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The law under Section 34 of the Arbitration Act only applies to parties to the Arbitral Award and not to a third party :High Court Of Sikkim

CASE TITTLE: Kiran Devi Chouraria V Jhumar Mal Singhi and Others

CASE NO: WP(C) No.37 of 2017

ORDER ON: 25th August, 2023

QUORUM: Meenakshi Madan Rai, J.

FACTS OF THE CASE:

In the present case, the Order of the  Learned District Judge, Gangtok, dated 07-04-2017, in Civil Execution Case No.03 of 2015, rejecting the prayer for execution of the Arbitral Award and declaring the Award a nullity, is being assailed by the Petitioner/Decree Holder under Article 227 of the Constitution of India.

The facts leading to the present case is that the Petitioner-Decree Holder and the Respondent No.1-Judgment Debtor are siblings, being the children of one Late Banechand Singhi. They mutually agreed to divide the properties described in Schedule „A‟ of the “Deed of Settlement”, executed between by way of transfer, The Deed of Settlement was prepared between the siblings allegedly without the knowledge of Ajay Kumar Singhi, Respondent No.2 herein, who is the son of Respondent No.1. On 13-06-2013, the Respondent No.2 along with Respondent Nos.3 and 4, being the sons of Respondent No.2, submitted an application before the Sub-Divisional Magistrate (SDM), seeking a hearing, in the event any person sought transfer and registration of their building mentioned in the Schedule to the application. The SDM accordingly heard the matter advised the parties to approach the competent Civil Court. The Deed of Settlement  was entered into between the Decree Holder and Judgment Debtor prior to their objection, but this fact was not revealed by the siblings, either to the Respondent  the date of first hearing of the objection of the Respondent Nos.2, 3 and 4. A second agreement was entered into between the Decree Holder and Judgment Debtor, at Chennai, At Clause (V) of the arrangement, a Mediation clause was inserted, wherein it was agreed that all further disputes and differences arising amongst the parties relating to the agreement would be referred to the Sole Arbitrator, namely, one Kesari Chand Galada, said to be the father-in-law of the Decree Holder‟s son, An Arbitral Award was passed  by the said Arbitrator having been asked to adjudicate upon the disputes between the siblings regarding claims made by the Decree Holder against the Judgment Debtor, with regard to the possession of her share of the property. The Nazir of the Court was ordered to assist the Decree Holder by putting her in possession of the Scheduled property and to submit compliance report. Following this Order, the Respondent Nos.2, 3 and 4 as Objectors, filed an application under Section 47 read with Order XXI Rule 101, Order XXI Rule 97 read with Section 151 of the Code of Civil Procedure, 1908  and Section 36 of the Arbitration and Conciliation Act, 1996. The Objectors averred that they have an interest in the property. That, the Arbitration Award dated 30-01- 2014 was passed behind their back, hence the order of execution passed by the Court in Civil Execution Case No.03 of 2015 be stayed until the objection filed by them is disposed of. The Learned Court being of the opinion that the Objectors should be given an opportunity to be heard, recalled the order of execution . The Trial Court pronounced the impugned order.Hence this petition.

LEGAL ISSUES:

What is the locus standi of the Objectors?

What is the remedy available to the Objectors who were not a party to the Deed of Settlement 11-06-2013 and a dated and a subsequent Memorandum of Family Arrangement dated 24- 06-2013?

LEGAL PROVISIONS:

Section 151 of the Code of Civil Procedure, 1908 deals with inherent powers of the court

Section 36 of the Arbitration and Conciliation Act, 1996 talkas about enforcement

under Section 47 of the CPC Deals with delay in excecution of decree.

CONTENTIONS OF APPELLEANT:

