Common Commercial Disputes Queries, June 2024

Questions Answered in this Month’s CCDQ:

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1.???? Can a Power of Attorney Holder Depose for the Principal where he was not involved in the Transaction?

2.???? Government Works Contracts Steering Away From Arbitration?

3.???? ?????? ?????? ???????????????????? ???????????? ?????????? ???? ???????????????? ???????? ???????????????? ???? ?????????????????????????? ???? ?????? ??????????????????????????

4.???? Mandate of the Arbitrator Expired by Efflux of Time; Can Court Extend Mandate After Expiry?

5.???? Can a Party Seek Interim Measures Against a Vessel through an Admiralty Action, even though an Arbitration Clause is present in the Charterparty?

6.???? What is a Triggering Point for a Notice of Commencement of Arbitration?

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Can a Power of Attorney Holder Depose for the Principal where he was not involved in the Transaction?

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Rajesh Kumar v. Anand Kumar (#SupremeCourtofIndia, decided on 17.05.2024), was an SLP against a judgment rendered by Madhya Prdesh High Court in a First Appeal. By way of the First appeal,

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The case revolved around a suit for specific performance of Sale Deed with respect to a land located in Jabalpur MP. This suit was filed by the Appellant (Purchaser). The trial court noted that the Appellant was ready and willing to perform his part of the contract (ie. Paying the purchase price), and decreed the suit in his favour. The High Court in First Appeal against this judgment set aside the trial court’s judgment and non-suited the Appellant (Plaintiff in original suit).

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In the present appeal, the Supreme Court observed as follows:

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1.???? In this case, the Plaintiff/Appellant did not directly appear in the witness box at the stage of the suit. Instead, his power of attorney(“POA”) holder was examined in September 2002. Interestingly his POA was executed in August 2002. So it was not a situation where he would even be aware of the entire transaction.

2.???? A POA holder cannot depose for a principalin respect of matters of which only the principal has personal knowledge. If the principal does not appear in witness box a presumption arises as to the incorrectness of the case instituted by him. (Janki Vashdeo Bhojwani & Anr. vs. Indusind Bank Ltd. & Ors (2005)(2)SCC 217).

3.???? In a suit for specific performance, in view of section 12 of the Specific Relief Act, 1963, a Plaintiff is required to aver and prove that he has performed or has been ready and willing to perform the essential terms of the contract. POA holder cannot depose in his place. It is a separate matter if the POA holder has rendered some acts in pursuance of the POA, he may depose for the same, but not for the acts done by the principal himself and not by the POA holder. Same is the situation for matters of personal knowledge.

4.???? In this case the Plaintiff/Appellant entered into an agreement with only one co-owner of the property. Extensions for execution were sought but Plaintiff failed to file a suit.

5.???? From the record it was evident that the Plaintiff was aware of the subsequent purchasers and the sale in their favour in August and December 1997, yet they waited to file the suit in May 2000.

6.???? There is no reason for such a long delay in filing the suit, even if it was within limitation (ie. Filed on last day of limitation. In view of such a long delay, the Plaintiff is not entitled to specific performance even on this ground. Conduct of the Plaintiff is very relevant in a suit for specific performance. (K.S. Vidyanadam vs. Vairavan (1997) 3 SCC 1, Azhar Sultana vs. B. Rajamani & Ors. (2009) 17 SCC 27, Saradamani Kandappan vs. S. Rajalakshmi & Ors. (2011) 12 SCC 18 & Atma Ram vs. Charanjit Singh (2020) 3 SCC 311)

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In view of the above, the decision of the First Appeal court was upheld and the Appeal was dismissed.

Government Works Contracts Steering Away From Arbitration?

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Recently the Ministry of Finance has released an Office Memorandum being Guidelines for Arbitration and Mediation in Contracts for Domestic Public Procurement. The Memorandum notes, the problems that works contracts have been facing with arbitration being:

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1.???? Process of Arbitration takes long and is very expensive, contrary to quickness envisaged.

2.???? Reduced Formality of #arbitration leads to wrong decision on facts and improper application law.

3.???? Lack of accountability for decisions taken by arbitrators.

4.???? Lack of finality of awards on ground, as all awards are challenged in Courts. Instead of reducing litigation an additional layer has been added in the final resolution.

5.???? Due to adversarial process realistic claims and/or counterclaims are replaced by inflated claims.

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In view of the above, few of the guidelines issued are as follows:

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1.???? Arbitration should not be included routinely or automatically in procurement contracts/tenders, especially in large contracts.

2.???? As a norm, arbitration may be included with in contracts with dispute value less than INR 10 crores.

3.???? If beyond this dispute value, arbitration is included as a dispute resolution methodology, then it has to be by application of mind and recording of reasons, with approval of Secretary of concerned government ministry (or delegate), Or Managing Director of CPSE/PSB/Financial Instruction.

4.???? In matters of arbitration, institutional arbitration has to be given preference.

5.???? The decision to challenge/appeal every decision against the government/PSU should not be taken in a routine manner, but only when the case genuinely merits going for challenge/appeal and there are high chances of winning in court/higher court.

