ARBITRATION – LATEST JUDICIAL DECISIONS

[Mr. M. GOVINDARAJAN]

Arbitration and conciliation has been preferred for the earlier disposal of the commercial disputes in inland as well as international business which reduces time consuming, heavy fees payable before the judicial forum and reduces the elongated procedure involved in civil matters.   In this article various issues relating to arbitration proceedings is discussed with reference to latest judicial decision.

Survival of Agreement Clause   

In ‘Young Archievers V. IMS Learning Resources (P) Limited’ – 2013 (9) TMI 137 - SUPREME COURT the Supreme Court held that if the contract is superseded by another contract, the arbitration clause, being a component part of the earlier contract, falls with it.  Where the parties entered into fresh contract by novation/substitution of the original agreement and there was no provision in the new agreement in respect of any disputes arising under the original agreement nor did it contain arbitration clause to resolve disputes, the new agreement was pure and simple novation of original contract.  Therefore the dispute cannot be referred to arbitration.

Appeal

In ‘Masusmi SA Investment LLC V. Keystone Realtors (P) Limited and others’ – 2012 (11) TMI 607 - BOMBAY HIGH COURT  the High Court that the Company Law Board for referring the parties to arbitration, while allowing the application filed under Section 8 of the Arbitration and Conciliation Act, decided the application exercising power under Section 8 of the Act as a judicial authority and does not exercise any jurisdiction under Section 397/398 of the Companies Act read with Section 402.   Once the judicial authority has referred the matter to arbitration, judicial authority cannot continue the jurisdiction over the subject matter of such proceedings and nothing remains to be decided in the original action once parties have been referred to arbitration.    Since the order passed by the Board under Section 8 of the Arbitration Conciliation Act, 1996 referring the parties to arbitration is not an appealable order under Section 37 of that Act, the appellant cannot invoke Section 10F and appeal filed is liable to be dismissed.

In re ‘Aadi India (P) Limited and others’ – (2014) 118 CLA 280 (CLB, ND) the arbitrator already passed awards.  The High Court held that it is not the stage to decide whether the matter goes to arbitrator or Company Law Board.  It is to challenge the award of the arbitrator before proper forum canvassing those awards not binding upon the parties, but not to simply throw the awards into dustbin saying they are not binding upon them.  The present proceedings before the Company Law Board are to undo the awards passed by the arbitrator, because the subject matter of the arbitration awards is the company will go to the respondents group.  The High Court further held that no doubt, whenever a party is aggrieved of oppression and mismanagement the party is competent to move a petition under Section 397 and 398 of the Companies Act.   But it shall not be a devise to strangulate the sanctity of a contractual obligations agreed upon by the parties.

Fraud and malpractice

In ‘Satish, S/o Raghuvirchand Soad and others V. Gujarat Tele Links (P) Limited and others’ – (2014) 118 CLA (Snr.) 1 (Bom) it was held that when the serious allegations pertaining to fraud and malpractice are required to be tried, the arbitrator will not be competent to deal with such matters which requires production of oral and documentary evidence by either of the parties to prove the fraud and misrepresentation.   Such a situation can be settled only in court and cannot be properly gone into by the arbitrator.   While considering the application under Section 8, the Judge is required to apply his mind to the nature of the dispute before arriving at a finding as to whether such a dispute is governed by the arbitration clause or not.   He cannot act in a mechanical manner and refer the dispute to an arbitrator merely on the basis of the production of arbitration agreement.

Summary proceedings

In ‘Shiv Shanker Rice Mills V. Punjab State Co-operative Supply & Marketing Federations Limited, Markfield and another’ – 2014 (6) TMI 155 - Punjab and Haryana High Court it was held that the proceedings under Section 34 are not civil proceeding like in a civil suit rather the same are summary proceedings.   In such proceedings, neither issues are required to be framed nor it is permissible such proceedings should follow the provisions of the Code of Civil Procedure in respect of leading evidence.   The Court can only frame the legal points for determination and may afford opportunity to lead evidence by way of affidavits to both parties and there is no provision for wholesale or automatic import of all the provisions of the Code of Civil Procedure.

Interpretation of agreement terms

In ‘Dr. Vijapat Singhania V. Hari Shankar Shinghania’ – 2014 (6) TMI 199 - BOMBAY HIGH COURT it was held that an arbitrator is a creation of a contract between the parties and if he ignores the specific terms of the contract, that would constitute a jurisdictional error which is acceptable of being corrected by the Court.   Where the arbitrator is called up on the interpret the terms of agreement which is a possible view, the court under Section 34 will not interfere inasmuch as the construction of the agreement falls within the province and domain of the arbitrator.

