Common Commercial Disputes Queries - July 2024

Questions Answered in this Month’s CCDQ:

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1.???? What factor is relevant in Determining Seat of Arbitration – Connection with Arbitration Proceedings or Connection the location where the Dispute Arose?

2.???? Does filing of an IBC Section 9 Petition bar the court from entertaining a Petition under Section 11 for Appointment of Arbitrator?

3.???? Is the Use of the Word ‘Seat’ in an Arbitration Clause compulsory to determine the Seat of an Arbitration Proceedings?

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5.???? Can Issuance of a No Claim Certificate (NCC) Bar you from raising further claims?

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What factor is relevant in Determining Seat of Arbitration – Connection with Arbitration Proceedings or Connection the location where the Dispute Arose?

Delhi Tourism & Transportation Development Corporation v. Satinder Mahajan 2024 SCC?OnLine?Delhi,?was a Petition under Section 34 of the Arbitration & Conciliation Act, 1996 (“A&C Act”), challenging an award passed by the MSEFC, Pathankot Punjab under the #MSME Act.

The Respondent was registered as an MSME enterprise under the MSME Act in Pathankot, Punjab, and had entered into an agreement with the Petitioner for #construction of a bus depot at?Kharkhari?Nahar Village, New Delhi. When disputes?aorse?between the parties, the Respondent filed its claim under Section 18 of the MSME Act. When Conciliation failed, matter was referred to #Arbitration where an Award of approximately 4.11 Crores was passed in favour of the Respondent.?

?It was against this award, that the Petitioner filed the present challenge. One of the main grounds of challenge was the presence of a jurisdiction clause in the integrity pact which provided the jurisdiction of courts where headquarters of division of Petitioner was located. This was in New Delhi

The Court observed as follows:

1. The General Conditions of Contract (#GCC) did not contain an exclusive jurisdiction clause and seat of arbitration was not stipulated. Clause 25 provided for venue of arbitration to be fixed by #arbitrator in his sole discretion.
2. The dispute resolution mechanism under the main agreement and the integrity pact were intended to be entirely different as the integrity pact provided that the disputes and differences arising under the pact, shall not be subject to arbitration.
3. It is well settled that seat of arbitration proceedings is to be determined based on the connection with arbitral proceedings, and not with the cause of action for the underlying disputes.?
4. In absence of contrary indication, “the?inexorable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding”(Relied on BGS SGS SOMA JV v. NHPC, (2020) 4 SCC 234).
5. There was no reason to depart from the general principle that the seat of arbitration?was at the place where arbitration was conducted, that is in Pathankot and the award was also made there.?

In view of the same, the present petition was dismissed as being devoid of jurisdiction.

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Valmar Projects LLP v.?Isthara?Parks Private Limited (Telangana High Court, decided on 27 June 2024), were applications under Section 11(6) of the #Arbitration & Conciliation Act, 1996 (“A&C Act”) for appointment of arbitrator.

The parties had?entered into?two?agremeents?to supply food and housekeeping services respectively, to hostel students of the Applicant. These agreements were terminated in?May,?2023.?

After?termination?the Respondent issued notice under Section 8 of the Insolvency and Bankruptcy Code 2016 (“IBC”), and thereafter filed a Petitioner under Section 9 of IBC before NCLT, Hyderabad.?

Once NCLT issued notice, and the Respondent received the same, and the Applicant issued its on notice under the A&C Act for appointment of arbitrator. It was post this that the present Section 11 Petitions were filed.?

?The question before Court was, whether filing of Section 9 proceedings under IBC can bar filing of applications under Section 11 of the A&C Act for appointment of arbitrator.

The court observed as follows:

1. Mere filing of Section 9 proceedings under IBC does not bar initiation of proceeding under Section 11(6) of the A&C Act.?
2. Additionally, no order has been passed in the proceeding under Section 9 of the IBC and therefore at least till the time an order has been passed, the proceeding under Section 11(6) of the A&C Act.
3. Admittedly disputes have arisen between he parties which require adjudication.?

In view of the above, the Court went on the appoint the #arbitrator.

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Is the Use of the Word ‘Seat’ in an Arbitration Clause compulsory to determine the Seat of an Arbitration Proceedings?

Anju Jain v. M/s WTC Noida Development Company Private Limited (Delhi High Court, 08.04.2024), was a Petition under Section 11 of the A&C Act for appointment of #arbitrator.

?The disputes had arisen between parties in respect of a Unit Buyer Agreement executed between the parties on 17th?October,?2023 by which the Petitioner had booked a flat in the World Trade?Center, NOIDA, as per which Agreement, the Petitioner was to received rent/returns.?

According to the Petitioner, despite payment of full consideration by the Petitioner, payment of rent/returns ceased after April 2022 and all mails of the Petitioner in this regard did not evince any reply.?

Before the Court in the section 11 Petition, the Respondent placed reliance on certain clauses of the Agreement to allege that since the seat of arbitration was in Noida, the petition was not maintainable.

