#Arbitration and Conciliation Act Archives

8 Jan

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

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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

Whether the learned Tribunal has erred in not awarding the damages to the petitioner despite holding that the delay is attributable to the respondent?
Whether Arbitral tribunal can go beyond to grant relief to aggrieved party when contract illegally restricts Remedies?
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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7 Nov

The Delhi High Court held that it is not allowed for a litigant to adopt opposing positions in the same litigation.

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Title: ANR International Private Limited v. Mahavir Singhal & Ors.

Decided on: 03 November, 2023

+ FAO (COMM) 164/2023 & CM APPL. 40580/2023

CORAM: Hon’ble Justice V. Kameswar Rao and Justice Anoop Kumar Mendiratta

Introduction

A party cannot be allowed to approve and reprobate on the same facts at the same time, the Delhi High Court stated in dismissing a plea that contested a trial court ruling dated June 2, 2023.

Facts of the Case

The current appeal challenges an order dated June 02, 2023 issued by the District Judge of Commercial Court-01, Shahdara, Karkardooma, Delhi, dismissing an application filed by defendant No. 1 in the suit bearing CS(COMM.) No. 541/2022, pursuant to Section 8 of the Arbitration and Conciliation Act, 1996.

Courts analysis and decision

The court noted that the courts would be encouraging and abetting such litigants to break the law, especially fiscal laws, and would be allowing the litigants to periodically change their appearance to their benefit and the detriment of the public coffers and the general public if they were allowed to take a different stance during litigation than they have been taking while abiding by various laws. It went on to say that the same cannot be allowed and rejected the plea as not maintainable. The court went on to say that the respondent used Section 21 of the Act of 1996 to invoke the arbitration clause, despite the appellant’s initial denial due to incorrect counsel.

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Written by- Hargunn Kaur Makhija

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13 Jul

Delhi High Court dismissed the appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996.

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Title: UNION OF INDIA versus INDIAN AGRO MARKETING CO-OPERATIVE LTD

Judgment reserved on: 25th May, 2023.

Judgment delivered on: 11th July, 2023.

+ FAO (COMM) 123/2022 & CM APPLs. 36105-36107/2022, 36109/2022

CORAM: HON’BLE MR. JUSTICE SANJEEV SACHDEVA

HON’BLE MR. JUSTICE MANOJ JAIN

Introduction

Delhi High Court dismissed the appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 impugns order dated 28.05.2022 passed by learned District Judge (Commercial Court) whereby, the objection petition filed by the appellant herein under Section 34 of said Act has been dismissed.

Facts of the Case

The appellant issued a tender for the purchase of 5450 metric tonnes (MT) of “Gramme whole.” In this tender procedure, the respondent M/s Indian Agro Marketing Co-operative Limited took part, and they were given the job of supplying 1125 MT of whole gramme at the price of Rs. 3553/- per quintal. On February 9, 2012, the appellant issued an acceptance letter. The work had a total cost of Rs. 3,99,71,250 and was due between February 1 and February 15, 2012.

The respondent made a request for an extension of the delivery time to March 31, 2012, citing the fact that a significant portion of the “delivery period” had already passed even before the receipt of the acceptance letter. The appellate granted this motion, and the delivery deadline was extended to March 31, 2012. According to the contract’s terms and conditions, the respondent provided a 39,97125/- rupee unconditional bank guarantee.

The respondent could not supply „Gram Whole‟ by 31.03.2012. In a “performance notice” dated 16.04.2012, the appellant instructed the respondent to carry out its contractual responsibility to provide supply on or before 17.05.2012, adding that the contract would be voided if such supply was not made.

Since no delivery was delivered, the contract was terminated on June 29, 2012, and the appellant forfeited the bank guarantee in accordance with clauses 7(4) of DGS&D-68 (Revised) and 18(d)(viii) of the appendix to the tender investigation.

The respondent received the remaining funds after the appellant withheld Rs. 28,97,988 as “general damages.” Since the contract contained a “arbitration clause,” the respondent sought the court to request the appointment of an arbitrator by submitting ARB.P. No. 597/2014. This court was happy to appoint Shri A.K. Garg, Additional District Judge (retired), as Sole Arbitrator in an order dated February 26, 2015.

The Arbitral tribunal rejected the claims of the respondent and passed an Award accordingly. The appellant filed a petition under Section 34 of the aforementioned Act to contest the claimed award. The contested order dismissed the objection petition, OMP (COMM.) No. 37/19, which prompted the filing of the current appeal.

Analysis of the court

The appellant cited ONGC Vs. Saw Pipes Ltd. (2003) 5 SCC 705, and the arbitral tribunal noted that in that case, all of the contractor’s security was permitted to be forfeited because the parties “expressly agreed” that the amount was a true pre-estimate of damages and that liquidated damages were not a punishment. Thus, the Arbitral Tribunal determined that the factual matrix in the current instance was distinct. The forfeiture of a portion of the bank guarantee as “general damages” was not justified since the appellant was unable to demonstrate any financial loss, and no evidence was presented to support this conclusion. The Arbitral Tribunal further noted the cases of Kailash Nath v. DDA (2015) 4 SCC 136, Fateh Chand v. Balkishan Das (1964), and Maula Bax v. UOI (1969) 2 SCC 554.

The appellant cited the Supreme Court’s ruling in Construction and Design Services v. Delhi Development Authority: (2015) 14 SCC 263, arguing that because the purchase was for a public purpose, they were not obliged to prove any loss. The work on the “sewage plant” was delayed in the aforementioned instance, and as there was no way to calculate the losses brought on by the delay, it was determined that the damages were not calculable. In the current instance, the contract pertains to the purchase of goods, and any loss sustained by the appellant may clearly be measured in monetary terms.

