JUDICIAL INTERVENTION IN ARBITRAL AWARDS: MORE GUIDANCE LESS GATEKEEPING

“Expeditious disposal, finality of arbitral awards, limited judicial intervention and limited review of awards can be defined as four pillars on which the edifice of law governing “Alternate Dispute Resolution Mechanism” is built. These four pillars are not exhaustive, but can be described as essential pillars”.1

INTRODUCTION

The independence from the sluggish and overburdened judicial system has made arbitration the preferred option for parties to resolve their high-stake and technically unique disputes discreetly, amicably and relatively expeditiously. The intention behind the Arbitration and Conciliation Act, 19962 (‘the Act’) wasto enable parties to independently deal with their disputes by giving them the tools to choose their own forum and arbitrators depending on what suits their needs the best. Role of the Court has been therefore purposefully confined to that of a supervisory authority. It is primarily to support the arbitral process and expedite it as much as possible and intervene in the process as little as possible. This does not mean that Courts do not have an important role to play. Whether court intervention is viewed as supporting or as interfering with the arbitral process depends upon a range of factors including the timing, manner and degree of such intervention. Much will also depend upon the relative importance of the competing concepts of party autonomy and due process. As a consequence the question of whether intervention supports or interferes with the arbitral process has been often hotly debated.

International Position

Consolidated in the New York Convention, 19583 , the international position has consistently been to encourage a pro-arbitration and pro-enforcement stand. The same has been reflected in the UNCITRAL Model Law4 as well which is in consonance with the New York Convention. It consists of a number of provisions which empower courts to assist and, if thought necessary, to intervene in aspects of the arbitral process. Article 5 of the Model Law expressly prohibits any court intervention beyond its provisions. It sets out the boundaries of judicial intervention, which inter alia includes Article 34 and 36 of the Model Law. This provision is a proof of the intention to have minimal intervention and has been interpreted strictly. There is no provision in the Model Law for any form of appeal from an arbitral award, on the law or on the facts, or for any judicial review of the award on its merits. If the tribunal has jurisdiction, the correct procedures are followed and the correct formalities are observed, the award whether good, bad or indifferent, is final and binding on the parties.5

Even before the English legislation of Arbitration and Conciliation Act, 1996 (‘UK Act’) came into force, Section 66 to Section 71 of which deal with Powers of the court in relation to award, the English Courts had already set precedents establishing boundaries for themselves beyond which they could not interfere with arbitral Awards. In the landmark case of Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd6, the Court was of the view that as a matter of general approach the courts should strive to uphold arbitration awards. The approach is to read an arbitral award in a reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault that can be found in it. Once the UK Act came into force, the Courts only further defined the role they are to play with arbitral Awards, specifically confining the scope of ‘substantial injustice’ under Section 68 of the UK Act7 . It wasestablished that it is not normally appropriate for the court to try the material issue in order to ascertain whether substantial injustice has been caused. To do so would be an entirely inappropriate inroad into the autonomy of the arbitral process8. It is wrong for the Court to allow a party to use Section 68 of the UK Act to challenge the decision on a question of facts and should exercise great care and circumspection to identify cases which genuinely give rise to a serious irregularity9. Section 68, which specifically deals withapplications to the court to challenge an award in the proceedings on the ground of serious irregularity, is concerned with due process and not with whether the tribunal has made the right finding of fact, nor is it concerned with whether the tribunal has made the right decision in law. It is pertinent for the Court to keep in mind that the assessment and evaluation of evidence is a matter exclusively for the tribunal and the Court therefore has no rights in that regard.10

Singapore which has emerged as a popular choice for Arbitration is an apostle of the minimal curial intervention policy and has only had a handful of decisions in which Courts have set aside arbitral Awards. The Model Law has force in Singapore and along with the International Arbitration Act, 1994 (‘IAA’)11 has led the Courts to take a very strong pro-arbitration position with respect to challenges against and enforcement of international awards as is evident insignificant decisions such as Astro Nusantara International BV v PT Ayunda Prima Mitra12 and PT Pukuafu Indah v Newmont Indonesia Ltd13 in which the Courts have strengthened the principle of avoiding curial interference of arbitral Awards.

The Court of appeal of Singapore in its judgment of Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd14 laid down two primary considerations to minimal curial intervention. First is to recognise the autonomy of the arbitral process by encouraging finality so that its advantage as an efficient alternative dispute resolution process is not undermined. Second is that by virtue of opting arbitration it must be acknowledged that parties have accepted to bound themselves to a very limited number of options before Court. It would be then unfair and inappropriate for a dissatisfied party to have Court intervene in the guise of appellate function except for in very specific situation provided for in the statute. The Court stated that,

“… It must always be borne in mind that it is not the function of the court to assiduously comb an arbitral award microscopically in attempting to determine if there was any blame or fault in the arbitral process; rather, an award should be read generously such that only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied.”