6.???? Government entities should amicably settle as many disputes as possible using mechanisms available in contract.

7.???? government entities to take up mediation or negotiation for amicable settlement of disputes, eg. where the disputes are high value.

8.???? In long duration works contracts, public interest may be best served by a re-negotiation of the terms by placing it before a High Level Committee. etc.

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Here's the link to the Memorandum: https://lnkd.in/gbKb_cQd

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?????? ?????? ???????????????????? ???????????? ?????????? ???? ???????????????? ???????? ???????????????? ???? ?????????????????????????? ???? ?????? ???????????????????? Escorts Ltd. v. Bengal Tractors and Ors( Delhi High Court, 8th May 2024) was an Objection Petition under Section 34 of the Arbitration & Conciliation Act, 1996 ("A&C Act") challenging the award in an arbitration proceeding between the parties. The parties had entered into a Dealership Agreement whereby the Respondent firm through its partners was appointed as Authorised Dealer of the Petitioner for sale of tractors, spare parts, accessories etc. When disputes arose between the parties, an MOU/settlement agreement was entered into between the parties. However, once the Respondents again defaulted to abide by the MOU terms, arbitration was initiated whereby the Petitioner was awarded its claims. This award was already challenged in November 2011 whereafter the matter was remanded back for a fresh arbitration. It was the fresh award in this arbitration which was challenged by way of the present Petition filed by the Petitioner/Claimant. One of the grounds for challenge was that the Arbitrator was wrong in denying the pendente lite and future interest on claims as the Dealership Agreement provided for interest at 1.5% per month or 18% per annum for delayed payment. The Court observed as follows:???

1.???? In the second round of Arbitration, the Arbitrator has given specific reasons as to the award amount of around INR 58 Lakhs as the settlement amount mentioned in MOU, included interest calculated at the rate of 12% per annum.

2.???? In the Impugned Award, interest @12% per annum has also been awarded from date of Award till realization of amount.

3.???? Therefore the Arbitrator has given reasons as to why pendente lite interest has not been given alongwith the claim.

4.???? The scope of Section 34 is very limited and is confined. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of question of law. (Mc Dermott Internatational Inc v. Burn Standard (2006)11SCC181, Pure Helium v. Oil and Natural Gas (2003)8SCC593, DD Sharma v. UOI (2004)5SCC325.

5.???? if a view taken by an arbitrator is a clearly possible if not plausible one, then it is not possible to say that the arbitrator has travelled beyond his jurisdiction.

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in view of the above, it was held that the Impugned Award did not suffer from any patent illegality, and there is no merit in the present petition.

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Mandate of the Arbitrator Expired by Efflux of Time; Can Court Extend Mandate After Expiry?

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Glowsun Powergen Private Limited V. Hammond Power Solutions Private Limited (Delhi High Court, decided on 28 May 2024),? was a petition filed under Section 29A of the Arbitration and Conciliation Act, 1996, (“A&C Act”) ?before the Delhi High Court seeking extension of the mandate of the Arbitral Tribunal (“AT”) by a period of one year.

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The facts of the case are that the arbitration commenced in November 2021, but it remained pending even after ?a period of 27 months.

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It was the Petitioner’s case that the mandate of the Arbitral Tribunal had expired on February 2024, ?but it was the Respondent’s argument argument that the Pleadings were completed on in June 2022, hence, the 12-month mandate expired on June 2023 (as per S. 29A of A&C Act). Both parties had accorded the 6-month extension to the mandate of the AT in August 2023, which also expired in December 2023. The present petition was filed in February 2023.

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Taking into account the totality of the facts and circumstances, the court held as follows:

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1.???? Section 29A (4) of the A&C Act provides that the mandate of the arbitrator shall terminate, unless the Court has ‘either prior to or after the expiry of the period so specified’ extended the period.

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2.???? Therefore, the mandate of the AT is extendable by Court even after the expiry of the mandate. The court while extending the mandate of the arbitral tribunal is only required to see if there is sufficient cause.(Relied on KMP Expressways Limited vs IDBI Bank Limited (OMP. (MISC)(COMM) 553/2023)

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3.???? If the parties have invested considerable time, effort, energy, and finances in prosecuting the arbitration proceedings, it would be construed as “sufficient cause? as mandated in section 29A (5) of the A&C Act.

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4.???? That in the present case also the arbitration proceedings have continued for the last around two and half years. Though the delay as alleged against the petitioner is not appreciated, since the parties and the #Arbitrator have already invested huge efforts, it would not be advisable to make it futile by refusing to extend the mandate.

In view of the above, the Court allowed the petition and extended the mandate of the Arbitral Tribunal till December 2024. Further, the period lapsed from after expiry of mandate, till date was also regularised.

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Can a Party Seek Interim Measures Against a Vessel through an Admiralty Action, even though an Arbitration Clause is present in the Charterparty?

