At the centre of attention in the world of Indian arbitration was a provision inserted into the Arbitration and Conciliation Act by the 2019 amendment. The challenge to Section 87, under attack from struggling infrastructure companies, highlights some contradiction between the arbitration and insolvency laws.
The provision stays all arbitral awards in which arbitral proceedings commenced before October 23, 2015, as soon as they are challenged in a court. The Hindustan Construction Company and Gammon, which are seeking to recover dues of Rs 6070 crore and Rs 837 crore, respectively from the central government and central government agencies, are among its challengers. They have asked the Supreme Court to protect them from the consequences of insolvency proceedings if they are in possession of arbitral awards in excess of the claims against them. The Supreme Court has now struck down Section 87 while disposing of HCC’s appeal.
The Cabinet Committee on Economic Affairs approved a proposal permitting government entities to pay 75 per cent of arbitral amounts to their contractors against bank guarantees in cases where the entities have challenged arbitration awards. This is an improvement over the NITI Aayog Circular of 2016, which too had recommended that government and government entities pay 75 per cent of the arbitral amounts pending an appeal. As noted here, the measures taken in 2016 were not having their intended effects due to the requirement to submit a bank guarantee for the interest component. It remains to be seen whether the new initiatives bring much needed cheer to the construction sector.
Meanwhile, leading global financiers have reportedly warned the Indian government that they may drag Andhra Pradesh to international arbitration for cancelling its clean energy projects.
From the Docket
Overturning a decision of the High Court of Delhi appointing an arbitrator, the Supreme Court in WAPCOS v. Salma Dam Joint Venture has held that a party which has relinquished its claims under an original agreement and with full understanding executed a new agreement specifying that there will be no arbitration between the parties, cannot base its claims to initiate arbitration on the earlier agreement.
In Perkins Eastman Architects DPC v. HSCC (India), the Supreme Court held that a party interested in the outcome of the dispute cannot appoint the sole arbitrator.
In Chopra Marketing Private v. Drishticon Properties, the High Court of Delhi held that the power under Section 37 of the Act to consider any patent error in the arbitral award ignored by the lower Court, is more akin to the power of judicial review. The High Court has reiterated that the courts cannot reassess the evidence in determining a challenge to an award.
In Kashyapi Infrastructure v. National Buildings Construction Corporation, the Delhi High Court has declared contractual clauses which stipulate that the payment to the contractor from the employer shall be due only when the employer receives payment from its client or owner as void. The Court ordered that such clauses are void for uncertainty and for being against public policy. Incidentally, the clauses also prohibited the payment of interest to the contractor for the period of delay in receipt of payment from client to the employer.
The Bombay High Court in Nobel Resource v. Dharni Sampda has held that the power of the court under Section 48 of the Act to refuse the enforcement of a foreign award is very narrow and limited. The Court ruled that the appreciation of evidence was within the domain of the arbitrator or arbitral tribunal and that the court could not re-examine the evidence led by the parties.
Relying on Garware Wall Ropes’ judgment of the Supreme Court, in S Satyanarayana v. West Quay Multiport, the Bombay High Court has held that even if only an arbitration has to be conducted in Maharashtra (and neither the execution of the agreement nor its performance was within Maharashtra), the arbitration agreement would have to be stamped in accordance with the Maharashtra Stamp Act, 1958.