It must always be borne in mind that it is not the function of the court to assiduously comb an arbitral award microscopically in attempting to determine if there was any blame or fault in the arbitral process; rather, an award should be read generously such that only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied15. The High Court of Singapore in 2014 further narrowed down the scope of meddling with arbitral Awards in the judgment of BLC and others v BLB and another16. It held,

“…the review should not involve a re-argument or re-trial of the arbitration. I must emphasise that it is not the role of the court to rake through the award and the record fastidiously with the view to finding fault with the arbitral process. Instead, “an award should be read generously such that only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied”

U.K. and Singapore are not the only nation-states that have taken steps to ensure a pro-arbitration ecosystem with a pro-enforcement bias for both domestic Awards as well as foreign Awards. States such as United States of America17, France18, Australia, New Zealand19 and even China have taken various steps to remove the various roadblocks that one may face when trying to get their Award enforced. India too has had a learning curve with respect to enforcement of Awards, domestic as well as foreign with recent Supreme Court judgments paving the way.

SECTION 34& 48: A BALANCING ACT

Section 3420 of the Act provides for recourse to a Court against an arbitral Award by making an application to set aside such Award.The Courts mayset aside domestic Awards if any of the five grounds in Section 34(2) (a) whichinclude if any party was under some incapacity, or agreement is not valid under the law it was subjected to, or if no notice was given the party making such an application, or if the dispute dealt in the Award was beyond the scope of the agreement or if the tribunal was not composed according to the agreement. There are two additional grounds as contained in section 34(2) (b) of the Act- Subject matter not capable of settlement by arbitration under the law or if the Award is in conflict with Public Policy of India.Section 48 on the other hand enables a party to make a request to the Court to refuse enforcement of a foreign Award. It provides that the Court ‘may’ refuse to enforce a foreign arbitral award in India. Compared to Section 34,Section 48 is a similarly worded provision, both sections being variations of Article 34 and Article 36of UNCITRAL Model Law respectively. Even though some of the grounds laid down may be similar to those laid down in Section 34, a successful proceeding under Section 48 does not amount to setting aside of the Award. It only means that enforcement of foreign Award may not take place within Indian Territory through process of Indian Courts.21

In the past few years, Indian Courts have taken a stand to narrow down the scope of their interference when it comes to setting aside or refusing an Award. In two recent landmark judgments, Ssangyong Engineering & Construction Co. Ltd. v National Highway Authority of India22 (‘Ssangyong’) and as Vijay Karia v Prysmian Cavi E. Sistemi Srl and others23 (‘Vijay Karia’), the Hon’ble Supreme Court of India has further defined and narrowed down the scope of intervention in Section 34 and Section 48 of the Act respectively. In the Ssangyong case, the Apex Court clarified the contours of Section 34 (2)(b)(ii) of the Act, which empowers the Courts to set aside an arbitral Award in conflict with the public policy of India. The Court elucidated that the phrase ‘to be in conflict with public policy of India’ means to substantially or procedurally, breach some fundamental principle of justice which shocks the conscience of the Court. It further laid out that,

“Under no circumstance can any Court interfere with an arbitral Award on the ground that justice has not been done in the opinion of the Court. That would be an entry into the merits of the dispute which is contrary to the ethos of Section 34 of the 1996 Act.”

In case of Vijay Karia, the two judge bench judgment, authored by Justice R.F. Nariman, explained the grounds under Section 48. The judgment categorised the grounds into 3 categories namely-

  • Category I- Conditions that affect jurisdiction, such as invalidity or illegality of the arbitral agreement.
  • Category II- Grounds that affect party interest alone such as inability of a party to present its case.
  • Category III- Grounds that deal with public policy of India.

The Court interpreted that the term ‘may’ is to be read as shall i.e. as a mandatory provision in case of Category I and Category III. This means that the Court must refuse the enforcement of the foreign Award when such grounds are established before the Court. As for Category II, the Vijay Karia judgmentallows the Courts to enforce a foreign award even when the party requesting the refusal of the enforcement of the foreign award successfully establishes the conditions enshrined in Category II, provided that the Court is satisfied that no prejudice has been caused to such party. The Apex Court also stated that,

“The Policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award in the extremely narrow grounds of Section 48.”

The Court has upheld the pro-enforcement principle by narrowing down the window in which the section applies and reaffirming the discretionary powers enshrined with the Courts to not refuse recognition.

CONCLUSION

It is often the most common opinion that Court intervention in matters of Arbitration is unwarranted interference. That this interference causes unnecessary delays and gives unfair opportunities to Award- Debtor to defer from performing the obligations or making payments as set out in the awards. But as Lord Mustill Observed, it is only a Court with coercive power that could rescue an arbitration which is in danger of foundering24. The fact of the matter is that it is through Courts’ support that expeditious arbitral proceedings are possible which culminate in Awards that are final and binding. As is evident, Courts through their various decisions have shepherded the arbitral system into becoming more self-reliant and dependable. The Courts have also started to appreciate the fact that the parties choose Arbitration being cognizant of the fact that the method they have chosen is a way to amicably and expeditiously resolve disputes between them which may not necessarily mean receiving an award which passes the litmus test of being a well written judgment. All that such an Award needs to pass is the narrow set of standards laid down in the legislation. What remains to be seen is whether this trend of pro-enforcement bias continues or not.

