Hello! We wish you a very Happy New Year! This year – we at Sarthak Advocates and Solicitors – are determined to infuse a little more Arbitration Brief Case, in your regular scrolling! With that thought in mind, we present to you our very first edition of Arbitration Brief Case!
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.
The Inception
The constitution bench of the Supreme Court (SC) has answered the reference in respect of the validity of ‘Group of Companies’ doctrine in Cox and Kings v. SAP India. The reference sought clarity on the interpretation of the phrase “claiming through or under” appearing in Sections 8, 35, and 45 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).
The SC noted that the above provisions allow either the party or any person “claiming through or under him” to refer the disputes to arbitration in in the interest of respecting the intention of the parties and promoting commercial efficacy. The necessity of a common subject-matter and composite transaction are important factual indicators. The SC held that the conduct of non-signatory party should also be connected or in pursuance of the contractual duties and obligations. Further, one of the tests to determine if the non-signatory consented to be bound by the contract, is its participation in negotiation, performance, or termination of the contract.
Having said that, the judgment cautions Indian courts and tribunals to not adopt an overzealous approach in extending the jurisdiction of arbitral tribunals to non-signatory parties merely on the ground that they are part of a corporate group. In doing so, the SC has upheld the cornerstone of corporate law – the separate corporate personality of companies.
Back to the Future!
The decision of the 5-judges’ bench in N. N. Global Mercantile v. Indo Unique Flame, has been overruled by the 7-judge bench on 13.12.2023 (“NN Global 2”). The SC has held that the effect of not paying or insufficiently paying stamp duty renders an arbitration agreement inadmissible as evidence under the Stamp Act but does not render it void. The SC further held that non stamping or insufficient stamping was a curable defect as per the Indian Stamp Act. Key takeaways from the NN Global 2 judgment are as follows:
- Agreements which are not stamped or inadequately stamped are not void ab initio or unenforceable, they are merely inadmissible in evidence;
- Non-stamping or inadequate stamping is a curable defect under the Stamp Act;
- An objection as to stamping does not fall for determination under Sections 8 or 11 of the Act. The concerned court must examine if the arbitration agreement prima facie exists;
- Any objection in relation to the stamping of the agreement falls within the ambit of the arbitral tribunal.
The judgment of the SC in NN Global 2 case hopefully marks the end of this long and twisted tale. The 5-judge’s bench had created operational difficulties for courts and parties alike which had to be dealt with even before arbitration could be commenced. For instance, the High Court of Delhi in Splendor Landbase had passed detailed directions on steps to be taken in case an unstamped / inadequately stamped agreement is filed along with a petition for appointment of an arbitrator. The judgment was also much criticised for not taking a pro-arbitration approach.
Cancellation of Deed is Arbitrable – Sushma Shivkumar Daga vs. Madhurkumar Ramkrishnaji Bajaj, Civil Appeal No. 1854 of 2023
The SC directed the parties to undergo arbitration based on the broad language of the arbitration clause in the Tripartite Agreements entered between them. The SC rejected the argument of the appellants that since the suit was for cancellation of a deed, the dispute was not arbitrable, as the action was in rem. Rather, the SC held that cancellation of a deed was an action in personam and hence arbitrable. The SC observed that the Tripartite Agreements formed the basis of all subsequent agreements entered between the parties, including the ones that gave rise to the present dispute.
Declaratory Relief in a License Agreement is Arbitrable – Alok Kumar Lodha v. Asian Hotels, CS(COMM) 189/2020
The High Court of Delhi (DHC) has referred parties to arbitration arising out of a License Agreement. The DHC held that where a party seeks a declaratory relief arising out of a License Agreement, such a declaration will operate only against the defendant and persons claiming through the Defendant, and would thus operate in personam and not in rem.
Reiterated! Panel of Proposed Arbitrator prepared by one party affronts the principle of party autonomy – Smaaash Leisure v. Ambience Commercial Developers, O.M.P (COMM) 180/2022
The DHC has set aside an arbitral award rendered by an arbitrator who was selected out of a limited panel proposed by the opposite side. The DHC reiterated the legal position adumbrated in Voestalpine Schienen Gmbh v. Delhi Metro Rail Corporation Ltd, (2017) 4 SCC 665 and held that where a party is called upon to choose from the restricted panel of proposed arbitrators prepared by other party, such an approach is contrary to the ‘Principle of Party Autonomy’ and the law laid down by the Supreme Court.
Another boost for third party funders – Tomorrow Sales Agency v. SBS Holdings, Inc., FAO(OS)(COMM) 59/2023
In a pro-funding stance, the DHC opined that a third-party funder could only be obligated by an arbitral award if it had been compelled to participate in the arbitration and was an actual party to the arbitration proceedings. The DHC rejected the contention that third-party funders fund litigation(s) to derive benefits of claimants succeeding in their claim and therefore, should be liable to pay costs where such claim fails. The DHC added that third-party funding is pivotal to ensure access to justice and hence they cannot be burdened with liability, which they have neither undertaken not are aware of. If they are made liable, it would dissuade them to fund litigation adversely affecting claimants with legitimate claims.
Reference to SARFAESI Act in Agreements does not bar Arbitration – Tata Motors Finance Solutions v. Naushad Khan Commercial Arb. Pet (L) No. 8654 of 2022
The Bombay High Court addressed a fundamental question on the invocation of arbitration proceedings despite the existence of SARFAESI Act and while answering the same in affirmative, the Court held that the SARFAESI Act primarily dealt with enforcement proceedings and lacked a mechanism for determining the debt due and hence arbitration, as an adjudicatory process, was necessary for determining the debt, and the SARFAESI Act’s enforcement proceedings could follow. The Court drew aid from Section 37 of the SARFAESI Act, which explicitly stated that the provisions of the SARFAESI Act did not bar the application of other laws, including the Arbitration Act.
Arbitration Highlights – Global
- CEITAC Rules and Shanghai International Arbitration Center have come into force from 01.01.2024 – China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules (2024 Rules) came into force. The 2024 Rules apply to CIETAC arbitrations commenced on or after this date. Among other changes, the CEITAC Rules provides that the power to determine jurisdiction shall be delegated to the tribunal after its constitution, a practice which is alien to Chinese Arbitration Law 1995, thereby acknowledging the internationally recognized doctrine of Kompetenz-Kompetenz.
- Transnational issue estoppel applies in international commercial arbitration, rules Singapore Court – While deciding whether India was precluded from re-litigating those points that were determined by the seat court, the Singapore Court held that parties cannot re-litigate points that have already been dismissed by the seat court to delay the enforcement of an award in Singapore.
DISCLAIMER
The content provided in this newsletter is intended for general awareness and should not be considered as legal advice. Readers are advised to consult with a qualified legal professional regarding any specific issues mentioned herein. If you have any questions about any of these developments or would like to see something different next month, reach out to us at knowledge@sarthaklaw.com.
We will be back next month with another update. Thank you for reading!