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Delhi High Court Affirms Tribunal’s Decision, stating that the Arbitral Tribunal’s discretion was exercised appropriately and not arbitrarily.

Delhi High Court Affirms Tribunal’s Decision, stating that the Arbitral Tribunal’s discretion was exercised appropriately and not arbitrarily.

 

Case title:  ROADWAY SOLUTIONS INDIA INFRA LIMITED VS NATIONAL HIGHWAY AUTHORITY OF INDIA

Case no.: ARB. A. (COMM.) 18/2024 & I.A. 7167/2024, I.A. 7168/2024, I.A. 7169/2024

Dated on: 28th May 2024

Quorum:  Hon’ble. MR JUSTICE ANUP JAIRAM BHAMBHANI

FACTS OF THE CASE

The present appeal filed under section 37(2)(b) of the Arbitration & Conciliation Act 1996 (“A&C Act‟), the appellant (claimant in the arbitral proceedings) impugns order dated 27.03.2024 made by a 03-Member Arbitral Tribunal, on an application under section 17 of the A&C Act seeking certain interim reliefs. As perusal of the impugned order shows that the learned Tribunal has dealt with the matter in considerable detail and has addressed all three principal prayers made in the application individually. The learned Tribunal has dealt with each of the reliefs sought in the section 17 application in the following way Insofar as the relief of injuncting the respondent from proceeding with the fresh RFPs and NITs is concerned, the learned Tribunal has held that that relief had become infructuous since the respondent has already gone ahead and awarded the contract to a third-party, and the validity of termination of the appellants contract is required to be decided in the main proceedings. The learned Tribunal has then proceeded to decide the interim prayer against threat of the appellant being disqualified from participating in future RFPs/NITs. In this behalf, suffice it to say, the learned Tribunal has held in favour of the appellant, and after a fairly detailed discussion, has come to the conclusion that the appellant satisfies all three tests, viz. of making-out a prima-facie case, of satisfying the learned Tribunal that balance of convenience lies in the appellants favour, and also that irreparable loss and injury would be suffered by the appellant as a consequence. Accordingly, the learned Tribunal has held in favour of the appellant, granting a limited interim protective order as to the appellants entitlement to participate in future tenders that may be issued by the respondent. Thereafter, the learned Tribunal goes-on to consider the statements filed by each of the parties, in relation to the value of the work completed by the appellant, as indicated in certain Interim Payment Certificates. The learned Tribunal observes that there is huge variation between the amount claimed by the appellant to be due and the amount that the respondent says is payable.

 ISSUES

  1. Whether the Arbitral Tribunal’s order dated 27.03.2024, concerning the application for interim relief under section 17 of the A&C Act, warrants interference by the court under the limited scope of section 37 of the A&C Act.

LEGAL PROVISIONS

Arbitration and Conciliation Act, 1996

Section 17: This section empowers an Arbitral Tribunal to order interim measures of protection as it deems necessary at the request of a party. This includes ordering a party to provide a deposit for the costs of arbitration or granting interim relief similar to those that courts can grant.

Section 37(2)(b): This section provides for appeals against orders of an Arbitral Tribunal granting or refusing to grant interim measures under Section 17. The scope of judicial intervention under this section is limited to ensure that the Tribunal’s discretion is not unduly interfered with unless it is shown to be arbitrary, capricious, irrational, or perverse.

CONTENTIONS OF THE APPELLANT

Mr. Arvind Nayar, learned senior counsel appearing for the appellant Mr. Arvind Nayar, learned senior counsel appearing for the appellant further argues, that as the record would show, in the proceedings filed for interim relief in this court, both the Co-ordinate Bench as well as the Division Bench, were pleased to hold in favour of the appellant and had restrained encashment of the bank guarantees, which position has now been reversed by the learned Tribunal. Mr. Nayar also points-out that the learned Tribunal has given no reasons for its conclusion, permitting invocation of the bank guarantees. Senior counsel argues that once the learned Tribunal had applied the triple-test and held in favour of the appellant in relation to other reliefs, the relief against invocation of the bank guarantees was in fact, a consequential relief, which ought to have followed.

CONTENTIONS OF THE RESPONDENTS

Mr. Ankur Mittal, learned counsel is present on behalf of the respondent on advance copy; but has not been called-upon to address the court. Upon a careful consideration of the submissions made by Mr. Nayar, this court is of the opinion that the learned Tribunal was in no way bound by the interim orders granted by the Co-ordinate Bench or by the Division Bench of this court in the various proceedings referred to above. In fact, concededly the Division Bench had extended the interim order restraining the invocation of bank guarantees only till the first sitting of the learned Arbitral Tribunal. That order was however continued by the learned Tribunal till the final decision on the section 17 application. In the meantime, the very constitution of the learned Tribunal also came to be changed; during which period also the invocation of the bank guarantees remained stayed. The interim order passed by the Division Bench had therefore long outlived its intent and purpose.