1GM Railways v Veeyar Engineers & Contractors, 2019(3) RAJ 664 (Mad)
2Arbitration and Conciliation Act, 1996
3Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)
4UNCITRAL Model Law on International Commercial Arbitration (United Nations document Al40117, annex I), 1985
5Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration (Sweet & Maxwell, 4th Ed, 2004)
6[1985] 2 EGLR 14
7Section 68, Arbitration and Conciliation Act, 1996, U.K.
8Vee Networks v. Econet Wireless International Limited,Para 90, [2004] EWHC 2909 (COMM)
9Schwebel v Schwebel, Para 23,[2011] 2 AER (Comm) 1048
10UMS Holding Limited, Energy Standard Fund Limited, Energy Standard Industries Limited v Great Station Properties S.A., Inter Growth Investments Limited, Stremvol Holdings Limited, [2017] EWHC 2398 (Comm)
11International Arbitration Act, Chapter 143A
12Astro Nusantara International BV and Others v PT Ayunda Prima Mitra and Others [2012] SGHC 212 (Belinda Ang Saw Ean J).
13PT Pukuafu Indah v Newmont Indonesia Ltd [2012] SGHC 187 (Lee Seiu Kin J).
14[2007] 3 SLR(R) 86
15Supra
16[2014] SGCA 40
17524 F. Supp. 2d 332 (SDNY 2007).
18B Hanotiau and O Caprasse, ‘Arbitrability, Due Process and Public Policy Under Article V of the New York Convention’, Journal of International Arbitration, (2008) Vol. 25(6) 712 at 735.
19UNCITRAL-MOJ-KCAB Joint Conference: Arbitration Reform in the Asia Pacific Region: Opportunities and Challenges, 11-12 November 2013, Seoul, Republic of Korea.
20Section 34, Arbitration and Conciliation Act, 1996
21HPCL v Videocon Industries Ltd, 2012 (3) Arb LR 194 (Del)
22Civil Appeal No. 4779 of 2019, Supreme Court of India, 08.05.2019
23(2020) SCC OnLine SC 177
24John Lurie, “Court Intervention in Arbitration: Support or Interference” (2010) 76(3) The International Journal of Arbitration, Mediation and Dispute Management 447.

LIMITATION AS A PRELIMINARY ISSUE

INTRODUCTION

Period of limitation is a timeframe prescribed by law within which a suit, appeal or an application has to be made, beyond which it will be liable to be dismissed. Section 31 of the Limitation Act, 1963, lays down that every suit instituted, appeal preferred, and application made after the prescribed period i.e. the period of limitation shall be dismissed, even when limitation has not been set up as a defence. The Civil Procedure Code, 1908 (hereinafter referred to as Code) provides in Rule 11 (d) of its Order VII2 that a suit which appears from the statement in the plaint to be barred by any law, as the case may be under Section 3 of the Limitation Act, shall be rejected.

A preliminary issue can be described as a distinct element of a dispute that has the potential to decisively conclude the claim, or a substantial part of the claim, or otherwise substantially cut down on the scope and costs of the litigation. Rule 2 of Order XIV of the Code3 deals with the framing of preliminary issues. It States that the Court is to pronounce judgment on all issues:-

  • (1) Notwithstanding that a case may be disposed of on a preliminary issue, the Court shall, subject to the provisions of Sub-rule (2), pronounce judgment on all issues.
  • (2) Where issues both of law and of fact arise in the same suit, and the Court is of opinion that the case or any part thereof may be disposed of on an issue of law only, it may try that issue first if that issue relates to-
    • (a) the jurisdiction of the Court, or
    • (b) a bar to the suit created by any law for the time being in force, and for that purpose may, if it thinks fit, postpone the settlement of the other issues until after that issue has been determined, and may deal with the suit in accordance with the decision on that issue.

This blog aims to look at the nature of question regarding limitation and whether a question of limitation can be tried as a preliminary issue.

CAN MIXED QUESTIONS OF LAW AND FACTS BE DECIDED AS PRELIMINARY ISSUE?

Rule 2 of the Order XIV of the Code was substituted by Section 64 of the Code of Civil Procedure Code (Amendment) Act, 19764. Prior to the amendment, the rule read as follows-

Where issues both of law and of fact arise in the same suit, and the Court is of opinion that the case or any part thereof may be disposed of on the issues of law only, it shall try those issues first, and for that purpose may, if it thinks fit, postpone the settlement of the issues of fact until after the issues of law have been determined.

In 1964, the provisions of this rule came before the Apex Court for consideration in the case of Major S.S. Khanna vs. Brig. F.J. Dillon6 (hereinafter referred to as Major SS Khanna Case) where it was held that only where the court is of the opinion that the whole suit may be disposed of on the issues of law alone that the jurisdiction to try issues of law apart from the issues of fact may be exercised, but it is pertinent to note that the Code confers no jurisdiction upon the Court to try a suit on mixed issues of law and fact preliminarily. It further held that normally all the issues in a suit are to be tried by the Court and it shall not do so in situation where the issues, even of law, depend upon issues of fact, would result in lopsided trial of the suit.

The substituted Rule came in force on 1st of February, 1977. The Rule was substituted to provide that although a suit can be disposed of on a preliminary issue, the Court shall ordinarily pronounce judgement on all issues; but where any issue relates to the jurisdiction of the Court or a bar created by any law for the time being in force, the Court may postpone settlement of the other issues until the preliminary issue with regard to the jurisdiction of the Court or such bar has been determined and the Court may deal with the suit in accordance with the determination of such preliminary issue.

Though there has been a slight amendment in the language of Order XIV, Rule2 Code of Civil Procedure by the amending Act, 1976 but the principleenunciated in decision in Major SS Khanna Case still holds good with respect to the principle that the Code confers no jurisdiction upon thecourt to try a suit on mixed issues of law and fact as a preliminary issue andwhere the decision on issue of law depends upon decision of fact, it cannotbe tried as a preliminary issue.