The Petitioner through their counsel, submitted that, the Execution Case was filed by the Petitioner in the High Court of Madras on its Original Side, but was returned on the ground of lack of jurisdiction, inter alia with the observation that, as the Arbitration Award is not a Decree it can be executed directly by any Court without order of transmission from the said Court, in fact, the ground floor of the property was exchanged by the Judgment Debtor with the original seller of the property, who had sold the property to the father of the Judgment Debtor Late Banechand Singhi and his two uncles. Referring to the provisions of Section 47 of the CPC, the Counsel invited the attention of the Court to Explanation II therein and contended that the Objectors have no locus to interfere in the proceedings between the Judgment Debtor and the Decree Holder as the provision specifically mentioned that, for the purposes of Section 47, a purchaser of property at a sale in execution of a Decree shall be deemed to be party to the suit in which the Decree is passed. Therefore, it does not include persons who are in possession of the property, sans right, title and interest therein.the counsel further contented that The disputed property is ancestral property and partitioned in terms of the Hindu Succession Act, 1956, between the siblings, Decree Holder and Judgment Debtor, the Learned Executing Court had wrongly interpreted the provisions of Section 47 of the CPC by erroneously relying on a decision of the High Court of Kerala, the counsel  urged that Order XXI Rule 97 of the CPC cannot be resorted to by the Objectors since the provision is for invocation by a Decree Holder. The counsel further Contended  that the challenge to the Award ought to have been filed under Section 34 of the Arbitration Act,the counsel next urged that Order XXI Rule 97 of the CPC cannot be resorted to by the Objectors since the provision is for invocation by a Decree Holder, The Counsel for the Petitioner urged that the Objectors have no locus standi to interfere in the Arbitral Award, but have the right to avail other legal remedies. Hence, no relief can be obtained by them in the instant matter.

CONTENTIONS OF THE RESPONDENT:

The respondent through their counsel contended that, in fact a fraudulent Decree was obtained on 30-01-2014, as there was no dispute between the Judgment Debtor and the Decree Holder pertaining to the properties in the “Memorandum of Family Arrangement”. The counsel further contended That, the Arbitrator is the father-in-law of the Decree Holder‟s son, which is clearly barred by the provisions of Section 12 of the Arbitration Act read with Clauses 9, 10, 13 of the Fifth Schedule to the said Act. The counsel  in Further fortifying his arguments , the  Counsel went on to urge that a third party is not perforce bound by a Decree and can resist the execution of the Decree. That, the Objector herein had also made an application under Order XXI Rule 97(1) and as held in the said decision the executing court is enjoined to adjudicate the claim and record a finding, allowing or rejecting the claim. That, the three Judge Bench of the Hon‟ble Supreme Court has elucidated the powers of the Executing Court in Bhavan Vaja and Others vs. Solanki Hanuji Khodaji Mansang and Another and held that, an executing Court cannot go behind the Decree under execution, but that did not mean that it has no duty to find out the true effect of that Decree.the counsel further submitted that, For construing a Decree it can and in appropriate cases it ought to take into consideration the pleadings as well as the proceedings leading up to the Decree. That, to ascertain the meaning of the words employed in a Decree, the Court often has to consider the circumstances under which those words came to be used.

COURTS ANALYSIS AND JUDGEMENT:

The court on Having considered the submissions by  Counsel, observed. That, Explanation II to Section 47 of the CPC lays down that for the purpose of the Section, a purchaser of a property at a sale, in execution of a Decree, shall be deemed to be a party to the suit in which the Decree is passed. Thus, although the normal rule is that in a dispute between a party to the suit or his representative on the one hand and a stranger who is not a purchaser at the execution sale on the other hand is outside the scope of the Section, by adding Explanation II to the Section, a purchaser of property at a sale in execution of a decree, though a stranger to the suit, is deemed to be a party to the suit in which the Decree has been passed. Therefore, there is no bar under the law for a stranger to the proceedings who has an independent legal right to appear and contest the execution proceedings and whose property interests will be adversely affected by sale of the property in execution proceedings, to point out that the Decree sought to be executed is a nullity. That, his right to approach the executing Court under Order XXI Rule 97 of the CPC anticipating dispossession cannot be rejected. The court further opined that Section 34 of the Arbitration Act it is clear that the said law only applies to parties to the Arbitral Award and not to a third party thereof, hence, this argument cannot be countenancedthe court further opined that, it is an admitted fact that the Objector/ Respondent No.2 is the son of the Judgment Debtor and Respondent Nos.3 and 4 are his offspring, their rights to the said property therefore require consideration to prevent protracted and multiplicity of litigation. In the aforesaid circumstances and for the reasons enumerated hereinabove by this Court, the questions formulated stands determined accordingly. Consequently, the court opined that the impugned Order of the Learned Trial Court warrants no interference, Hence the court dismissed the writ petition  accordingly.

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Judgement reviewed by: Sowmya.R

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Delhi High Court extends arbitrator’s mandate despite expired deadline.