COURT’S ANALYSIS AND JUDGEMENT

As observed above, all three reliefs sought by way of the section 17 application have been considered in detail by the learned Arbitral Tribunal, and after due consideration and reasoning, the learned Tribunal has held that insofar as staying the effect of the termination notice is concerned, that relief has been rendered infructuous, since in the meantime not only did the contract stand terminated, but fresh NITs and RFPs had been issued and a fresh contract had been awarded to a third-party. That being said, the learned Tribunal has observed that the validity of the termination would, of-course, be considered on its merits in the course of the arbitral proceedings. Insofar as the other relief of debarring the appellant from participating in future tenders is concerned, the learned Tribunal has held in favour of the appellant, thereby granting interim protection and assuring the appellants entitlement to participate in future tenders. However, as far as invocation of the bank guarantees is concerned, after giving due consideration to the value of the work claimed to be completed by the appellant; and the respondents version thereon, the learned Tribunal has come to the conclusion that, at the interim stage, there is no basis to injunct invocation of the bank guarantees. The discussion in the impugned order would also show that the appellant had failed to even allege a case of „fraud‟; and had also failed to make-out a case of „special equities‟ in its favour that would warrant restraining invocation of the bank guarantees. It is also needs no detailed articulation, that interference by court under section 37(2)(b) of the A&C Act is warranted only in exceptional circumstances, when the court finds that the use of the discretionary power under section 17 of the A&C Act by an Arbitral Tribunal is palpably arbitrary, capricious, irrational or perverse. This Bench has itself so held in India bulls Housing Finance Ltd. & Anr. vs. Shipra Estate Ltd. and connected matters, while explaining the scope of interference by court under section 37 of the A&C Act. In the circumstances of the present case, this court is of the view that no ground is made-out for interfering with order dated 27.03.2024 passed by the learned Arbitral Tribunal on the application under section 17 of the A&C Act, within the limited ambit and scope of the jurisdiction of this court under section 37 of the A&C Act. The appeal is accordingly dismissed in-limine without however any order as to cost. Pending applications, if any, also disposed-of.

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Judgement Reviewed by – HARIRAGHAVA JP

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“Decision of Arbitral Tribunal to not Implead a Party to Arbitration is not an Interim Award”: Delhi High Court

Case title: National Highway Authority of India v. Ms IRB Ahmedabad Vadodra Super Express Tollways Pvt. Ltd

Case no.: O.M.P. (COMM) 455/2022 & I.A. 18565/2022

Order on: 2nd April 2024

Quorum: Justice Prateek Jalan

FACTS OF THE CASE

The petitioner, National Highway Authority of India (NHAI), challenged a decision of a three-member Arbitral Tribunal dated 01.08.2022. This decision rejected NHAI’s application under Order I Rule 10 of the Code of Civil Procedure, 1908 (CPC) for impleadment of the State of Gujarat as a party to the arbitral proceedings. The arbitral proceedings stemmed from a Concession Agreement dated 25.07.2011 between NHAI and the respondent, MS IRB Ahmedabad Vadodra Super Express Tollways Pvt. Ltd.

CONTENTIONS OF THE APPELLANT

Advocates Mr. Ankur Mittal, Mr. Abhay Gupta, and Mr. Ankur Saboo represented NHAI. They argued that the State of Gujarat should be impleaded based on the obligations it undertook in a State Support Agreement dated 11.02.2016, which was related to the Concession Agreement.

CONTENTIONS OF THE RESPONDENTS

Represented by Mr. Atul Nanda, Senior Advocate, the respondent contested NHAI’s application for impleadment, arguing that the Arbitral Tribunal lacked jurisdiction to decide on the impleadment of the State of Gujarat.

Mr. Nanda submits that the question of maintainability of a petition under Section 34 of the Act against an order of an arbitral tribunal declining impleadment of a third party is no longer res integra. He relies upon the decision in National Highway Authority of India vs. Lucknow Sitapur Expressway Ltd. (Lucknow Sitapur Expressway), The Court was, in that case, also concerned with a decision of an arbitral tribunal adjudicating disputes under a Concession Agreement. The Tribunal had rejected an application by NHAI for impleadment of a State Government on the ground that it was a party to a State Support Agreement.

LEGAL PROVISIONS

Section 34 of the Arbitration and Conciliation Act, 1996 – Application for setting aside arbitral award.

It allows parties to challenge an arbitral award before the appropriate court on certain grounds, including that the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties. In this case, the petitioner NHAI, invoked Section 34 to challenge the decision of the Arbitral Tribunal rejecting its application for impleadment of the State of Gujarat.

ISSUE

The main issue was whether the decision of the Arbitral Tribunal rejecting NHAI’s application for impleadment of the State of Gujarat constituted an arbitral award, thus making it amenable to challenge under Section 34 of the Arbitration and Conciliation Act, 1996.

