We ended up taking an unexpected break but we are back. Welcome to the updates from Indian arbitration law for the month of April and May, 2020.
The government has relaxed several restrictions but courts in India remain wary of reopening fully. They continue to push for virtual hearings, increasing the number and categories of cases to be heard in that manner. This is in spite of the fact that the pandemic has exposed the wide disparity in earnings among the country’s legal professionals.
The Supreme Court issued an order on 06 May extending all periods of limitation prescribed under the Arbitration and Conciliation Act, 1996 from 15 March. Various high courts have extended interim orders that would otherwise lapse otherwise – Delhi up to 15 July; Bombay up to 15 June; Allahabad up to 29 June; Madras and Kerala up to 30 June; and Karnataka up to 06 July.
The Delhi International Arbitration Centre annexed to the High Court of Delhi has partially resumed functioning from 08 June. Its arbitration committee has issued a guidance note on conducting hearings online.
From the Docket
In Firm Rajasthan Udyog v. Hindustan Engineering, the Supreme Court held that an arbitral award can only be executed to the extent of what has actually been awarded or adjudicated. The Court highlighted that the reference of the dispute was only with respect to fixing the price of a piece of land and that the arbitrator had accordingly declared that price. The execution of a sale deed for the land at the price determined in the award by the arbitrator, the Court held, could not take place. It also noted that in the facts of the case, the award per se could not be considered a contract between the parties, to effectuate the sale of the land.
In National Agricultural Cooperative Marketing Federation of India v. Alimenta S.A., the Supreme Court held that if a party fails to perform its obligation under a contract due to any export restrictions imposed by the government of India (which are binding on it), then the enforcement of any award against the defaulting party on such non-performance would violate the public policy of India. While enunciating the principle of ‘public policy’ as laid down in various judicial precedents, the Supreme Court held that the award was ex facie illegal, in contravention of fundamental law and violative of the public policy of India. The decision has been criticised by many authors as setting the clock back.
In Quippo Construction Equipment v. Janardan Nirman, the Supreme Court held that a party that does not participate in the arbitration proceedings, waives its right to raise objection as to the place of the arbitration. The Supreme Court also observed that the ‘place of arbitration’ has significance in international commercial arbitrations wherein it determines the applicability of curial law whereas, in domestic arbitrations, the substantive as well as curial law would be the same.
The Nagpur bench of the High Court of Bombay relied on BGS SGS SOMA JV v. NHPC and Bharat Aluminum Co. to hold that there can be only one court that has jurisdiction to nullify an award. The court also highlighted that it is not necessary for parties to specify the place of arbitration in the agreement or clause itself. They can subsequently agree on a place of arbitration or the same could also be determined from the conduct of the parties.
In Patel Engineering v. NEEPCO, the Supreme Court held that the ground of patent illegality to set aside an arbitral award was available under the statute for domestic awards, if the award is perverse, or irrational or the interpretation of the contract in dispute is such that no fair or reasonable person would accept or, if the view of the arbitrator is not even possible. The Supreme Court relied on the principles laid down in Associate Builders (2015), and Ssangyong (2019), which hold that contract interpretation is the primary responsibility of the arbitral tribunal and unless the arbitrator construes a contract in a manner which no fair minded or reasonable person would take, that is, if the view taken by the arbitrator is not even a possible view to take, the award cannot be interfered with.
The Supreme Court refused to interfere with the judgment setting aside an arbitral award although it did not agree with the reasons set out by the High Court under Section 37 in SEAMEC v. Oil India Limited. In this case, the Supreme Court held that the conclusion of the tribunal that the change in price of an essential material was a ‘change in law’ as defined under the contract between the parties was erroneous as the tribunal had failed to take into account the fact that the contract was based on a fixed rate and fluctuation in the prices were to be taken into consideration while bidding for the contract. Further, the tribunal had also ignored other terms of the contract which would not support the conclusion arrived at by the tribunal. The apex court further held that the arbitral tribunal ignored the most important rule of interpretation – “the document forming a written contract should be read as a whole and so far as possible as mutually explanatory.”
In AVR Enterprises v. Union of India, the High Court of Delhi upheld the order of the trial judge rejecting the preliminary objection requiring deposit of 75% of the award amount under Section 19 of the provisions of Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”). The High Court concurred with the earlier judgment of the Delhi High Court in BHEL v. Micro and Small Enterprises Facilitation Centre (2017) and held that section 19 (of the MSMED Act) which mandates the deposit of 75% of the awarded amount in order to challenge the arbitral award will not apply to ad hoc arbitrations where arbitrators are appointed by the parties.
In Spentex Industries v. Quinn Emanuel Urquhart and Sullivan LLP, the High Court of Delhi has held that the relationship between a client and a law firm can be considered as commercial for the purposes of section 45 of the Arbitration and Conciliation Act, 1996. The High Court ruled that although the word “commercial” has not been defined under this Act, it should be construed in accordance with its common usage.
Vacating the ad interim injunction granted earlier, in Halliburton Offshore Services v. Vedanta Limited, the High Court of Delhi has held that a party cannot use the outbreak of COVID-19 and subsequent lockdown in March 2020 to justify its pre-existing breach of an agreement. While the court had granted an injunction at the ad interim stage on the basis that special equities exist in favour of the petitioner, that order was modified as it subsequently came to light that there had been prima facie breach since September, 2019. The court relied on Energy Watchdog v. Central Electricity Regulatory Commission (2017) 14 SCC 80 and held that there should be a ‘real justification’ and ‘real reason’ to invoke a force majeure clause.
Thank you for reading! We will be back in your inbox next month with more updates from the world of arbitration law! Till then, stay safe.