CASE TITLE – National Skill Development Corp. V. Best First Step Education Pvt Limited &Ors

CASE NUMBER – O.M.P. (MISC.) (COMM.) 608/2023

DATED ON – 29th February, 2024

QUORUM – HON’BLE MR. JUSTICE PRATEEK JALAN

 

FACTS OF THE CASE

The petitioner has filed this petition under Section 29A of the Arbitration and Conciliation Act, 1996 for extension of the mandate of the Arbitral Tribunal constituted to adjudicate disputes between the parties under a Loan Agreement dated 19.12.2013. According to the agreement, respondent No. 1 was the significant borrower, respondent Nos. 2 through 5 were guarantors, and respondent No. 6 is alleged to have made further undertakings in support of the petitioner. The petitioner was the lender. The parties to the arbitration procedures were the petitioner and respondent Nos. 1 through 6. Under the Indian Council of Arbitration (ICA) Rules, the arbitration was started. The petitioner filed a request for arbitration on March 21, 2022, and the respondents filed a counterstatement on April 8, 2022, after receiving the petitioner’s statement of claim on June 13, 2022. On January 27, 2023, an arbitrator was appointed, and on March 10, 2023, Respondent No. 6 was heard ex parte. The attorneys representing Respondent Nos. 1 through 5 withdrew on April 4, 2023, and no replacement attorneys showed up for them. The last hearing was place on July 14, 2023. On 16.11.2023, the petitioner filed a Section 29A petition, believing that the arbitrator’s authority would expire one year after the pleadings on 04.08. 2022. The arbitrator published the award on November 12, 2023, and the petitioner got it on December 20, 2023, despite the notification being sent on November 24, 2023.

 

ISSUES

Whether the mandate of the Tribunal can be extended, even after the award has been made?

 

COURT ANALYSIS AND JUDGEMENT

In the present case, the court learned that the petition was filed prior to the award, although after the mandate of the learned Arbitrator had already expired and that the factual petition is thus closer to the facts of the case in Harkirat Singh Sodh.

“If an award is delivered while the petition is pending and the petition was filed before the award was made, the case would still be maintainable. On the other hand, a petition that is submitted after the award is made and the setting aside process has begun cannot be maintained

This distinction is also justified in principle, as a party cannot decide whether to request an extension of the mandate after learning of its outcome in the arbitration proceedings and being confronted with an award challenge based on this basis. The court determined that the petition should be granted after considering the case’s facts. Therefore, the arbitrator’s mandate, which was supposed to end on April 8, 2022, the day the pleadings concluded, is legally extended until November 12, 2023, the date the award was made. This ruling upholds the arbitrator’s decisions and the 11.12.2023 award. With this extension, the petition is therefore ended, and the issue is resolved as a result.

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Judgement Reviewed by – Gnaneswarran Beemarao

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Delhi High Court Sets Aside Arbitrator’s Rs. 20 Lakh Award for Loss of Profit Due to Lack of Evidence

CASE TITLE – M/S DIVYAM REAL ESTATE PVT LTD v. M/S M2K ENTERTAINMENT PVT LTD

CASE NUMBER – O.M.P. (COMM) 162/2020 & I.A. 14331/2012, I.A. 10655/2022

DATED ON – 22.05.2024

QUORUM – Justice Anup Jairam Bhambhani

 

FACTS OF THE CASE

Disputes had arisen between the parties from a Memorandum of Understanding dated 20.02.2006 (“MoU‟), under which the petitioner was to construct a mall in the name and style of “R-3 Mall‟ in Ahmedabad, Gujarat (“Mall‟) in which the respondent was to be provided space for running a multiplex on a lease basis. The bone of contention between the parties was, that the respondent alleged that the petitioner had committed a breach of the terms of the MoU by entering into a contract with a third party on 09.03.2006, thereby terminating the respondent’s contract. The respondent claimed that the termination was invalid and illegal, which compelled them to file a claim in arbitration. By way of the Arbitral Award, the petitioner has been directed to pay to the respondent the sum of Rs. 24,54,458.33 along with interest at the rate of 12% per annum. The said sum comprises two primary components: (i) the sum of Rs. 4,54,458.33 towards expenses held to have been incurred by the respondent towards advertisement and exhibition charges etc. as detailed in the award; and (ii) the sum of Rs.20,00,000.00 towards „loss of profit‟ suffered by the respondent, as also detailed in the award.

 

ISSUES

Whether the Learned Arbitrator was justified in issuing an award of Rs. 20,00,000.00 by way of loss of profit?