COURT’S ANALYSIS AND JUDGEMENT

The court examined precedents, including the case of Lucknow Sitapur Expressway Ltd., which involved similar circumstances. In Lucknow Sitapur Expressway, it was ruled that a decision rejecting an application for impleadment did not constitute an arbitral award under Section 2(1)(c) of the Act. The court emphasized that for a decision to be considered an award, it must decide a substantive dispute or conclusively settle an issue pertaining to the heart of the dispute.

The court further clarified that the distinction between a decision on jurisdiction and one on merits did not affect the characterization of the decision as an award. Even if the tribunal ruled on the jurisdiction to decide on impleadment, it did not change the nature of the decision. The court referenced various legal principles and previous judgments to support its conclusion.

In light of the precedent set by Lucknow Sitapur Expressway and other relevant judgments, the court held that NHAI’s petition under Section 34 of the Act was not maintainable. Consequently, the petition was dismissed, and all pending applications were disposed of.

The court’s decision in the case of O.M.P. (COMM) 455/2022 reaffirmed the legal position established by precedent, particularly the Lucknow Sitapur Expressway case. It clarified the criteria for a decision to be considered an arbitral award and emphasized that decisions on procedural matters like impleadment did not fall under this category.

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Judgement Reviewed by – Chiraag K A

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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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Patent Illegality, Patent Injustice, Redefining Fairness in Award Review: Delhi High Court

Case Title: MBL Infrastructures Limited vs Delhi Metro Rail Corporation

Case No: 12/12/2023

Decided on: O.M.P. (COMM) 311/2021

Coram: The Hon’ble Mr. Justice Chandra Dhari Singh

 

 Facts of the Case

MBL Infrastructure Ltd., a civil engineering company, entered into a contract with Delhi Metro Railway Corporation in 2012 to construct Sarai Metro Station in Delhi. The project, valued at Rs. 41.57 crore, was meant to be completed within 18 months. However, disputes arose due to alleged delays in site handover by the Metro and non-compliance by MBL. The Metro terminated the contract and encashed bank guarantees in 2013. Arbitration in 2015-2020 found the Metro responsible for delays and the termination illegal, but rejected MBL’s claims for damages and profits. MBL filed a petition challenging this partial award. The case hinges on proving who caused the project’s downfall. The court will determine whether the arbitration tribunal’s decision on specific claims was legally sound.

Legal Provision

Section 34 of the Arbitration and Conciliation Act, 1996 provides for the grounds of setting aside an arbitral award.

 (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the Court only if—

(a) the party making the application [establishes on the basis of the record of the arbitral tribunal that]—

(i) a party was under some incapacity; or

(ii) 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

(iii) 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

 (iv) 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

(v) 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 (b) the Court finds that— (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India.

Section 73 of the Indian Contract Act, 1872 provides compensation for the loss or damage caused by the breach of Contract.

Issue

  1. Whether the learned Tribunal has erred in not awarding the damages to the petitioner despite holding that the delay is attributable to the respondent?
  2. Whether Arbitral tribunal can go beyond to grant relief to aggrieved party when contract illegally restricts Remedies?
  3. Whether DMRC’s actions caused significant delays and if MBL deserves compensation for their alleged losses?

Court Decision and Analysis

In light of the precedents set by the judgements in cases like, NHAI v. Trichy Thanjavur Expressway Ltd. 2023 SCC Del 5183, Union of India v. Alcon Builders & Engineer (P) Ltd 2023 SCC OnLine Del 160, and few more, the Court found itself empowered under Section 34 of the Act to rectify specific parts of the arbitration award that are demonstrably flawed and fundamentally unjust. Such portions must be so blatantly erroneous that they shake the very foundation of this Court’s judicial conscience.

However, it is crucial to note that setting aside any portion of the award should not inadvertently impact the upheld sections. Any such action must be carefully executed to avoid unintended consequences or cascading effects that disrupt the remaining provisions.

Therefore, should the Court choose to set aside Claim No. 3 (Damages on Account of Idling of Machines and loss of overheads) and Claim No. 4 (loss of profit), it assured that the remaining claims will remain unaffected and suffer no adverse repercussions. This targeted approach upholds the valid aspects of the award while correcting the demonstrably problematic portions.

The Tribunal’s decision was legally flawed. They admitted respondent’s wrongful delays and contract termination, yet denied damages to the petitioner. This contradicts the law and ignores the unique circumstances of the case, where wrongful termination replaced a deserved extension.

The Award exhibited patent illegality due to the Tribunal’s inconsistency in Claim no. 1. While acknowledging the respondent’s project delays, they inexplicably withheld damages from the petitioner, rendering the Award legally unsound.

In view of the aforementioned claims, court partially allowed the petition and disposed pending applications.

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Written by- Bhawana Bahety

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