In Ramdayal Umraomal vs. Pannalal Jagannathji7 , a Full Bench of Madhya Pradesh High Court has observed that under Order XIV, Rule 2, mixed questions of law and fact requiring recording of evidence cannot be tried as a preliminary issue.

The Apex Court in the matter of Ramesh B. Desai and Ors. vs. Bipin Vadilal Mehtaand Ors.8 (hereinafter referred to as Ramesh Desai Case) held that in the case of a disputed question of fact, the question of limitation cannot be decided as apreliminary issue without a decision on facts based on the evidence that has to beadduced by the parties. The Court has no jurisdiction Under Order XIV, Rule 2 of the Code todecide a mixed question of law and fact as a preliminary issue.

CAN LIMITATION BE DECIDED AS A PRELIMINARY ISSUE?

In the case of Nusli Neville Wadia vs. Ivory Properties and Ors.9 (hereinafter referred to as Nusli Neville Wadia Case) the Apex Court is of the opinion that it is permissible for a Court to reject a plaint barred by limitation under Order VII, Rule 11(d) of the Codewhere the plaint averment itself indicates the cause of action to be barred by limitation and no further evidence is required to adjudicate the issue.

The Apex court had held in the case of Narne Rama Murthy vs. Ravula Somasundaram and Ors.10 that even if it is apparent from the plaint averment only, that suit is barred by limitation, it can still be tried as a preliminary issue even in the absence of plea of limitation raised by the Defendants.

It was observed in Ramesh Desai Case11 that the starting point of limitation has to be ascertained on facts in each case. A plea of limitation cannot be decided as an abstract principle of lawdivorced from the facts for rejection of the plaint Under Order VII, Rule 11(d) of the Code. As mentioned above, a mixed question of law and facts cannot be decided as a preliminary issue; therefore such questions of limitation are not to be determined preliminarily. The same has been reaffirmed by the Apex Court in the case of Satti Paradesi Samadhi and Pillayar Temple vs. M. Sankuntala (Dead) through Legal Representatives and Ors.12, where it has observed that issue of limitation requiring an inquiry into the facts, cannot be tried as a preliminary issue and has restated that the mixed questions of law and facts cannot be decided as a preliminary issue.

Thereforewith respect to question regarding limitation the court is open to decide it as a preliminary issue if it is purely a question of law and not a mixed question of law and fact by recording evidence.

Notes

1Section 3, Limitation Act, 1963
2Rule 11(d), Order VII, Civil Procedure Code, 1908
3Rule 2, order XIV, Civil Procedure Code, 1908
4Section 64, Civil Procedure Code (Amendment) Act, 1976
5Rule 2, Order XIV, Civil procedure Code, 1908 ( Prior to 1976 Amendment)
6AIR 1964 SC 497
71979 M.P.L.J. 736
8Ramesh B. Desai and Ors. vs. Bipin Vadilal Mehta and Ors., (2006) 5 SCC 638
9AIR 2019 SC 5125
10(2005) 6 SCC 614
11Ramesh B. Desai and Ors. vs. Bipin Vadilal Mehta and Ors (Supra)
12(2015) 5 SCC 674

THE JUDICIAL INTERPRETATION OF SAROD RULES

In a recent decision rendered by the Hon’ble Delhi High Court in IRB Ahmedabad Vadodara super express Toll way Private Limited vs. National Highways Authority of India, the Hon’ble High court interpreted arbitration rules of the Society for affordable redressal of disputes (herein after referred to as “SAROD”) pertaining to a dispute between two nominated arbitrators regarding appointment of the presiding arbitrator. The Hon’ble court also returned findings as to when a petition under Section 11(6)(b) of the Act1 be filed in the High Court.

FACTS OF THE CASE

IRB Ahmedabad Vadodara super express Toll way Private Limited (herein after referred to as the “Petitioner”)entered into an agreement with the National Highways Authority of India(herein after referred to as the “Respondent”) for conversion of NH-8 between Ahmedabad and Vadodara into a six-lane highway. In the initial agreement, it was agreed upon between the parties that any dispute arising between them shall be resolved by way of arbitration, which was to be governed by rules of arbitration framed by International Centre for Alternative Disputes Resolution. On 14.07.2014, both the parties entered into a supplementary agreement, whereby, it was agreed upon that in case of any dispute, the arbitration shall be governed by the arbitration rules framed by SAROD and the appointment of presiding arbitrator shall be governed by Rule 11.2 of the SAROD rules2 , and thus the earlier provisions in the main agreement were modified accordingly. In 2019, when disputes arose between the parties, the Petitioner invoked arbitration and both parties nominated one arbitrator each. However, when both the nominated arbitrators failed to appoint the presiding arbitrator, the Petitioner filed the petition under Section 11(6) (b) of the Actby urging that the procedure agreed upon between the parties for appointment of the presiding arbitrator had failed.