 

CONTENTIONS BY THE PETITIONER

The Learned Counsel appearing for the petitioner submitted that in the petition they have raised two principal contentions impugning the Arbitral Award. The first is that the MoU signed between the parties was merely an “agreement to agree‟ and was therefore not a concluded or enforceable contract, and second, that the award of Rs. 20,00,000.00 in favour of the respondent by way of loss of profit, is untenable since it was based entirely on conjectures and surmises. The petitioner’s main contention is that the learned Arbitrator has awarded loss of profit to the respondent based on no evidence tendered on record, and the Arbitral Award is in fact self-contradictory in its reasoning

 

CONTENTIONS BY THE RESPONDENT

The Learned counsel for the respondent has argued that the learned Arbitrator has returned a finding that the petitioner was guilty of breach of the MoU, thereby also dismissing the petitioner‟s counterclaims. It was argued that by way of the present petition, the petitioner is therefore asking the court to re-appreciate evidence adduced before the learned Arbitrator, which is impermissible under section 34 of the A&C Act. It was submitted that the award is neither contrary to law nor against the public policy of India. He had drawn the attention of the Hon’ble High Court to an affidavit dated 01.02.2010 tendered by Mr. Sunil Gupta, Deputy Manager of the respondent by way of evidence in the arbitral proceedings, in which, it was argued, the witness has furnished details of the expenses incurred by the respondent towards performing its obligations under the MoU. It was pointed out that the said witness has deposed that the respondent spent a sum of Rs. 20,08,343.00 towards payment made to various parties for performing its part under the MoU. The Learned Counsel also stated that in addition to such expenses, the respondent has also suffered loss of goodwill and loss of profit, resulting from termination of the MoU by the petitioner.

 

COURT ANALYSIS AND JUDGEMENT

The Hon’ble High Court of Delhi, after looking through the evidence before them and the Arbitrator’s reasoning for issuing the award was of the opinion that on the limited challenge pressed on behalf of the petitioner, viz. a challenge only to the award of Rs. 20 lacs to the respondent towards loss of profit, the discussion and reasoning contained in the Arbitral Award was sparse and cryptic. They noticed that the learned Arbitrator first makes a passing observation that the respondent had incurred loss of profit, which he says has been calculated for the period from 20.06.2006 to 20.12.2008 based on the estimated loss of and then proceeds to observe that calculating loss of profit must involve a certain amount of conjecture and that there cannot be straight-jacket formula for that purpose. However, the learned Arbitrator thereafter proceeds to observe “it is speculative if any profit would be made or not. However, it cannot be ignored that it is the respondent who had committed the breach.” Therefore, the Hon’ble High Court noticed that the learned Arbitrator was of the view that even the foundational fact as to whether the respondent would have made a profit at all was in doubt. IIt the opinion of the Hon’ble High Court, that there is a clear discordance, whereby on the one hand, the learned Arbitrator holds that whether or not the respondent would have made any profit is itself a matter of speculation, but on the other hand, he proceeds to award loss of profit of Rs. 20 lacs, drawing that figure literally from thin air. Hence, they stated that, the learned Arbitrator did not proceed even on the basis of the evidence on record, that was available inter alia by way of the evidence tendered before him. The Hon’ble High Court then held that it was persuaded to allow the present petition, holding that the award of Rs. 20 lacs to the respondent towards loss of profit was based on no evidence on record, and in fact, the learned Arbitrator has failed to even decide whether the respondent had incurred, or would have incurred, any loss of profit at all, and stated that the Arbitral Award dated 07.03.2012 is to be set aside.

 

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Judgement Reviewed by – Gnaneswarran Beemarao

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Delhi Metro Rail Corporation is directed to pay damages for delay to MBL Infrastructures Ltd. despite no specific clause in Agreement: Delhi High Court

Case Title: MBL Infrastructures Limited v. Delhi Metro Rail Corporation

Case No: O.M.P. (COMM) 311/2021

Decided on:  12th December, 2023

CORAM: THE HON’BLE MR. JUSTICE CHANDRA DHARI SINGH 

Facts of the Case

MBL Infrastructure Ltd., a Public Limited Company with expertise in Civil Engineering projects throughout India, and the Delhi Metro Railway Corporation, a joint venture of the Government of NCT of Delhi and the Government of India, entered into a contract. This agreement focused on the construction of Sarai Station, encompassing architectural finishing, water supply, sanitary installations, external development works, and structural works on the Badarpur – Faridabad Corridor within Delhi MRTS Phase III.