?The Court observed as follows:

1. Clause 17.2 of the Agreement was the clause dealing with arbitration. The clause clearly?provided that?arbitration proceedings are to be held in Delhi.?
2. Clause 17.3, which provides Noida Courts to have jurisdiction, applies only if the matter is not to be referred to #arbitration of if there are disputes beyond scope of arbitration, as Clause 17.3 clearly provides it is subject to Clause 17.2 of the said Agreement.?
3. The use of the word ‘seat’ is not compulsory in a particular clause. The Court?has to?decipher the intention of the parties.
4. In so far as arbitration is concerned, clearly clause 17.2 provides the seat to be at New Delhi.?
5. Where there are no contrary provisions in the agreement, the place would be the juridical seat which would determine the territorial jurisdiction of a Court. Where words of arbitration clause are neither seat nor place and arbitration clause only refers to words such as “venue” or “held in” the intent of the parties would have to be seen from the agreement. When the parties intend that the arbitration proceedings are to be held?as a whole at?a particular venue then the venue also becomes a juridical seat. (Cinepolis India?Pvt.?Ltd. v. Celebration City Projects?Pvt.?Ltd. (2020:DHC:410),

?In view of the same arbitrator was appointed and the Petition disposed?off.

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?NBCC (India) Ltd. v. MSEFC (Delhi High Court, Division Bench, 04th July 2024) was an appeal challenging the order passed by the Ld. Single Judge in a Writ Petition, whereby the judge referred the matter to Delhi International Arbitration Centre (“DIAC”) for initiating arbitration proceedings under the MSMED Act, 2006 and the #Arbitration & Conciliation Act, 1996 (“A&C Act”).

The Director General of Health Services, Government of NCT of Delhi (DGHS), ad released a tender for to construction of 200 beds at a hospital beds. The contractor selected had issued a sub-contract in favour of Respondent no. 2 (R-2) for the electrical works. When moneys became due under the sub-contract, R-2 initiated proceedings under the MSEFC.?

Eventually MSEFC referred the matter to DIAC for initiating arbitration proceedings under section 18 of the MSME Act, 2006. Against this, the Appellant had preferred a writ which had dismissed, against which order the Appellant had filed the present appeal.

Amongst other grounds, the Appellant’s key contention was, that MSEFC’s jurisdiction under Section 18 was akin to Section 11 of the #Arbitration & Conciliation Act, 1996 (“A&C Act”), and therefore no notice should have been issued to the Appellant herein but to the main contractor, which the MSEFC failed to do. This contention was raised on the basis of lack of privity of contract between the Appellant and the R-2.

The court observed as follows:

1.???? Section 18 of the MSME Act is not akin to Section 11(6) of the A&C Act. While power under the latter is exercised by a referral court, the power under the former is exercised by the council.

2.???? Lack of inherent jurisdiction can be decided by the Arbitral Tribunal appointed under Section 18 of the MSME Act read with section 16 of the A&C Act, 1996. (Gujarat State Civil Supplies Corporation v. Mahakali Foods [2023(6)SCC401].

3.???? Once the tribunal makes the above decision, of course the same can be liable to challenge under Section 34 of the A&C Act.

In view of the same, the Court observed there was no requirement to interfere at this stage, the Appeal was dismissed.

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Can Issuance of a No Claim Certificate (NCC) Bar you from raising further claims?

Union of India v. Vishva Shanti Builders (Delhi High Court, decided on 24.07.2024), was a Petition under Section 34 of the Arbitration & Conciliation Act, 1996 (“A&C Act”), seeking setting aside of an arbitral award.

The parties had entered into a contract for a provision of accommodation at Delhi Cantt. When disputes arose between the parties, the matter was referred to #arbitration. it was this award that was challenged in the present objection petition.

One of the key contentions raised was, whether issuance of No Claim Certificate (“NCC”) by the Respondent would bar the claims from being arbitrable.

The court observed as follows:

1.???? The final bill payments of the Respondent were withheld by the UOI for a period of 2.5 years. Resultantly Respondent was under immense pressure and would be ready and willing to undertake any act demanded by UOI. During the hearing other factors such as taking of loan, high rate of interest etc was also revealed.

2.???? On the same day of receiving final bill payments, the Respondent sent a letter that it had signed the NCC and received final bill payments under protest. (distinguished UOI v. Master Construction Co. ?(2011)12SCC349 where protest was not raised within reasonable time).

3.???? There is no absolute bar on the contractor raising claims which are genuine to the subject matter even after submission of NCC. (Ambica Construction v. UOI, (2006)13SCC475).

4.???? The aforementioned facts, evidence, law as well as contractual provisions were taken into consideration by the #Arbitrator who held that the NCC was not legally binding as it was signed by the Respondent under coercion. The Arbitrator had also taken this decision on the basis that it was a techno-legal expert and this was the scenario in most #construction projects.

5.???? The Court under section 34 is not to act as Court of appeal. Court cannot substitute its own reasoning with that of the Arbitrator unless it is wholly unreasonable and causes miscarriage of justice which is not the case here.

In view of the above, court held no ground was made out to interfere under section 34 vis-avis arbitrability of claims.