ARGUMENTS ADVANCED

The contentions raised by the Petitioner were three-fold; first, that since the supplementary agreement specifically provides for the appointment of the presiding arbitrator in accordance with Rule 11.23, the Respondent cannot resort to any other rule, to enable the Governing Body to make such an appointment, secondly, that since the procedure assented to by both the parties for the appointment of the presiding arbitrator had failed, there was no other alternative, than to invoke Section 11(6) (b) of the Act4 , thirdly, that since the procedure consented to, for appointment of the presiding arbitrator has stalled, the presiding arbitrator need not be from the SAROD panel, as the Governing Body has key officials as employees of the Respondent and the earlier panel having 177 names from all fields has been curtailed now to just 33, out of which just 4 arbitrators were legally trained.

Per contra, the Respondent argued that the rules should be construed harmoniously and Rule 11.25 cannot be read in isolation from the other rules and since the procedure prescribed in Rule 11.26 had yielded no result, it was appropriate to invoke Rule 11.57 that provides for the Governing Body to appoint the presiding arbitrator and since the Governing Body was yet to do so, the procedure agreed upon for the appointment of the presiding arbitrator had not yet failed and thus, the petition was premature and warranted dismissal. The Respondent assured the court that the procedure that is in place to enable the Governing Body to make the appointment is free from any partiality and is done by way of draw of lots and moreover, the apprehensions of bias raised by the Petitioner were baseless, since, the reduction in the number of arbitrators on the panel was on account of their terms of empanelment coming to an end on 30.05.2020 and not in any manner intentional.

FINDINGS

The Hon’ble High Court agreed with the argument raised by the Respondent, to hold that in general, the Rules had to be read conjointly, meaning thereby, that Rule 11.28 had to be read in coherence with Rule 11.59 and the two cannot be said to be independent of each other. However, the court further held that each petition would have to be decided in its own facts and circumstances, and since in the instant case, in the supplementary agreement, the parties specifically and explicitly confined the procedure of appointment of the presiding arbitrator exclusively to Rule 11.210 , no resort could be made to Rule 11.511 and thus, the Governing Body12 could not make the appointment. Furthermore, the court also held that since only Rule 11.2 was applicable in the instant case, and the procedure prescribed therein had admittedly flunked, the petition could not be said to be premature and filing of the said petition was the only resort available to the petitioner. In holding this, the Hon’ble High Court placed reliance upon the judgments of the Hon’ble apex court in Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Limited13, National Highways Authority of India vs. Bumihiway D.D.B Ltd14 and Central Organisation for Railway Electrification vs. ECI-SPIC-SMO MCML15. Lastly, the Hon’ble High court held that since the procedure agreed upon for the appointment of the presiding arbitrator had failed, there is no reason to restrict the appointment to an arbitrator from the present panel maintained by SAROD. The court held that since the number of arbitrators on the panel had been drastically reduced from 177 to 33, that too with only four members having legal training, the choice for the appointment of the presiding arbitrator cannot be restricted to the 33 members on the panel and thus, the appointment be made of a person from legal background from the erstwhile panel of 177 arbitrators maintained by SAROD. In holding this, the court emphatically placed reliance upon the decision of a coordinate bench of the Delhi High Court in Bernard Ingenieure ZT-GMBH vs. IRCON International Ltd16 and a judgment of the Supreme Court in Perkins Eastman Architects DPC & Another vs. HSCC(India) Limited17.

ANALYSIS OF THE FINDINGS

The Judgment of the Hon’ble Delhi High Court in the instant case is ambiguous to say the least. On one hand the court accepts the arguments advanced by the Respondent, to go on to hold that Rule 11.218 and Rule 11.519 have to be read concertedly, leading to the inference that once the nominated arbitrators fail to reach a consensus on the appointment of the presiding arbitrator, the Governing Body shall have the authority to make such appointment by virtue of Rule 11.520, despite the absence of such direct stipulation in the said rule. However, on the other hand, on an application of the said principle to the instant case, the court holds that since the parties had categorically agreed to make only Rule 11.221 applicable to the appointment of the presiding arbitrator, Rule 11.522 shall have no application at all. These findings, are not only self-contradictory, but also lay down a bad precedent that says that even if otherwise, a set of rules or a particular statute is to be read as a whole in order for its application, if two parties agree to make just one rule/section applicable to their agreement,they can exclude the other provisions at their whim. This is not only against the settled position of law, but also does not fare well with the logic of a prudent man. Furthermore, the Hon’ble court went on to hold that the appointment of the presiding arbitrator should be done from the panel earlier maintained by the SAROD having 177 members and not from the present panel. This finding by the court only leads to the conclusion that the agreement between the parties, whereby they agreed to appoint the presiding arbitrator from amongst the panel maintained by SAROD has been rendered meaningless and the Hon’ble High Court chose the presiding arbitrator from amongst members whose terms of empanelment had already expired, thus eventually changing the terms of appointment unilaterally and against the decision rendered by the Supreme Court in Perkins Eastman23. On a bare perusal of the said findings, it becomes apparent that the Hon’ble court was in the throes of a legal conflict, torn between deciding on principles and eventually bowing to the exigencies as depicted by the Petitioner.

CONCLUSION

The judgment rendered by the Hon’ble High court in the instant case would sooner or later need reconsideration, as the precedent that it sets would lead to a chaotic end to many more cases. The case law referred to by the Hon’ble court has not been properly appreciated and the interpretation of the SAROD rules is vague and delusionary. At a time when the field of arbitration is craving more than ever for seminal judgments to enhance its scope, the judgment in the instant case can be safely termed as obscure.