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OSV Crest Mercury 1 (IMO 9724398) Vs. Vision Projects Technologies Pvt. Ltd. (2024: BHC-OS:7447-DB, decided on May 07, 2024), was a Commercial Appeal before the Division Bench of the Bombay High Court. The appeal was filed challenging the judgement passed by the single judge of the Court whereby the Single Judge of the High Court had refused release of the arrested vessel OSV Crest Mercury 1 (“Appellant”).

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The facts of the case were that the Respondent entered into a Bareboat Charterparty, under terms of BARECON 2001, with the owner of the Appellant for a period of five years. Under the Charterparty, the Respondent carried out special survey, drydocking, and various repairs to the Appellant/Defendant Vessel at the instance of the owner. But the owner failed to pay some dues of the Respondent, due to which the Respondent instituted a Commercial Admiralty Suit praying for an order and decree against the Appellant/Defendant Vessel.

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The Respondent applied for arrest of the Appellant/Defendant vessel by way of filing an Interim Application before Bombay High Court, which was granted by the Single Judge. The Appellant/Defendant’s application seeking release of vessel was also refused by the Ld. Single, which gave rise to the present Appeal.

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Amongst the many grounds for The Appellant/Defendant seeking vacation of the order, one of the grounds was that the Security for an arbitration proceeding in personam cannot be taken in the form of an Admiralty action in rem as the charterparty provided for dispute resolution through #arbitration.

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The court observed as follows:

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1.???? The Court has complete jurisdiction to arrest a Vessel where the purpose of the Respondent/Plaintiff was simply to obtain security for the award in arbitration proceedings. Merely because the dispute is amenable to arbitration does not ipso facto imply that the Defendant Vessel cannot be arrested in an action in rem. (Relied on Altus Uber v/s Siem Offshore Rederi AS [2019 SCC OnLine Bom 1327).

2.???? An action against the vessel is an action in rem. Action against owner of the vessel is an action in personem.

3.???? Merely because the dispute is amenable to arbitration does not necessarilye imply that a vessel (forming part of subject matter of arbitration) cannot be arrested in an action in rem. Appellant’s contention that by merely entering an appearance/invoking arbitration an action in rem converts into an action in personem, is totally untenable.

4.???? It is well settled that an action in rem cannot be referred to arbitration. In the present matter, the action is in rem against the Appellant/Defendant Vessel cannot be referred to arbitration (Section 5 of the Admiralty Act, 2017) and thus, the same cannot be circumvented by merely invoking arbitration, and contending that now there is an action in personem against the owners of the Defendant Vessel, and therefore, the Suit cannot lie.

5.???? That as per Section 5 of the Admiralty Act, 2017, while obtaining the order of arrest, the only test the claimant has to satisfy is to show that it has a maritime claim and establish the identity of the ship. An arrest of a ship cannot be equated with an attachment under the CPC, thus, there is no question of any urgency to be made out.

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In view of the above, the Court dismissed the above appeal as completely devoid of any merit.

What is a Triggering Point for a Notice of Commencement of Arbitration?

Indian Spinal Injuris Centre v. Galaxy India (Delhi High Court, decided on 08.05.24) was a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (“A&C Act”), seeking appointment #Arbitrator to adjudicate the disputes inter se the parties.

The agreement between the parties contained an arbitration clause. When disputes arose between the parties, the Petitioner sent a notice invoking arbitration to the respondent. When the said notice received no response, the Petitioner approached to Court under the present petition.

It was the Respondent’s contention that the said notice was never served upon them, owing to the fact that the notice was sent to an incomplete address, different from that reflected in the agreement between the parties. Owing to the lack of delivery it was the Respondent’s contention that Section 21 notice was absent due to which the petition could not be entertained.

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It was the Petitioner’s case that since there was an arbitration clause and an arbitrable dispute, the matter may be referred for arbitration.

The court observed as follows:

1.???? Merely sending the notice under Section 21 of the A &C Act is not sufficient. The receipt of the notice is the prerequisite for the commencement of arbitration proceedings. (Relied on Alupro Building Systems Pvt. Ltd. v. Ozone Overseas Pvt. Ltd. (2017) SCC OnLine Del 7228; Amit Guglani & Anr. v. L and T Housing Finance Ltd. Through Managing Director & Anr. 2023: DHC 5979)

2.???? In fact the date of commencement of arbitration proceedings would be the date on which the notice is received. The object is that the party against whom a claim is made, should know what the claims are, and in response he may accept some claims wholly or in part, and the disputes between parties may be narrowed down. Such notice also provides an opportunity to the recipient of the notice to point out if some claims are time barred. Moreover, where there is a procedure agreed for appointment of arbitrator, then unless such notice is received, the procedure as envisaged in the arbitration clause has not been followed.

3.???? Furthermore, for the purpose of section 11(6) of the A&C Act, without receipt of the notice under Section 21, a party seeking referwnce of disputes to arbitration shall be unable to demonstrate failure by one party to adhere to the procedure and accede to the request for appointment of arbitrator. The very trigger for the jurisdiction of Court under this provision is such failure by the party to respond.

4.???? In the present case, notice had not been sent at the complete address which results in incomplete service of the notice under section 21 of the A&C act which is a mandatory pre-requisite.

Accordingly, the petition was dismissed.

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