#arbitration Archives - Page 4 of 4

9 Aug

Ineligibility Of Arbitrator As Per S.12(5) Arbitration Act Can’t Make Arbitration Clause Itself Invalid: Allahabad High Court:

Blog #allahabad, #allahabadhighcourt, #arbitration, #clause, #invalid

CASE TITLE: M/S Bansal Construction Office v. Yamuna Expressway Industrial Development Authority And 2 Others 2023 LiveLaw (AB) 250 [Arbitration And Conciliation APPL.U/S11(4) No. – 142 of 2019]

DECIDED ON: 04.08.2023

CORAM: Hon’ble Ashwani Kumar Mishra,J.

INTRODUCTION

The Allahabad High Court has ruled that the complete arbitration arrangement will not become void solely due to the fact that the process of selecting the arbitrator, as outlined in the agreement, is prohibited by Section 12(5) of the Arbitration and Conciliation Act, 1996.

FACTS

The Court ruled that the inclusion of Section 12(5) in the Arbitration and Conciliation Act, 1996 was intended to introduce principles of fairness and autonomy in the arbitrator selection process. Consequently, the presence of an arbitration clause in a contract cannot be interpreted in a strict manner that would exclude the possibility of arbitration itself.

The applicant was granted a contract for constructing roads near Usmanpur village, which was completed by June 30, 2017. Payments were disbursed by the authority based on ongoing bills. However, deductions were made in the final bill, leading to a dispute.

The applicant repeatedly requested the appointment of an arbitrator, which the YEIDA (Yamuna Expressway Industrial Development Authority) denied, citing that the arbitration clause was invalidated by Section 12(5) of the 1996 Act. According to Clause 33 of the contract, only the Chief Executive Officer of YEIDA is eligible to arbitrate in this matter.

Section 12(5) of the Act states that irrespective of any contrary agreements, an individual cannot be appointed as an arbitrator if they have any affiliations with either party or their legal representatives as outlined in the Seventh Schedule of the Act, unless both parties provide written consent.

The applicant’s legal representative divided the arbitration agreement into two parts: one pertaining to the dispute’s referral to an arbitrator, and the other outlining the procedure for such reference. It was further argued that the statutory provision of Section 12(5) should take precedence over the contractual autonomy granted by the arbitration agreement.

Furthermore, it was emphasized that the possibility of arbitration shouldn’t be denied solely due to a statutory provision overriding the arbitrator appointment method outlined in the agreement.

The respondent’s counsel countered that since the CEO of YEIDA couldn’t appoint an arbitrator due to Section 12(5), arbitration couldn’t be pursued at all. Citing a previous ruling by the Court in Arbitration Application No. 54 of 2017, it was argued that Section 12(5) prevented the arbitrator from arbitrating any dispute. Additionally, in the absence of a specific clause recording consent from both parties, arbitration reference couldn’t be initiated.

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CASE ANALYSIS AND DECISION

The Court noted that it is essential to interpret the arbitration clause “in a manner that reveals the genuine intention of the parties,” despite its wording seeming to exclude arbitration under Section 12(5).

In the ongoing case, when selecting an arbitrator, none of the parties involved can maintain authority while disregarding the arbitration process itself. Clause 33 of the contract in question would be secondary to the influence of Section 12(5) of the Act.

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Written by- Mansi Malpani

3 Aug

The arbitral award against Spicejet in favour of the company’s former promoter, Kalanithi Maran, is upheld by the Delhi High Court.