Notes

1Section 11(6) (b) of the Arbitration and Conciliation Act, 1996,
Where, under an appointment procedure agreed upon by the parties:-

  • (a) A party fails to act as required under that procedure; or
  • (b) The parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
  • (c) A person, including an institution, fails to perform any function entrusted to him or it under that procedure,

A party request [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
2Rule 11.2 of SAROD- In all cases of disputes claimed for more than Rs. 3 Crores, the tribunal shall consist of add number of Arbitrators to be nominated by the parties. The presiding Arbitrator shall be appointed by the Arbitrators nominated by the parties from amongst the panel maintained by SAROD. For deciding the Presiding Arbitrator, a draw of lots can be carried out from amongst the names suggested by the Arbitrators nominated by the parties. The eligibility criteria for empanelment of Arbitrators will be decided by the Governing Body.
3Ibid
4The Arbitration and Conciliation Act, 1996.
5Supra 2.
6Ibid.
7Rule 11.5 of SAROD- In the event of any party failing to appoint Arbitrator within 30 days of receipt the notice of Arbitration, the Governing Body shall appoint the Arbitrator or Presiding Arbitrator as the case may be by draw of lots.
8Supra 2.
9Supra 7.
10Supra 2.
11Supra 7.
12“Governing Body” means Governing Body of SAROD as defined in Article 9 of Memorandum of Association.
13Voestalpine Schienen GMBH vs Delhi Metro Rail Corporation Limited, (2017) 4 SCC 665.
14National Highways Authority of India vs Bumihiway D.D.B Ltd, (2006) 10 SCC 763
15Central Organisation for Railway Electrification vs ECI-SPIC-SMO MCML, 2019 SCC Online SC 1635
16>Bernard Ingenieure ZT-GMBH vs IRCON International Ltd., 2018 SCC Online Delhi 7941.
17Perkins Eastman Architects DPC & Another vs HSCC (India) Limited, 2019 SCC Online 1517.
18Supra 2.
19Supra 7.
20Supra 7.
21Supra 2.
22Supra 7.
23Perkins Eastman Architects DPC & Another vs HSCC (India) Limited, 2019 SCC Online 1517.

SECTION 34 v. SECTION 48: THE SCOPE OF COURT INTERVENTION

INTRODUCTION
The Arbitration and Conciliation Act, 1996 (“the Act”) empowers the Indian Courts to intervene in cases relating to domestic arbitral awards and foreign arbitral awards under Section 34 and Section 48 of the Act respectively. The grounds for intervention are very similar in both section 34 and Section 48 of the Act. However, the scope of Court intervention under Section 34 is much wider in comparison to Section 48 of the Act. In the light of two recent judgments of the Supreme Court, this blog analyses the difference between the scope of Court intervention in matters relating to Section 34 and Section 48 of the Act.

INTERVENTION UNDER SECTION 34
Section 34 of the Act provides for the grounds for setting aside a domestic arbitral award in India. The contours of Court’s intervention in setting aside arbitral awards under Section 34 were properly defined by the Apex Court in the recent judgment of Ssangyong Engineering Construction Ltd. v. NHAI (2019) 15 SCC 131 (“Ssangyong”). In Ssanyong, the Supreme Court gave two notable findings to facilitate the interpretation of certain grounds for setting aside arbitral awards under Section 34 of the Act. They are:

  1. A. Scope of ‘patent illegality’ as a ground for setting aside arbitral awards under Section 34.

    Section 34(2A) of the Act, introduced through the 2015 Amendment, provides that an arbitral award can be set aside when the Court finds that such award is vitiated by ‘patent illegality’ appearing on the face of the award. While interpreting this term, the Apex Court held that ‘patent illegality’ means illegality that goes to the root of the matter, but excluding erroneous application of law by an arbitral tribunal or re-appreciation of evidence by an appellate Court. However, an arbitral award can only be set aside under this ground when:

    1. a. No reasons are given for an award.
    2. b. The view taken by an arbitrator is an impossible view of construing the contract.
    3. c. An arbitrator decides questions beyond a contract or his terms of reference.
    4. d. If a perverse finding is arrived at based on no evidence, or overlooking vital evidence, or based on documents, taken as evidence, without notice of the parties.
  2. B. Scope of ‘public policy’ as a ground for setting aside arbitral awards under Section 34.

    Section 34(2)(b)(ii) of the Act states that an arbitral award can be set aside if such award is in conflict with the ‘public policy’ of India. Section 34 also provides that an arbitral award will be considered to be in conflict with the ‘public policy’ of India when it fulfils any one of the following conditions:

    • • The arbitral award is affected by fraud or corruption or is in violation of Section 75 and 81 of the Act;
    • • The arbitral award is in contravention to the fundamental policy of Indian law; and
    • • The arbitral award is in conflict with the most basic notions of morality and justice.

    In order to bring clarity to the ‘public policy’ ground for setting aside arbitral awards, the Supreme Court provided a well-defined ambit for the interpretation of the following phrases:

    • • Fundamental policy of Indian law; and
    • • Most basic notions of morality and justice.

    While dealing with the question regarding the interpretation of the phrase ‘fundamental policy of Indian law’, the Apex Court placed heavy reliance on the judgment given in the case of Renusagar Power Co. v. General Electric Co. (1994) 1 SCC 644 and observed that an arbitral award can be set aside under the ‘public policy’ ground as being in contravention to ‘fundamental policy of Indian law’ when such award is in contravention to:

    1. a. A law protecting national interest;
    2. b. Orders of superior Courts in India; and
    3. c. The principles of natural justice.