In Ministry of Defence, Govt. of India vs. CENREX SP Z.O.O. (supra), it was held, among other things, that the amount sought as liquidated damages could be claimed as per Section 74 of the Indian Contract Act, 1872, once the nature of the contract was such that losses were incalculable. This was done without proving or demonstrating how much loss was caused.

It was noted in MMTC Ltd. v. Vedanta Ltd. (2019) 4 SCC 163 that, in terms of challenging an order issued under Section 34, it cannot be contested that such challenges brought under Section 37 cannot go beyond the bounds of Section 34. In other words, the court cannot independently evaluate the merits of the award; instead, it must just confirm that the court’s use of its authority under Section 34 has not gone beyond the bounds of that provision. Regarding Section 34, it is well established that the Court does not hear appeals involving arbitral awards but may intervene on the merits in certain circumstances.

Thus, it is unnecessary to reiterate that interference under Section 37 of the aforementioned Act does not involve a review of the merits of the dispute and is only permitted in instances where the arbitrator’s findings are arbitrary, capricious, or perverse, when the court’s conscience is shocked, or when the illegality is not minor but instead affects the core of the issue. If the arbitrator’s position is one that might be supported by the evidence, then the arbitral decision cannot be challenged. Referring to Associate Builders v. DDA DDA, (2015) 3 SCC 49; Associate Builders v. See ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705.

Nothing that is shown to us suggests any obvious illegality, a completely illogical or irrational interpretation of a contract, or a result that was reached by disregarding significant facts or on the basis of “no evidence.” However, given the established legal position and the relevant facts, we do not believe there is a need for us to become involved. As a result, the appeal is denied.

Written By – Shreyanshu Gupta

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7 Jun

The Power of the Arbitrator: Resolving Disputes in Partnerships through the Clauses of the Partnership Deed – Insights from the Karnataka High Court

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Karnataka High Court

Jameela v. Sullia Afsa @ Hafsa.B & ors.

Bench- HON’BLE MR JUSTICE S.G.PANDIT

CIVIL MISC. PETITION NO.500 OF 2021

Decided On 16-05-2023

Facts of the case-

The petitioner in this case claims to be the second wife of the late Hajee S. Ibrahim, whom she married on 14.05.2016. After the death of his first wife, Hajee S. Ibrahim married the petitioner. Hajee S. Ibrahim passed away on 23.09.2020 due to Covid-19, leaving behind the petitioner and two children, including the first respondent.

The petitioner alleges that Hajee S. Ibrahim, in order to establish a hospital and medical center in Aryapu village of Puttur Taluk, entered into a partnership with the respondents. The partnership deed was registered on 13.08.2020, and certain properties were contributed to the partnership firm by the respondents as their share of capital. The petitioner, as the second wife and legal representative of the deceased, requested the respondents to dissolve the partnership and divide the firm’s properties. However, the respondents refused to do so.

The petitioner, after the respondents’ refusal, approached the court seeking the appointment of a District Judge as a sole arbitrator under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996. The petitioner requested the arbitrator to arbitrate the dispute between the parties according to the terms of the partnership deed.

The respondents contested the petitioner’s claim of being the wife of the late Hajee Ibrahim. They argued that the petitioner was not married to Hajee Ibrahim but worked as a maid in his house. Therefore, unless the petitioner can establish her status as Hajee Ibrahim’s wife, she cannot seek the appointment of an arbitrator.

Relevant Provision

Arbitration and Conciliation Act, 1996	Related to
Sec. 11	Appointment of arbitrators.

Judgement

The court emphasized that the partners of a firm are bound by the clauses of the partnership deed, as long as they are not contrary to the law. In this case, since the partnership deed specifies the appointment of an arbitrator, the arbitrator has the authority to resolve any disputes based on the provisions of the partnership deed.

The court highlighted that the partnership deed clearly states that in the event of the death of the first partner (Late Hajee Ibrahim), the firm shall not be dissolved, but instead, it will continue with the remaining partners, and the deceased partner’s share of profit, capital account balance, and assets will be transferred equally to the remaining partners. Therefore, based on the terms of the partnership deed, the petitioner cannot seek the dissolution of the firm or claim a partition of its assets.

Regarding the status of the petitioner as a legal representative, the court pointed out that according to Section 40 of the Arbitration and Conciliation Act, 1996, a legal representative can enforce an arbitration clause. However, since the respondents have disputed the petitioner’s status as the second wife of Late Hajee S. Ibrahim, it needs to be determined whether the petitioner qualifies as a legal representative.

The court referred to a Supreme Court judgment (Vidya Drolia and others vs. Durga Trading Corporation, 2021) which identified the subject matters that are arbitrable and those that are not. In the present case, the status of the petitioner as a legal representative is in dispute, and it is yet to be established whether she is indeed one of the legal representatives of Late Hajee S. Ibrahim.

The court noted that there is a pending partition suit filed by the petitioner, in which her status will be determined. Only after the petitioner’s status as a legal representative or the wife of Late Hajee Ibrahim is established, and if there is an arbitrable dispute, can the petitioner invoke the arbitration clause.

Given the provision in Clause-13 of the partnership agreement, which does not allow for the dissolution of the partnership firm upon the death of the first partner but instead mandates the transfer of the deceased partner’s share to the remaining partners, the court concluded that the petitioner, who claims to be the second wife of Late Hajee Ibrahim, the first partner of the firm, cannot seek the dissolution of the firm or the partition of its properties.

Therefore, the court held that the petitioner is not entitled to the appointment of an arbitrator based on the facts and legal provisions presented in the case.

JUDGEMENT REVIEWED BY ABHAY SHUKLA

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