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Blog #airlines, #arbitration, #delhi, #delhicourt, #delhihighcourt, #Spicejet

Title: SpiceJet Limited v. Kal Airways Pvt Ltd & Ors.
Decided on: 31^st July, 2023

+ O.M.P. (COMM) 42/2019 & I.A. 1281/2019CORAM: HON’BLE MR. JUSTICE CHANDRA DHARI SINGH

Introduction

The Delhi High Court recently dealt with two appeals challenging an arbitral award dated July 20, 2018, which directed SpiceJet’s Promoter and Chairman Ajay Singh to refund Rs. 308 crore towards warrants and Rs. 270 crore towards cumulative redeemable preference shares (CRPS) along with interest to Kal Airways and Kalanithi Maran. The Court also considered Maran’s appeal for damages of Rs. 1,323 crore from SpiceJet. The case revolved around the interpretation of the arbitration agreement and whether the arbitral award suffered from patent illegality or was against public policy.

Facts

The disputes between the parties arose concerning an Agreement concerning their financial obligations. The respondents invoked the arbitration clause stipulated in the Agreement for resolution. The petitioners argued that the entire amount of Rs. 370 crores, meant to be brought into their company as committed support, was to remain with the airline for eight years as per the Agreement’s terms. They contended that the Arbitral Tribunal had no authority to rewrite the contract by ordering the return of Rs. 270 crores and altering the transaction’s nature.

Analysis

The Delhi High Court, while considering the limited grounds under Section 34 of the Arbitration and Conciliation Act, 1996, to challenge an arbitral award, refused to interfere with the award. The Court emphasized that it could only intervene if there was an error apparent on the face of the record or if the award suffered from patent illegality or was against public policy. The Court examined the findings of the Arbitral Tribunal and concluded that there was no gross illegality or perversity in the award. It held that the conclusions drawn by the Tribunal did not shock the conscience of the Court.

The Court’s analysis highlighted the importance of clear and precise decisions by arbitrators to withstand judicial review. It underscored the principle of minimal judicial interference in arbitral awards, respecting the autonomy and finality of arbitration proceedings.

Held

The Delhi High Court dismissed the appeals challenging the arbitral award and upheld its validity. The Court found no grounds to set aside the award, as it was not patently illegal, against public policy, or fundamentally flawed. The conclusions drawn by the Arbitral Tribunal were deemed acceptable and did not warrant interference by the Court. As a result, the award directing the refund of amounts and interest to Kal Airways and Kalanithi Maran was upheld, while rejecting Maran’s appeal seeking additional damages from SpiceJet.

Written by- Ankit Kaushik

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2 Aug

IBC | It Is Not Arbitrary To Send A Demand Notice To A Personal Guarantor In Line With Rule 7(1)

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Blog #arbitration, #delhi, #delhicourt, #education, #HighCourt, #IBC

Title: Vineet Saraf v. Rural Electrification Corpn. Ltd.
Decided on: 21st July, 2023

+ W.P. (C) 3293 of 2023

CORAM: HON’BLE MR. JUSTICE Purushaindra Kumar Yadav

Introduction

The case of Vineet Saraf v. Rural Electrification Corpn. Ltd. involves a writ petition filed by the petitioner to challenge an impugned demand notice issued by the respondent under Rule 7(1) of the Insolvency and Bankruptcy Application to Deciding Authority for Insolvency Resolution Procedure for Personal Guarantors to Corporate Debtors Rules, 2019. The petitioner, acting as a personal surety for a debt backed by a corporate guarantee, initiated a Corporate Insolvency Resolution Process against FACOR Power Ltd. The resolution process resulted in a Resolution Plan approved by NCLT, Cuttack, and upheld by NCLAT and the Supreme Court. The petitioner contended that the respondent had promised to transfer the entire debt and related rights to FACOR Power Ltd. The respondent, on the other hand, argued that the financial creditors retained the right to pursue securities, citing continuous personal guarantees and third-party collateral provided as security for the debt. The respondent issued a demand notice based on the petitioner’s personal guarantee, which was contested by the petitioner.

Facts

The petitioner, a personal guarantor, challenged the respondent’s demand notice under the 2019 Rules, arguing that the respondent had assigned all obligations to FACOR Power Ltd. without excluding personal guarantees. The petitioner claimed that this assignment hindered the use of his guarantee. The Court emphasized the distinction between an unconditional release and a commitment not to sue, stating that a reserve clause in a deed that releases the primary borrower protects the creditor’s right to pursue action against the guarantor.