    On the other hand, the Apex Court also held that an award would be termed to be in contravention to the “most basic notions of morality or justice” when such award shocks the conscience of the Court. Furthermore, it was held that the term ‘morality’ has to be determined on the basis of the ‘prevailing mores of the day’. By clearly defining the ambit of interpretation regarding these terms, the Apex Court provided the much-needed clarification in the ‘public policy’ ground for setting aside arbitral awards under Section 34 of the Act.

INTERVENTION UNDER SECTION 48
Section 48 of the Act provides several grounds that allow the Indian Courts to refuse the enforcement of a foreign arbitral award in India. The scope of Court intervention in cases regarding the enforcement of a foreign arbitral award in India has been comprehensively provided by the Apex Court in the recent judgment reported as Vijay Karia v. Prysmian Cavi E. Sistemi Srl and Ors (2020) SCC OnLine SC 177. (“Vijay Karia”). In this case, the Apex Court provided two important findings that clarify the power of the Courts to interfere with enforcement of an award under Section 48 of the Act. They are:

  1. A. Scope of the Apex Court’s jurisdiction with respect to petitions challenging the enforcement of foreign awards in India.
    In this case, Vijay Kariafiled a special leave petition before the Supreme Court to challenge the Order of Bombay High Court that upheld the enforcement of a foreign Award in India. At the very outset,the Apex Court observed that the power of the Court to refuse the enforcement of a foreign award in India is very restricted and the Court must ensure that there is ‘minimal intervention’ in the enforcement of such awards in India. In this context, Justice R.F Nariman speaking for the two-judge bench stated that,
    “The Policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award in the extremely narrow grounds of Section 48.”
  2. B. Discretionary Powers of the Court in cases relating to the enforcement of foreign arbitral award.
    Section 48 provides the grounds under which the Courts ‘may’ refuse to enforce a foreign arbitral award in India. Vijay Karia, these grounds were divided into three categories in order to facilitate the interpretation of the term ‘may’ enshrined in Section 48. The three categories are:

    • • Conditions that affect jurisdiction, such as invalidity or illegality of the arbitral agreement. (“Category I”)
    • • Grounds that affect party interest alone such as inability of a party to present its case. (“Category II”)
    • • Grounds that deal with public policy of India. (“Category III”)

    In the context of the grounds enshrined in Category I and Category III, the Apex Court held that the term ‘may’ enshrined in Section 48 is to be read as ‘shall’, i.e., the Court must refuse the enforcement of the foreign arbitral award when such grounds are established before the Court. For instance, in cases where it is established before the Court that the foreign arbitral award is in contravention to the public policy of India, the Court must refuse to enforce such foreign arbitral awards in India. On the other hand, in cases relating to Category II, the term ‘may’ enshrined in Section 48, allows the Courts to enforce a foreign award even when the party requesting the refusal of the enforcement of the foreign award successfully establishes the conditions enshrined in Category II, provided that the Court is satisfied that no prejudice has been caused to such party. For instance, if a party establishes before the Court, that it has been unable to present its case before the arbitral tribunal, which is a ground for waiver or abandonment of the foreign award in Category II, the Court may still allow the enforcement of the foreign award in cases where such inability does not cause any prejudice against such party.

ANALYSIS AND CONCLUDING REMARKS
There are several factors to illustrate the wider scope of Court invention under Section 34 as compared to Section 48 of the Act. The 246th Law Commission Reportelucidated that the scope of Court intervention in domestic awards ought to be wider as the same was recognized by introducing ‘patent illegality’ in Section 34(2A) by the 2015 Act without making the same amendment to Section 48. Furthermore, the judgment of the Apex Court in Vijay Karia also provided that the Courts should follow a ‘minimal intervention’ approach while dealing with cases relating to Section 48. Moreover, in another recent judgment of the Apex Court in M/s Controtrade Minerals & Metal Inc. v. Hindustan Copper Ltd.(2020) SCC OnLine SC 479 it was observed that the legislative intent behind Section 48 inclines towards a ‘pro-enforcement’ bias. By taking the abovementioned factors into account, it is clear that the position with regard to the scope of Court intervention under Section 48 is considerably restricted in nature in comparison to Section 34 of the Act.

INTERIM ORDERS – WHEN CAN BE PASSED

Introduction:

Under the Arbitration Act, 1940,a party could commence proceedings in a court by moving an application under Section 20 for appointment of an arbitrator and simultaneously it could move an application for interim relief under the Second Schedule read with Section 41(b) of the old Act. Whereas, Section 17 of the new Act[1] gives an arbitral tribunal the power to issue interim order in respect of the subject matterof dispute at the request of a party, unless the agreement prohibits such power. Section 9 gives similar power to the court, where either party can approach any court of competent jurisdiction for the issue of interim orders. Section 9(3) lays down the rule that prevents courts from entertaining any such requests if an arbitral tribunal stands constituted.

