil Appeal No. 3185 of 2020]
The Court held that the period of limitation for filing for enforcement of a foreign award under Sec.47 & 49, would be governed by Art.137 of the Limitation Act, 1963 which prescribes for period of 3 years from when right to apply accrues.
Decisions of Indian Courts on arbitration
Highlights of 20 important decisions delivered by the Indian Courts on Arbitration law from August, 2020 to December, 2020 are as follows.
Section 2
Whether an ‘Emergency Arbitrator’ is outside the scope of Section 2(1)(d) of the A&C Act?
Future Retail Ltd. v. Amazon.Com Investment Holdings LLC & Ors. [Judgment dated 21.12.2020 in CS(Comm) 493/2020]
The Court relied on the decision in Avitel Post and held that an Emergency Arbitrator is outside the scope of Section 2 (1) (d) because the Parliament did not accept the recommendation of the Law Commission to amend Section 2 (1) (d) to include an ‘Emergency Arbitrator’.
Section-5
To what extent can there be judicial intervention in the interlocutory directions passed by the Arbitrator?
Dinesh Gupta & Ors. v. Anand Gupta & Ors. [Judgment Dated:17.09.2020 in Arb. A. 4/2020]
The Court emphasised on minimum judicial intervention with arbitral proceedings and held that if the decision of the arbitrator is informed by adequate application of mind, it should be allowed to prevail and interfence in such decisions would do violence to the entire ethos of the 1996 Act.
Section-9
What is the scope of Section 9 of the Act?
CRSC Research and Design Institute Group Co. Ltd. v. Dedicated freight Corridor Corporation of India Ltd. & Ors. [Judgment Dated: 30.09.2020 in OMP (I) (COMM.) 184/2020]
The Court relied on Avantha Holdings Ltd. v. Vistra ITCL India Ltd. and held that following conditions be satisfied before interim protection is granted u/s 9:
Existence of arbitration clause and manifest intention of petitioner to invoke it and initiate arbitration proceedings;
existence of prima facie case, balance of convenience and irreparable loss to justify the grant of interim relief; and
existence of emergent necessity.
Whether there was a binding arbitration clause in the Agreement?
Royal Orchid Associated Hotels Private Ltd. v. Kesho Lal Goyal [Judgment dated: 03.11.2020 in OMP(I)(COMM) 247/2020]
The Court relied on Supreme Court’s decision in INDTEL Technical Services Pvt. Ltd. and held that language of the clause shows that the petitioner clearly had an option either to get the disputes adjudicated through the the Court or by way of arbitration. Since the petitioner filed a Section 9 petition, the Court held that Petitioner intends to get the disputes settled through the process of arbitration and thus, arbitration clause is binding.
Section-11
Whether the lease/tenancy disputes which are not governed under the special statutes but under the TP Act are arbitrable?
Suresh Shah vs Hipad Technology India Private Ltd. [Judgment dated 18.12.2020 in Arbitration Petition (Civil) No(s). 08/2020]
The Court held that if the special statutes do not apply to the property and the tenancy created thereunder as on the date when the cause of action arises, are governed by an Arbitration Clause; then the dispute is arbitrable and there shall be no impediment whatsoever to invoke the Arbitration Clause.
Whether the Court can appoint the arbitrator suggested by the Respondent after the Respondent has lost its right to appoint an arbitrator of his choice?
Tata Projects Ltd. v. Oil and Natural Gas Corporation Ltd. [Judgment Dated: 09.10.2020 in Arb. P 302/2020]
The court held that there is no embargo on the Court appointing the arbitrator suggested by the Respondent, if the Court is convinced that the proposed arbitrator is suitable and qualified.
Whether allegations of fraud can nullify an arbitration clause?
Sai Guru Mega Solar Park Pvt. Ltd. v. Union of India, Through the Ministry of New and Renewable Energy & Anr. [Judgment Dated: 26.10.2020 in Comm Arbitration Application No. 85 of 2020]
The Court relied on decisions in Rashid Raza and Avitel Post Studioz Ltd. and held that mere allegation of siphoning off does not reach the question of invalidity on the ground of fraud of the underlying agreement or the arbitration clause so as to render it a nullity.It was further observed that the Respondents have filed no proceedings to have the agreement declared void.
Whether a party can invoke arbitration clause of a superseded contract?
Sanjiv Prakash v. Seema Kukreja [Judgment dated: 22.10.2020 in Arb. P. 4/2020]
The Court observed that an arbitration agreement is a creation of an agreement and may be destroyed by a subsequent agreement owing to novation. It was held that the arbitration clause perished owing to the novation of the Contract and thus, invocation of the same is not justified.
Which arbitration clause will prevail when there are two different arbitration clauses in two related agreements between the same parties?
Balasore Alloys Ltd. v. Medima LLC [Judgment Dated: 16.09.2020 in Arbitration Petition (Civil) No. 15/2020]
Relying on Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan & Ors., the court held that the two clauses will have to be read in harmony and reconciled to see which clause would be relevant considering the nature of dispute.
Section 12
Whether the absence of the words "for the time being in force" in an arbitration clause would have consequences?
ABB India Ltd. v. Bharat Heavy Electricals Ltd. [Judgment Dated: 02.11.2020 in O.M.P. (T) (COMM.) 48/2020]
The Court held that there is no major difference between a provision which makes the 1996 Act, with its statutory modifications and enactments, applicable, and, a provision which makes the 1996 Act, with its statutory modifications and enactment, for the time being in force, applicable. It was observed that the expression "with its statutory modifications and enactments", itself glances towards the future and the usage of the words "for the time being in force" is done as an abundant caution.
Sections 14 and 15
Whether the mandate of an arbitrator can be terminated on the ground that he had recused himself in another arbitration between same parties?