Analysis of Court Order

Justice Purushaindra Kumar Yadav of the Delhi High Court’s Single Judge Bench rejected the petitioner’s argument that the guarantor had a legal right to be heard at a later stage. The Court opined that granting the petition would violate the procedural requirements of the Insolvency and Bankruptcy Code of 2016 and deprive the respondent of the opportunity to present their case before the relevant NCLT. The Court set down important guidelines for consideration but left the decision on the case’s merits to NCLT.

Held

The Delhi High Court denied the writ petition and refused to issue a writ of prohibition, emphasizing that it was not appropriate to create private commercial law to demonstrate the respondent’s lack of jurisdiction. The Court’s decision reiterated that the petitioner’s argument of having the right to be heard at a later stage was insufficient to proceed with the petition. The issue was left to NCLT’s determination based on the merits of the case.

Written by- Ankit Kaushik

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5 Jun

‘Partial Traffic Decrease’ The award against NHAI is set aside by the Delhi High Court because the remote event of flooding is not a force majeure event.

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Blog #arbitration, #delhihighcourt, #traffic

Case Title: NHAI v. Suresh Chandra, FAO No. 179 of 2019

Date: 02.06.2023

Counsel for the Appellant: Mr. Sudhir Nandrajog, Sr. Advocate with Mr. Balendu Shekhar, Mr. Krishna Chaitanya, Mr. Sriansh Prakarsh, and Mr. Rajkumar Maurya, Advocates.

Counsel for the Respondent: Mr. Swastik Singh and Mr. Himanshu Dagar, Advocates

Introduction

Justice Manoj Kumar Ohri ruled that a force majeure occurrence entails a total closure of the route owing to floods, not only a decrease in traffic on a specific road.

The Court set aside an arbitration award against NHAI on the grounds that the Arbitral Tribunal’s interpretation was contrary to the parties’ intent; thus, the award could be susceptible to review for being contrary to the agreements and would fall inside the scope of Section 34(2)(b)(ii) (conditions for setting aside of the arbitration award by the court) of the Act.

Facts of the Case

The parties came to an agreement on March 21, 2014, under which the other party was hired to collect the User Fee at a toll plaza for a period of 12 months. The contract called for arbitration for dispute resolution.

Clause 9 of the contract dealt with traffic reduction and banned any claim for it. It stated that while submitting a proposal for the project, the contractor should consider the possibility of reduced traffic owing to diversions or degradation in the physical state of the roads.

The agreement’s clause 25 addressed force majeure scenarios. It permitted the contractor to seek reimbursement for a decrease in the collection if the road was completely blocked owing to any of the events specified therein. This was contingent on the employee providing notification right away before seeking compensation.

A disagreement erupted between the parties as a result of excessive rains and flooding. There was a vehicle restriction/partial closure on a neighboring route, resulting in less traffic going through the toll plaza. The appellant further assessed liquidated damages against the respondent for failing to collect the bare minimum stipulated in the agreement.

Due to these incidents, the respondent claimed a drop in weekly collections as well as further reimbursements. The NHAI project director also proposed this, but the Regional Director rejected it on the grounds that the decreases are not in accordance with Clause 25 of the agreement. The responder, enraged by this, sought arbitration. The arbitral panel ruled in favor of the respondent. Dissatisfied, the petitioner filed a complaint under the provisions of section 34 of the legislation.

Courts Analysis and Decision

The Court interpreted both clauses and determined that the situation covered by Clause 25, i.e., force majeure, only applies to the complete closure of the roads leading to the toll plaza and that any slight decrease or diverting of traffic is completely addressed by Clause 9 of the agreement.