In ‘Home Care Retail Marts (P) Limited V. Harish Kausal Developers’ – 2014 (6) TMI 212 - BOMBAY HIGH COURT it was held that the court under Section 34 cannot overlook the issue of law and jurisdiction of the arbitrator to deal with the aspect of leave and licence agreement and/or business conducting agreement.   The party can waive their rights as permissible under the Act but not the question of law and jurisdiction based upon admitted and agreed clauses/terms itself.   The decision to proceed with the matters in spite of objection itself is wrong and the award is liable to be set aside.

In ‘Prajakta Mahesh Joshi and another V. Rekha Uday Prabhu’ – 2014 (6) TMI 99 - Bombay High Court   it was held that the requirement of consent contained in an arbitration clause in no way permits any one party to appoint arbitrator unilaterally.   It is necessary for both the parties to appoint and/or nominate and/or select sole arbitrator by consent.

Dual capacity        

In ‘Prajakta Mahesh Joshi and another V. Rekha Uday Prabhu’ – 2014 (6) TMI 99 - Bombay High Court it was held that where the arbitrator was appointed by one party unilaterally and was also his advocate, such dual capacity would be against the basic provisions of the Act and/or the arbitration scheme itself.   The Advocate by consent can act as arbitrator but he cannot act in such dual capacity for only one party.

Supplemental agreement

In ‘Dr. Tulasi Ram V. Chaitanya Builders & Leasing (P) Limited’ – (2013) 112 CLA (Snr.) 7 Mad, it was held that where the very nomenclature given to the supplemental agreement speaks itself that it is as continuation of and informing part of the main agreement, it would amount to bodily lifting remaining terms and conditions of the main agreement in entirety into the supplemental agreement.  If the main agreement contains a provision for settlement of disputes by arbitration, the arbitration clause will also apply to the supplemental agreement and the disputes will be liable to be referred to arbitration.

Unilateral appointment of arbitrator

In ‘Leslie David Isaac V. Bahadur Bapuji Sanjana’ – (2013) 112 CLA (Snr.) 1 (Bom) it was held that where parties have agreed for appointment of sole arbitrator jointly and unilaterally a party makes unilateral appointment of the arbitrator to which other party resists continuation of the arbitral tribunal, the continuation of the proceedings by it would be in breach of arbitration clause.  The appellate court under Section 37 is empowered to stay and/or suspend an interim order passed by the arbitral tribunal pending final decision.   If the Tribunal passes an order under Section 17 the appellate court is entitled to accept and/or reverse the same.

Refusal of foreign award

In ‘Shri Lal Mahal Limited V. Progetto Grano Spa’ – 2013 (7) TMI 643 - SUPREME COURT it was held that enforcement of foreign award would be refused only if it would be contrary to fundamental policy of Indian law or the interests of India or justice or morality.

Jurisdiction of Court

In ‘Swastik Gases (P) Limited V. Indian Oil Corporation Limited’ – 2013 (7) TMI 642 - SUPREME COURT  it was held that in arbitration other than international commercial arbitration, the reference to Chief Justice in Section 11 shall be construed as a reference to the Chief Justice of High Court within whose local limits the Principal Civil Court referred to Section 2(1)(e) is situate and territorial jurisdiction relating to application under Section 11 for appointment of arbitrator is governed by the provisions of Code of Civil Procedure in respect of institution of suits.

Constitution of another Arbitral Tribunal

In ‘Antrix Corporation Limited V. Devas Multimedia (P) Limited’ – 2013 (5) TMI 402 - SUPREME COURT it was held that where an arbitrator has been appointed and information thereof has been conveyed to other party, a separate application under Section 11(6) for appointment of an arbitration is not maintainable.   Once the power has been exercised under the arbitration agreement, there is no power left to, once again, refer the same dispute to arbitration under Section 11 unless the order closing the proceeding is subsequently set aside.   When the arbitral tribunal is already seized of the dispute between the parties to the arbitration agreement constitution of another arbitral tribunal in respect of those issues, which are already pending before the arbitral tribunal for adjudication, would be without jurisdiction.

Requirement of valid agreement

In ‘Union of India V. Electro Ferro Alloys (P) Limited’ – (2013) 115 CLA (Snr.) 1 Guj, it was held that it is not open to the Court to refer the parties to arbitration as and when application is filed by a party under Section 8.   The court owes a duty to decide whether there is a valid agreement executed by the parties which contains an arbitration clause.  When existence of a valid arbitration is disputed by one of the parties, the court is bound to consider whether it was executed by the parties including the validity of the agreement.