Himachal Pradesh Power Corporation Ltd. v. Hindustan Construction Company Ltd. [Judgment dated: 25.09.2020 in OMP (T) (COMM) 65/2019]
The Court held that since the present case does not fall in any of the 19 categories mentioned in the VII Schedule of the Act of 1996 and thus, Section 12(5) does not bar his eligibility.
Section 16
Whether a writ petition filed under Art.227 against an order dismissing S.16 application is maintainable?
Punjab State Power Corporation Ltd. v. Emta Coal Ltd. [Judgment Dated: 18.09.2020 in Special Leave to Appeal (C) No. 8482/2020]
Relying on Deep Industries Ltd. v. Oil & Natural Gas Corporation Ltd. the Court held that the resort to the writ Court against an order dismissing section 16 application can only be if the order passed by the arbitrator is so perverse that the only conclusion is that there is a patent lack in inherent jurisdiction.
Section-23
Whether the Arbitral tribunal is precluded from entertaining counterclaims where there is no specific reference of the counter-claims to arbitration?
M/s Ved Prakash Mittal & Sons v. Principal Kirorimal College [Judgment dated: 24.09.2020 in CM(M) 452/2020]
Relying on the Supreme Court’s judgment in State of Goa v. M/s Parveen Enterprises the Court reiterated that unless the arbitration agreement explicitly provides for adjudication of specific referred disputes, counter claims can be raised, amended or added provided they are arbitrable and within limitation. The Court observed that the Court while exercising powers u/s 11 is not required to draw up a list of disputes and refer them to arbitration.
Section-34
Whether the arbitral tribunal is the final judge of evidence?
Anglo American Metallurgical Coal Pvt. Ltd. v. MMTC [Judgment dated 17.12.2020 in Civil Appeal No. 4083/2020]
Relying on Sudarsan Trading Co. v Govt. of Kerala the Court held that arbitral tribunal is the final judge of quality as well as the quantity of evidence before it. Also, Court relied on Associate Builders case and held that if the Majority Award is a plausible view of the case then it cannot be interfered with.
Whether implementation of GST would qualify as a Force Majeure event?
National Highways Authority of India v. Sahakar Global Ltd. [Judgment dated: 29.09.2020 in O.M.P. (Comm) 486/2020]
The Court placed reliance on Hindustan Construction Company Ltd. v. UOI and reiterated the limited scope of interference u/s 34. Thus, the Award holding GST as a Force Majeure event was upheld.
Whether proceedings under Section 34 of the Act could be validly maintained to challenge a pre-BALCO foreign award?
Noy Vallesina Engineering Spa v. Jinal Drugs Ltd. [Judgment Dated: 26.11.2020 in Civil Appeal No. 8607 of 2010]
The Supreme Court reiterated the way in which BALCO applies in respect of agreements entered into and awards rendered earlier, with respect to the law of the seat of arbitration excluding applicability of Part I of the Act. Court also noted clear intention of the parties in the present case to make London the seat of arbitration. Thus, the Supreme Court set aside the decision of the division bench which held that proceedings under Section 34 of the Act challenging a pre-BALC
Whether it is binding on the Court to follow the precepts governing the stay of a money decree under CPC while dealing with an Award u/s 36 of the A&C Act?
M/s NHPC Ltd. v. M/s Hindustan Construction Company Ltd. [Judgment Dated 04.12.2020]
The Court held that a comparison of Code of Civil Procedure, 1908 and Arbitration and Conciliation Act, 1996 shows that the both can be equated on certain basic principles, but at the same time they are vastly different. Further, the language of the provision under S. 36(3) of the Act does not make it binding for Courts to follow rules governing the stay of money decree, but only guiding principles.
Section-37
Whether there is an outer limit of 120 days for filing an appeal u/s 37 of the Arbitration Act, 1996?
NTPC Ltd. v. Voith Hydro Joint Venture [Judgment Dated: 22.09.2020 in SLP (C) 7312/2020]
The Petitioner, under the present case, filed for an appeal after 128 days of passing of judgment, the same was dismissed by the HC, as the maximum period of limitation to file an appeal is 120 days, citing the decision in UOI v. Varindera Constructions Ltd., (2020) 2 SCC 111 and N.V. International v. State of Assam (2020) 2 SCC 109. The said Order was challenged before the Supreme Court. The Supreme Court did not exercise discretion under Art.136 of the Constitution. However, it issued notice on the question of law involved in the two judgments mentioned above.
Whether the Court u/s 37 can modify the directions issued by the Arbitral Tribunal?
Edelweiss Asset Reconstruction Company Ltd. v. GTL Infrastructure Ltd.[Judgment Dated: 18.11.2020]
The Court relied on Tirupati Balaji Developers (P) Ltd. v. State of Bihar and held that legislature has consciously conferred appellate powers, to the High Court, against orders of Arbitral Tribunals, rendered under Section 17 of the 1996 Act. Hence, in the absence of anything contrary, powers of the court under Section 37 would also extend to modifying the order of the Arbitral Tribunal.
Section-45
Whether two Indian parties can choose a foreign law as the law governing arbitration?
Dholi Spintex Pvt. Ltd. v. Louis Dreyfus Company India Pvt. Ltd. [Judgment Dated: 24.11.2020 in CS(COMM) 286/2020]
The Court held that two Indian parties can agree to arbitrate in a foreign system and there is no legal bar to this especially where transactions involve foreign elements. In other words, since an arbitration agreement being an agreement independent of the substantive contract, the parties can choose a different governing law for the arbitration.
Author is Principal Associate in Advani & Co. He would like to thank Harshita Kakar, student, Christ University for her assistance.