The Respondent issued an invitation for tenders for the project on March 9, 2012. On the same day, the Petitioner submitted its tender, which was subsequently accepted by the Respondent on May 9, 2012. The project, valued at Rs. 41.57 crores, was scheduled to commence on May 21, 2012, and conclude on November 20, 2013, encompassing an 18-month duration.

The Petitioner furnished performance bank guarantees and bank guarantees for mobilization advance. Despite encountering delays in the site handover process, the Petitioner received the initial mobilization advance installment on September 6, 2012. However, the Respondent denied possession of the remaining plot designated for Sarai Metro Station. Following this, the Respondent issued a notice, alleging the Petitioner’s failure to meet work program commitments and other obligations. Despite the Petitioner’s assertion of timely performance, the Respondent terminated the contract on November 1, 2013, and invoked the bank guarantees provided by the Petitioner.

Following arbitration, the Arbitral Tribunal rendered its award on March 6, 2020, determining that the Respondent had breached the contract and was accountable for the project delay. While the Tribunal upheld some of the Petitioner’s claims, it dismissed others, including all Counter claims presented by the Respondent. Notably, the Tribunal deemed the termination of the contract and the encashment of the Performance Bank Guarantee as illegal and unjustified, considering the Respondent’s breach of the agreement. Expressing dissatisfaction with the rejection of certain claims, the Petitioner contested the award, specifically challenging the tribunal’s decision to dismiss those claims.

Legal Provision

Section 34 (2) of the Arbitration and Conciliation Act states that an arbitral award may be set aside by the Court only if-

  1. the party making the application 1[establishes on the basis of the record of the arbitral tribunal that]–
  2. a party was under some incapacity, or
  3. the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
  • the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
  1. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

  1. the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
  2. the Court finds that-
  3. the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
  4. the arbitral award is in conflict with the public policy of India.

Issues

  1. Whether the tribunal, despite recognizing the petitioner’s incurred expenses and the harm resulting from the respondent’s actions, refrained from awarding damages, costs, and interest?
  2. Whether the denial of damages by the tribunal contradicts Section 55 and 73 of the Indian Contract Act?

Court’s analysis and decision

The Delhi High Court emphasized that it can only interfere with the arbitral award if the grounds under Section 34 of the Arbitration and Conciliation Act are made out and not otherwise.

The court noted the tribunal’s determination of the respondents being accountable for the project work delay and the illegal nature of the termination. Highlighting that the tribunal attributed the delay to the respondent, leading to damages suffered by the petitioner, the court asserted that in such a scenario, the tribunal should have granted damages to the petitioner.

The court ruled that the arbitral tribunal, despite the existence of Clause 8.3 in the GCC limiting remedies to a time extension, cannot deny damages. It emphasized that such a clause does not restrict the tribunal’s authority to award damages, particularly in light of Section 55 and 73 of the Indian Contract Act.

Additionally, the court declared that any clause limiting the aggrieved party’s right to claim damages is against the fundamental policy of Indian Law. It affirmed that such a prohibitionary clause doesn’t hinder the tribunal’s power to compensate a party for losses due to the other party’s delay, even if the contract only provides for an extension of time.

The court clarified that the arbitral tribunal can grant damages for delay even if the contract only allows for an extension of time as the remedy for the contractor. Once the tribunal establishes the employer’s responsibility for delays, it must award damages, regardless of any contractual prohibition or absence of a provision for damages.

The court further stated that in situations where the contract inadequately restricts or fails to provide remedies for the contractor to claim damages, the arbitral tribunal has the authority to go beyond the contract’s boundaries to grant the relief that the party is legally entitled to.

Regarding the rejection of certain claims, the court upheld the tribunal’s decision on the denial of claims related to damage to reputation, costs of arbitration, and the interest component. It reasoned that the petitioner failed to prove reputational loss due to the agreement’s termination, and the initiation of insolvency proceedings could not be entirely attributed to the termination.

The court noted that the agreement constrained the tribunal from awarding costs to any party, and it prohibited anti-lite and pendente lite interest. It emphasized that the tribunal, as a creation of the contract, is bound by reasonable restrictions on its power imposed by the agreement.

In addressing the issue of partial setting aside of the award, the court clarified that severing the findings on claims 3 and 4 from the rest of the award does not constitute a modification of the award. It explained that modification would involve altering damages awarded or changing the interest rate. Setting aside unconnected or independent findings of the tribunal does not amount to modifying the award. Consequently, the court set aside the award on claims 3 and 4, remitting them back to the tribunal for fresh consideration.

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Written by- Afshan Ahmad

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