Common Commercial Disputes Queries, January 2024

by Gunjan

Questions Answered in this Month’s CCDQ:

?

1.???? ?????? ?? ???????? ?????? ???????????????????????? ???? ???????? ???? ?????????????? ???? ?????????????????????? ???????????????????????

2.???? Can a Conditional Arbitration Clause Render an Arbitration Impossible if the Appointment Procedure becomes Void?

3.???? Dismissal of a Writ Petition on the Ground of Alternate Remedy Available, is it a Ground for Review?

4.???? Can the mere use of the words “final and binding” convert a normal dispute resolution clause to an arbitration clause?

5.???? When does the Right to Sue Accrue in the Case of an Arbitration?

6.???? What are the Chances of Success of a Section 37 Appeal, if the Court below upholds an Award?

?

?

?????? ?? ???????? ?????? ???????????????????????? ???? ???????? ???? ?????????????? ???? ?????????????????????? ??????????????????????? Sushma Shivkumar Daga v. Madhurkumar Ramkrishnaji Bajaj and Ors. (SupremeCourtofIndia, decided on 15.12.2023) was an SLP filed against order of the High Court in appeal, and of the trial court, referring the matter to arbitration under Section 8 of the Arbitration & Conciliation Act, 1996.?? R-2 Company was incorporated by Late Mr. Shivkumar (“S”) and his wife for carrying on real estate development business. Thereafter two tripartite agreements were entered between R-2 company and various parties which contained arbitration clause. ? Pursuant to these tripartite agreements, which were for development of property, a conveyance deed and five development agreements were entered into.???? When Mr. S died, his wife and son filed a suit seeking a declaration that the aforementioned conveyance deed be declared void, and the tripartite agreements be declared validly terminated. It was in this suit that the subject section 8 application for reference of disputes to arbitration was filed and allowed.??? The Supreme Court observed as follows:?????

?

1.???? Role of court in section 8 is very limited, ie. To see prima facie whether a valid arbitration agreement exists.?(2015 Arbitration amendment, Vidya Drolia v. Durga Trading, BSNL v. Nortel Networks, section 16 of A&C Act).????????

2.???? The broad language of the tripartite agreements would definitely cover the disputes raised by the wife & son of Mr. S, because these form the basis of all subsequent agreements. Therefore, the first pre-requisite of section 8, that is prima facie existence of arbitration clause, is satisfied.

3.???? The second condition is of course for the court to see whether there is clear non-arbitrability.

4.???? Suit for cancellation of property cannot be termed an action in rem, as relief under Specific Performance Act has been held to be in personem. (Deccan Paper Mills v. Regency Mahavir Properties, (2021) 4 SCC 786).

5.???? Bald allegations of fraud by the Respondents cannot oust the jurisdiction of court. Allegations must have some implication in the public domain to do so, which is absent in the present case.?(Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710) In view of the same, the appeal was dismissed.????????

?

?

Can a Conditional Arbitration Clause Render an Arbitration Impossible if the Appointment Procedure becomes Void?

?SK Engineers & Construction Company v. Bharat Heavy Electricals Ltd. (Delhi High Court, 01.12.2023), was a Petition under Section 11(6) of the #Arbitration & Conciliation Act, 1996 (“A&C Act”) seeking appointment of an #arbitrator.

?Disputes arose between parties regarding a contract for execution of civil works at a Switchyard in Tamilnadu.

?The Respondent contended that the parties had agreed to a conditional arbitral appointment clause which provided that “no person other than a person appointed by Head TBG… would act as arbitrator and if for any reason that is not possible the matter is not to be referred to arbitration at all”. Therefore the Respondent argued that since it was impermissible for the Respondent to appoint an arbitrator due to being barred under law, no arbitration was permissible.

?

The court observed as follows:

?

1.???? Just because the procedure for appointment of an arbitrator has been rendered invalid or unenforceable by reason of amendment to the A&C Act, or by subsequent decisions of the Supreme Court in TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377 and?Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd., (2020) 20 SCC 760, it would not imply that the entire arbitration clause is rendered invalid or void. (Ram Kripal Singh Construction (P) Ltd. v. NTPC (ARB.P. 582/2020),?ARSS Infrastructure Pvt. Ltd. v. Ircon International Ltd. (ARB.P. 498/2020)?and?NIIT Technologies Ltd. v. Directorate General, Border Security Force (ARB. P. 481/2017).

?

2.???? The procedure for appointment of an arbitrator is distinct and separable from the agreement to refer disputes to arbitration, even if these are contained in the same arbitration clause. My way or the highway approach is not tenable in law.

?

3.???? The part of the arbitration agreement which has been rendered invalid, void and unenforceable is to be severed or excised from the arbitration clause, while preserving the rest of the clause. (Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd., (2009) 8 SCC 520 and T.K. Engineering Consortium Pvt. Ltd. v. Director (Project) Rites Ltd. (ARB.P. 553/2020).