The Court determined that, while the case does not include a total blockage of the roadways, it does involve a partial reduction in traffic and, as a result, a loss in toll user fee collection as a result of a remote incident of flooding and partial closure of neighboring roads/highways.

The Court ruled that an interim decrease in traffic caused by a distant occurrence such as a flood does not constitute an emergency event. Flood considers a whole road closure, not just a constraint in traffic on a specific route.

The Court of Appeal set aside an arbitration award against NHAI on the grounds that the Arbitral Tribunal’s interpretation was contrary to the parties’ intent, and thus the verdict would be susceptible to challenge for being in contradiction to the agreement and would fall within the purview of Section 34(2)(b)(ii) of the Act.

Judgement

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Written by- Anushka Satwani

5 Jun

Delhi high court on Extending of the period of Agreement by Written Communication Methods, No Novation, Arbitration Clause Stands in Effect.

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Blog #arbitration, #contract, #highcourtdelhi

Introduction

Case Title: Unique Décor (India) Pvt. Ltd. v. Synchronized Supply Systems Ltd. FAO (COMM) 69/2023 Date: 30.05.2023 Counsel for the Appellant: Mr.Nishant Nigam and Mr. Aman Abbi Counsel for respondent: Mr. Sushil Shukla. Headed by justice Vibhu Bakru and Amit Mahajan.

The Delhi High Court confirmed that if each of the parties has prolonged the term of the contract by written correspondence, the provision for arbitration that was included in the deal remains in effect. The bench of Justices Vibhu Bakhru and Amit Mahajan differentiated among situations in which a provision for arbitration comes to an end with the restructuring of the primary agreement and circumstances in which the arbitration clause remains in effect when the primary contract is not overtaken by an additional contract but is prolonged by both parties through communication in writing.

Facts of the case

Both parties signed a Rent Agreement on July 1, 2017, under which the applicant leased the appropriate property to the defendant. The respondent was leased to the relevant premises by the appellant. The contract included an arbitration provision. The initial term of the deal was one year.

When the initial term expired, the parties prolonged the agreement by written communication, such as emails and letters, and the buildings had only been evacuated in March 2019. However, a disagreement emerged amongst the parties about the restoration of the security fee, as the applicant refused to release the sum on the basis that it would be required for the upkeep of the premises due to the respondent’s occupation causing harm to the property.

The respondent, who was enraged by the confiscation of its security funds, filed a lawsuit to reclaim the money. The appellant filed an application to the commercial court for sending the issue to arbitration under Section 8 of the A&C Act (the judicial authority must necessarily refer the parties).

The Ld. Commercial Court rejected the appellant’s claim on the grounds that the agreement lapsed with the passage of time in the year 2018, so there was no existing contract, and with the expiration of the primary agreement, the arbitration provision also lapsed. As a result, the appellant filed an appeal according to Section 37(1)(a) within the Act.

Issues Raised

The appellant objected to the contested decision on the following justifications:

The provision requiring arbitration survives the original agreement’s cancellation.
The primary agreement was extended since each party maintained the agreement via communication in writing and their actions until March 2019.

Courts Analysis and Decision

The Court noted that the initial duration of the contract was only 12 months, which was scheduled to end on June 30, 2018, but both sides remained with the terms agreed upon in the agreement and prolonged the agreement until March 2019. The judge observed that where the contract between the parties has been replaced by another contract, the provision requiring arbitration is also superseded;

nevertheless, where no additional arrangement has been reached among the individuals and the original contract has been broadened by written correspondence, the arbitration clause remains in effect.

The Court further concluded that while executing authority under Section 8 of the Act, the Court should submit both sides to mediation if there is an important disagreement over if the actual contract has the provision of the arbitration clause or has been changed completely, novated, or superseded because it would otherwise it will be out of the scope of the relevant section.

The Court noted that the extent of intervention under Sections 8 and 11 is the same and must be on a prima facie level when examining the validity of the agreement.

Judgement

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Written by – Anushka Satwani

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