 

Facts of the Case[2]:

The contractor was awarded a contract for strengthening a section of National Highway under work order dated 31.07.2007 which was completed on 30.04.2008 and final bill was paid to the contractor.Later, the contractor did the repairs as and when required for a period of three years as mentioned in the contract. By letter dated 11.11.2014, the State called upon the contractor to pay a certain sum as the contractor had not carried out the road repair work in accordance with the contract. The appellant state threatened that it may withhold the payments from the security deposits and bills of other pending works to recover the sum. Aggrieved by the threat, the contractor filed a writ petition in the High Court on the ground that the State was not competent to withhold the amount payable to the contractor under other contracts until the liability of the contractor was determined and quantified by a court of competent jurisdiction.

 

The High Court held that without quantification or crystallization of the amount sought to be recovered, the employer cannot unilaterally recover the said amounts from the on-going contract work of the same contractor in connection with another contract. Liberty was, however, given to the State to seek recovery through other means as may be permissible under law. This judgment was challenged before the Supreme Court.

 

Issues before the Court:

  1. Whether the Tribunal constituted under Section 3 of the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 ( “the Gujarat Act”) has jurisdiction to make interim orders in terms of Section 17 of the Arbitration and Conciliation Act, 1996 (“the A&C Act”) ?
  2. Whether the appellant is justified in withholding the amount payable to the respondent for other works, by stating that the previous work was defective?

 

Arguments of the Appellant:

The appellant contended that the respondent contractor should have approached the State tribunal as constituted under the Gujarat Act, to seek remedy, if any, and not to the High Court of Gujarat as it had no jurisdiction in the present matter.

 

Arguments of the Respondent:

The respondent relied upon the judgment reported asGangotri Enterprises Ltd. v. UOI[3]to submit that the Government had no right to withhold the money of the contractor tillthe time suchclaim was adjudicated upon. This judgment placed its reliance on UOI v.Raman Iron Foundary[4].

 

The respondent further contended that the tribunal constituted under the Gujarat Act had no jurisdiction to grant such relief. The same was proved by placing reliance on an order of the State tribunal wherein the tribunal held that it could only exercise jurisdiction, powers and authority conferred on it by or under the Gujarat Act of which it was a creation.

 

Judgment:

The Apex Court relied on the judgmentH.M. Kamaluddin Ansari & Co. v. UOI[5] which overruled the judgment of Raman Iron Foundary[6].In this case the Supreme Court held as follows:

“22. It is true that the order of injunction in that case was in negative form. But if an order injuncted a party from withholding the amount due to the other side under pending bills in other contracts, the order necessarily means that the amount must be paid. If the amount is withheld there will be a defiance of the injunction order and that party could be hauled up for infringing the injunction order. It will be a contradiction in terms to say that a party is injuncted from withholding the amount and yet it can withhold the amount as of right. In any case if the injunction order is one which a party was not bound to comply with, the court would be loath and reluctant to pass such an ineffective injunction order. Once this Court came to the conclusion that the court has power under Section 41 (b) read with Second Schedule to issue interim injunction but such interim injunction can only be for the purpose of and in relation to arbitration proceedings and further that the question whether any amounts were payable by the appellant to the respondent under other contracts, was not the subject matter of the arbitration proceedings and, therefore, the court obviously could not make any interim order which, though ostensibly in form an order of interim injunction, in substance amount to a direction to the appellant to pay the amounts due to the respondent under other contracts, and such an order would clearly be not for the purpose of and in relation to the arbitration proceedings; the subsequent observation of the Court that the order of injunction being negative in form and substance, there was no direction to the respondent to pay the amount due to the appellant under pending bills of other contracts, is manifestly inconsistent with the proposition of law laid down by this Court in the same case.”

 

On a collective reading of the Acts together, the court was of the view that with regard to the powers of the arbitral tribunal under Section 17 of the A&C Act, these powers can be exercised by the tribunal formed under the Gujarat Act, since there is no contradiction in these two Acts, as far as the grant of interim relief is concerned. The tribunal is already vested with this power under Gujarat Act, and Section 17 of the A&C Act complements these powers. Therefore, the provisions of Article 17 of the A&C Act cannot be said to be inconsistent with the Gujarat Act.

 

The Court was of the view that the appropriate remedy for the contractor was to approach the arbitral tribunal constituted under the Gujarat Actsince that would have jurisdiction to decide whether the notice issued by the appellant was a legal notice and whether the appellant was, in fact, entitled to recover any amount from the contractor. The Apex Court further held that the tribunal would have the jurisdiction in deciding whether the contractor has made out a prima facie case for the grant of interim relief.

 

Conclusion:

While drafting arbitration clause, one should keep in mind whether the arbitral tribunal should be given the power to grant interim relief or not. If arbitration clause provides for such power to arbitral Tribunal, then one need not approach the court for such relief. Speaking about case under reference, the Apex Court concluded that there was no inconsistency in the two Acts, i.e., the Gujarat Act and the A&C Act, therefore, this Court rightly held that the appropriate remedy for the parties was to turn to the arbitration tribunal established under the Gujarat Act.

[1]Arbitration and Conciliation Act, 1996.

[2]State of Gujarat v. Amber Builders, (2020) SCC Online SC 13.

[3]Gangotri Enterprises Limited v. Union Of India, (2016) 11 S.C.C. 720 (India).

[4] Union Of India v. Raman Iron Foundary, (1974) 2 S.C.C. 231 (India).

[5] H.M. Kamaluddin Ansari & Co. v. Union Of India,  (1983) 4 S.C.C. 417 (India).

[6]Supra 2.