?

4.???? A ministerial functionary cannot destroy an arbitration agreement, as the act of appointment of arbitrator has been termed as a ministerial act. (Ved Prakash Mithal v. UOI ILR (1984) 2 Del 159).?

In view of the above, a sole arbitrator was appointed.

?

Dismissal of a Writ Petition on the Ground of Alternate Remedy Available, is it a Ground for Review?

Docket Care Systems v. Union of India (Allahbad High Court, Division Bench, decided on 14.12.2023), was a review application under Order XLVII Rule 1 of the Code of Civil Procedure (“CPC”), against the order of the High Court in a writ petition filed by Docket Care.

?

The Writ Petition was filed to seek the passing of an award by the MSME council in a matter pending before it. Once the award was passed, the writ petition was dismissed as withdrawn, citing the availability of alternate remedy of section 34 of the #Arbitration & Conciliation Act, 1996 against the award. This was the order against which the present review application was filed.

The review was filed on the ground of error apparent on face of record. Firstly, the Petitioner contended that availability of alternate remedy could not be a ground to dismiss the writ petition, and also that the court failed to look into the infirmities of the MSME council’s award.

The court observed as follows:

1.???? In a review application, the court can correct a mistake but not substitute the view taken earlier merely because there was possibility of taking another view. There is a clear distinction between an erroneous decision and an error apparent on the face of the record. (Sanjay Kumar Aggarwal v. State Tax Office RP(Civil) No. 1620 of 2023).

2.???? It cannot be accepted that the judgment deserves to be reviewed due to the Court having ignored the judgment of Jharkhand Urja Vikas Nigam Ltd. v. State of Rajasthan & Ors (2021) 4 SCC 476, due to the following reasons:

a.???? Non consideration of a judgment is not a ground for review as it would lead to substituting a view already taken by the Court.

b.???? The judgment was in any case, distinguishable on fact. In the said case, the MSME council had ignored the entire procedure of the A&C Act, and straight away passed an award upon failure of the Respondent to reply to conciliation notices. This did not happen in the present case. it was the difference between arbitration and conciliation which lead to interference in the Jharkand Urja Judgment.

?

3.???? All grounds urged in the review application, whether relating to infirmities committed by the MSME council not following the provisions of the A&C Act, or that the Respondent was not a supplier within the meaning of the MSME Act, were open to be taken by Docket Care, in a section 34 application. As such there was no gross miscarriage of justice due to the impugned order.

In view of the same, the court found that there was no error apparent on the face of the record, and the review application was dismissed.

?

Can the mere use of the words “final and binding” convert a normal dispute resolution clause to an arbitration clause?

Kalpataru Projects International Ltd. v. Municipal Corporation of Greater Mumbai (Bombai High Court, decided on 10.01.2024), was an application for appointment of arbitrator under section 11 of the #arbitration & Conciliation Act, 1996 (“A&C Act”). The disputes between the parties arose in a contract for the construction of a highway.

The dispute resolution clause in the contract provided that if any dispute arose, then the dispute may be referred to a committee of three officers, which shall give its decision within 60 days. The clause also provided that an appeal from such order could be referred to the Municipal Commissioner, who would then constitute another committee out of 3 commissions in Finance Department and “the decision given by this Committee shall be final and binding upon the parties”.

It was the applicant’s submission that the above clause would constitute an arbitration clause and relying on the same the present application was filed. The Respondent vehemently opposed the same stating that the said clause could not be an arbitration agreement and on this ground, the application deserved to be dismissed.

?The court observed as follows:

1.???? The essential elements of an arbitration agreement are (a) present or future difference, (b) intention of parties to settle such difference by private tribunal (c) agreement in writing to be bound by decision of such tribunal (d) parties must be ad idem. (Bihar State Mineral Development Corporation v. Encon Builders (2003) 7 SCC 418)

2.???? The dispute resolution clause bore the title “finality of decision & non-arbitrability” and even though the GCC clause was modified, the said title was not modified.

3.???? The aforementioned contract did not make reference to the said dispute resolution clause in any part of the contract, be it the said clause or any other clause. (distinguished Tatva Global Environment v. Municipal Corporation of Greater Mumbai (2015) SCC Online Bom.4144, relied on Reliance Communications Ltd., v/s. Maharashtra State Road Development Corporation Ltd. 2018 SCC Online Bom 15287)

4.???? Just because the clause mentions the words “final and binding” for the decision of the committee, it cannot be said that the said clause consists of an arbitration clause. (Food Corporation of India v. National Collateral Management Services. (2020) 19 SCC 464)

In view of the above, the aforementioned clause of the GCC was held not to constitute an Arbitration Agreement and the application was dismissed.

