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Rendezvous – Indian Courts and Arbitration
While the temperature at the capital continued to drop, December 2023 saw a flurry of much awaited decisions by the Supreme Court.
Absence of a specific clause does not restrict Arbitral Tribunal from awarding damages for delay – MBL Infrastructures Limited vs. Delhi Metro Rail Corporation [O.M.P. (COMM) 311/2021]
The Delhi High Court has set aside an arbitral award while holding that the award is patently illegal as damages were not awarded to MBL Infrastructures despite a clear finding that there has been delay on part of DMRC and it had wrongfully terminated the contract. The arbitral tribunal had rejected the claim for loss of profits, on the ground that, in case of delay, extension of time was the only remedy under the contract. The High Court held that reliance placed by the tribunal upon such a clause is misconceived as it only pertains to the case of delay and not the eventuality of wrongful termination which is the basis of the aforesaid Claim. Lastly, the High Court also held that any clause which restricts the right of a party to claim damages is prohibitory and against public policy.
Section 12(5), Schedule V and VII of the 1996 Act do not apply to invocations prior to 23.10.2015 – Allied-Dynamic Joint Venture v. Ircon International Ltd. Delhi [O.M.P. (COMM) 461/2016]
Relying on the law laid down by Supreme Court of India in M/s. Shree Vishnu Constructions vs. The Engineer in Chief Military Engineering Service, (2023) 8 SCC 329, the High Court of Delhi dismissed an application for setting aside of an award rendered by a sole arbitrator who was also an employee of Ircon. The High Court noted that the arbitration was invoked prior to the 2015 Amendments to the Arbitration and Conciliation Act, 1996 [“1996 Act”], and thus, disqualification of an employee from being appointed as an arbitrator in terms of Section 12(5) read with Seventh Schedule of the 1996 Act would not be attracted. The High Court also noted the joint-venture’s conduct during the arbitration proceedings, as Allied-Dynamic did not seek a formal adjudication of disputes in respect of their allegation of bias.
Individual Member of a Co-operative Society cannot invoke Arbitration – Ketan Champaklal Divecha vs. DGS Township Pvt. Ltd. and Anr. [Arbitration Petition (L) No. 20483 of 2023]
In this case, the arbitration agreement was contained in a tri-partite development agreement between the developer, members of the society and the society itself. The clause contemplated resolution of disputes between the society and members on one hand, and the developer on the opposite side. In light of the manner in which the arbitration agreement was worded, the Bombay High Court held an invocation of arbitration by a member of the society to be defective as the arbitration agreement was not for each individual member of the society to raise a dispute and seek appointment of arbitrator.
Interest accrued post invocation, immaterial while deciphering pecuniary jurisdiction under Commercial Courts Act, 2015 – Simentech India Private Limited v. Bharat Heavy Electricals Limited [O.M.P. (COMM) 348/2022]
In order to determine ‘Specified Value’ under Section 12(2) of the Commercial Courts Act, 2015, the High Court of Delhi has held that parties should compute and consider interest up to the date of invocation of arbitration and not thereafter. The High Court held that the Specified Value should be determined based on the aggregate values delineated in the statements of claim and counter-claim. The High Court also noted that accepting any other method of computation would imply that the specified value would continually get revised, which contravenes the legislative intent behind establishing a specific threshold for pecuniary jurisdiction of the Courts.
Party cannot insist on fulfilment of pre-arbitral steps, after termination of contract – Mr. Gajendra Mishra v. Pokhrama Foundation & Anr. [Abr. Petition No. 969/2023]
The Delhi High Court while rejecting the contention of Pokhrama Foundation seeking fulfilment of pre-arbitral steps, held that once a party has itself terminated the contract, it cannot object to the maintainability of a Section 11 Application seeking appointment of arbitrator on the ground of non-fulfilment of pre-arbitral steps.
In light of this judgment, parties should consider drafting a clear and precise “Survival” clause which would protect certain clauses such as indemnity obligations, confidentiality, notice provisions, dispute resolution mechanisms (and not just the arbitration agreement).
Directors of a company cannot be made party to arbitration by virtue of ‘Group of Companies’ Doctrine – Vingro Developments Pvt. Ltd. V. Nitya Shree Developers Pvt. Ltd., [Arb. Petition No. 667/2023]
While deciding a quintessential question regarding personal liability of the directors of a company in arbitral proceedings, the Delhi High Court held that directors of a company cannot be made parties to arbitration through ‘Group of Companies’ doctrine since the relationship between the company and its directors is that of the ‘Principal’ and ‘Agent’ as defined under Section 182 of the Indian Contract Act, 1872. The Court relied upon Section 230 of the Indian Contract Act, 1872 and observed that an agent cannot be made personally for the acts carried out on behalf of the principal save and except when an express agreement to the contrary is made by the directors, making them personally liable for any action.
Section 3G of National Highways Act, 1956 challenged before the Supreme Court of India – B.D. Vivek v. Union of India [W.P. (C) No. 1364/2023]
The Supreme Court of India has issued notice in a plea challenging the validity of Section 3G of the National Highways Act, 1956 which inter alia prescribes mandatory arbitration by an arbitrator appointed by Central Government to resolve disputes pertaining to compensation amount payable to landowners when their land is acquired. The Petitioner contended that appointment of arbitrator unilaterally by the Central Government is contradictory to the judgment of Supreme Court in Perkins Eastman v. HSCC (2020) 2 SCC 760. The Petitioner further contended that Section 3G (5) enforces non-consensual arbitration which is against the spirit of party autonomy.
The outcome of this petition especially on the non-consensual nature of the arbitration could have effect on other similar statutory arbitration regimes such as those under the Micro, Small and Medium Enterprises Development Act, 2006, Electricity Act and others.
Challenge to Arbitral Award does not lie once the party has received the amount payable under it – M/s K.S. Jain Builders v. Indian Railway Welfare Organization [OMP (COMM) 456/2022]
The Delhi High Court, while dismissing a challenge to arbitral award observed that where a party has received payments in terms of the arbitral award, it cannot challenge the award to the extent such claim has been partially disallowed. The High Court held that acceptance of payments under the award would stop a party from challenging the award. In this case, the petitioner sought to challenge the partial rejection of its claim for loss of profits, although it had accepted the awarded amount in the meantime.
Arbitration Highlights – Global
The Abu Dhabi International Arbitration Centre, known as ArbitrateAD has started operations on 01.02.2024. ArbitrateAD is the latest addition to the Gulf region’s expanding institutional landscape. Its launch follows an eventful year for institutional arbitration in the Gulf, marked by the opening of the Saudi Center for Commercial Arbitration’s first overseas office in the Dubai International Financial Centre (DIFC), the release of the new 2023 SCCA arbitration rules, the inauguration of the Russian Arbitration Centre’s first overseas office in the DIFC, and significant reforms at the Dubai International Arbitration Centre, including the appointment of a new Arbitration Court, Registrar, and Executive Director.
Consequent to the Zee-Sony merger deal fallout and termination of the merger agreement on 22.01.2024, the Sony Group has sought $ 90 million for breach of conditions and has also initiated arbitration. The hearing for an emergency arbitration took place at the Singapore International Arbitration Centre on 31.01.2024.
The content provided in this newsletter is intended for general awareness purposes only and should not be considered as legal advice. Readers are advised to consult with a qualified legal professional regarding any specific issues mentioned herein.
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