In ‘Bombay Intelligence Security (India) Limited V. ONGC Limited’ – 2013 (4) TMI 279 - BOMBAY HIGH COURT  it was held that where the appointment of the arbitrator has already been made by one of the parties, the Chief Justice or his designate cannot decide whether the appointment already made in terms of the arbitration agreement is valid or illegal.   The question as to whether such appoint is in terms of the agreed procedure prescribed in the arbitration clause or not touches the jurisdiction of the arbitrator which cannot be decided by the Chief Justice or his designate under Section 11(6).   Such issue of jurisdiction can be raised, before the arbitrator himself by making application under Section 11.

In ‘Today Homes & Infrastructure (P) Limited V. Ludhiana Improvement Trust and another’ – 2013 (5) TMI 381 - SUPREME COURT it was held that it is not open to the designated Judge, while deciding an application under Section 11(6) to undertake a detailed scrutiny of the merits and demerits of the case almost as if he was deciding a suit.   He is only required to decide such preliminary issue as jurisdiction to entertain the application, the existence of a valid arbitration agreement, whether a live claim existed or not, for the purpose of appointment of an arbitrator.   The designated Judge cannot hold that once the main agreement between the parties is declared void, the entire elements thereof including any arbitration claim that may have been incorporated in the main agreement is rendered invalid.

Interim order by Court

In ‘GWL Property Limited V. Embassy Property Development Limited’ – (2013) 115 CLA (Snr.) 9 (Mad) it was held that even though Sec. 9 could be invoked only by a party to the arbitration agreement, the interim relief could be granted by the court even against the parties in whom goods or properties vest in relation to agreement.  Unless such power is available under Section 9 the parties to the arbitration agreements would be frustrated even if they succeed in the arbitral proceedings before the arbitral tribunal.   Thus where immovable properties were conveyed to the appellant in pursuance of share purchase agreement containing arbitration clause, the Court can exercise powers to preserve and protect subject matter of arbitration proceedings even though the appellant was not a party to the share purchase agreement.

Named Arbitrator                 

In ‘Tiffins Barytes V. C. Satyanarayana and another’ – (2013) 113 CLA (Snr.) 1 (Mad) it was held that where the parties approved an employee as named arbitrator only for his skill and after considering his necessity to decide the dispute, the principle that the man can be a Judge for his own cause is not applicable.   Merely because the arbitrator is an employee-cum-special officer of the parties cannot be a ground for non enforcing the arbitration clause.   Where the selection of named arbitrator was by mutual consent and the disability of any kind in that person chosen could not be a ground to terminate the mandate unless both parties agreed to terminate the mandate of the arbitrator.

Limitation for challenging the award

In ‘E-Square Leisure (P) Limited V. K.K.Davis Consultants & Engineering Private Limited’ – (2013) 114 CLA (Snr.) 12 (Bom) it was held that on conjoint reading of Section 34(3) under Section 31(5) it is clear that there is no requirement for making an application for a certified copy of the arbitral award.   Limitation for filing an application for challenging award under Section 34 would commence only after signed copy of the award is received by the party from the arbitral tribunal.   Therefore, where the signed copy of the award is not delivered, limitation for filing an application for challenging the award would not commence and even if a copy of the award was subsequently delivered that would not commence for want of service of signed copy of the award, there was no delay in filing application.

Ignoring the specific terms of contract

In ‘‘Dr. Vijapat Singhania V. Hari Shankar Shinghania’ – 2014 (6) TMI 199 - BOMBAY HIGH COURT it was held that an arbitration is a creation of contract between the parties. If he ignores the specific term of the contract, that would constitute a jurisdictional error which is susceptible of being corrected by the Court.   Where the arbitrator is called upon to interpret the terms of an agreement between the parties and he takes a view on a provision of an agreement which is a possible view, the Court under Section 34 will not interfere inasmuch the construction of the agreement falls, within the province and domain of the arbitrator.

Seeking assistance of court

In ‘Delta Distilleries Limited V. United Spirits Limited & another’ – 2014 (3) TMI 866 - SUPREME COURT it was held that Section 27 is enabling section empowering arbitral tribunal to seek assistance from the Court where any evidence is required from any person.   The term ‘any person’ is wide enough to cover not merely the witnesses, but also the parties to the proceedings.   If a party fails to appear before the arbitral tribunal, the tribunal can proceed ex-parte and for that purpose if any evidence becomes necessary, the Tribunal has the power to get evidence.

Time barred claim

In ‘Schlumberger Asia Services Limited V. ONGC Limited’ – 2013 (5) TMI 401 - SUPREME COURT it was held that though empowered to decide whether claim is time barred it is not imperative for the Chief Justice/Designate Judge to decide the same and he can leave it to be decided by the arbitral tribunal.