?

?

When does the Right to Sue Accrue in the Case of an Arbitration?

?Triveni Constructions v. Military Engineer Services (Telangana High Court, decided on 03.01.2024), was an application under Section 11 of the #Arbitration & Conciliation Act, 1996 (“A&C Act”) for appointment of #arbitrator.

The Applicant, a partnership firm registered under the MSME act had been awarded a contract for replacement of existing AC sheets in some building of the Respondent. Due to certain disparity in the bills paid to the Applicant and non-payment of statutory taxes, the Applicant invoked arbitration.

It was the Respondent’s contention that the work under the contract was physically completed in May 2021 and the payments and tax deductions were made even much before that. the Respondent therefore contended that the present application was barred by limitation.

The court observed as follows:

1.???? While deciding an application for appointment of arbitrator, the court does not have to touch the merits of the dispute. The scope is very limited to see whether the arbitration agreement exists or not. (Duro Felguera, S.A. v. Gangavaram Port Ltd. (2017) 9 SCC 729).

2.???? The first and foremost thing after seeing whether the agreement exists is the existence of dispute(s) to be referred to the arbitrator which is a precondition for appointment of arbitrator. (IBI Consultancy (India) (P) Ltd. v. DSC Ltd. (2018) 17 SCC 95).

3.???? Mere failure to pay or negotiations does not give rise to a cause of action for arbitration. the tenets of a dispute are that the applicant has to raise a claim and if the Respondent either denies the claim or fails to respond, such failure is treated as a denial,, and this is the point where the dispute arises. (Major Inder Singh Rekhi v. DDA (1988)2SCC338).

4.???? The applicant, soon after settlement of its Final Bill in 2022, raised a claim that excess amounts have been deducted over and above the amounts mentioned in the statutory contract, and requested payment of the said amounts, otherwise treat the said communication as notice invoking arbitration.

5.???? For a Section 11 petition, Article 137 of the Limitation Act, is the relevant article which determined the time period for for filing of petition. The said article provides for a period of three years from when the “right to sue accrues”.

6.???? As stated above, the right to sue would accrue when the final bill was settled or the “dispute” arose.

7.???? Since the Final Bill was settled in 2022, and the dispute could said to arise only thereafter when the claim was made, the present petition was filed well within time

In view of the same, the Application was allowed and arbitrator was appointed.

?

What are the Chances of Success of a Section 37 Appeal, if the Court below upholds an Award?

Bharat Petroleum Corporation Ltd. (“BPCL”) v. Anant Kumar Singh (Patna High Court, Division Bench, decided on 8.01.2024), was a section 37 Appeal against an Order passed by single judge in a section 34 Petition filed against an award in an arbitration proceedings under the #Arbitration & Conciliation Act, 1996 (“A&C Act”).

In this case, BPCL had issued an advertisement for appointment of a petrol pump dealer for certail outlets in Jharkhand, and the applicant had to file certain affidavits regarding the proposed site for the outlet.

Subsequently the licence was issued in favour of the Respondent by BPCL. Thereafter certain complaints were filed by the other applicants alleging that the affidavit filed by the Respondent contained false statements regarding ownership and leasing of the proposed site. ?When BPCL issued show cause notice against the Respondent and subsequently terminated the Respondent, upon which writ petition was filed. Thereafter matter was referred to arbitration.

The arbitrator held that the infirmities in the affidavit were non-serious in nature and were made inadvertently, and that the dealership should be restored to the Respondent. The #arbitrator also held incase the dealership was not restored within 3 months, a particular amount of monthly damages was to be paid to the Respondent. This award was challenged in a section 34 petition where the court upheld the award, and finally the present appeal was made.

?

The Court observed as below:

1.???? The fact was that the petrol pump was being operated by the Respondent on the same proposed site with his workforce, and the land owners whose affidavit was submitted had also supported the case of the Respondent in arbitration proceedings.

2.???? The Arbitrator had rendered a well-reasoned & plausible view keeping in view the above facts, and also that the termination of the dealership was not carried out as per any terms and conditions of the dealership agreement but on account of a complaint received by BPCL. ?

3.???? Post the 2015 amendment in the A&C Act, mere contravention of substantive law in India, by itself, is no longer a ground available to set aside an arbitral award. In order to interfere with the award, any illegality alleged needs to be patent illegality appearing on the face of the award going to the very root of the matter. (Section 34(2-A) of the A&C Act. (Ssangyong Engineering v. NHAI (2019) 15 SCC 311)

4.???? Contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.

5.???? It is also settled that the scope of appellate power to interfere with an award under Section 37 is even more restricted than a Court scrutinizing the award under Section 34, particularly so, when the learned court below has upheld the award.

In view of the above, the appeal was dismissed and the award upheld.