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Delhi High Court Navigates Arbitration in the Face of Fraud Allegations   

Case Title: M/S. JRA INFRATECH v. ENGINEERING PROJECTS(INDIA) LIMITED 

Date of Decision: September 11, 2023 

Case Number: ARB.P. 800/2022 

Coram: Hon’ble Ms. Justice Rekha Palli 

 

Factual Background 

 

The petitioner, M/S. JRA INFRATECH, filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to adjudicate disputes arising from an Agreement dated December 14, 2021, between the parties. The petitioner referred to Clause 76 of the General Conditions of Contract (GCC), as modified by Clause 19 of the Additional Contract dated December 14, 2021, which required the disputes to be referred to a sole arbitrator mutually appointed by the parties. However, the respondent, ENGINEERING PROJECTS(INDIA) LIMITED, unilaterally appointed an arbitrator, leading the petitioner to approach the court. 

 

The respondent alleged that the Agreement was based on a forged experience certificate provided by the petitioner. It filed a criminal complaint against the petitioner, contending that this forgery rendered the Agreement void. 

 

Issue 

 

The petitioner seeks the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, to resolve disputes arising from an Agreement dated 14.12.2021. 

 

Contentions 

 

  • Petitioner: Asserted that the disputes should be referred to arbitration as per the Agreement’s arbitration clause. It was argued that the criminal complaint by the respondent was an afterthought, and that the respondent’s appointment of an arbitrator validated the arbitration process. It also cited the decision in Amrish Gupta v. Gurchait Singh Chima, 2022 SCC OnLine Del 1116, which emphasized that disputes of a purely private nature should not be considered non-arbitrable. 
  • Respondent: Claimed that the Agreement was vitiated by fraud due to the petitioner’s submission of a fake experience certificate. Argued that the disputes were non-arbitrable due to the criminal complaint. 

 

Observation and Analysis 

 

The court examined the arbitration clause in the Agreement, which mandated arbitration for disputes. It noted that the respondent had appointed an arbitrator earlier, and the appointment letter acknowledged that the disputes arose from the Agreement.  

The court found that the respondent’s argument that the Agreement was void due to fraud was insufficient to deny arbitration. The court cited court decisions in Rashid Raza v. Sadaf Akhtar (2019) 8 SCC 710 and Avantha Holding Ltd. v. CG Power and Industrial Solutions Ltd, 2021 SCC OnLine Del 5202 to support the view that allegations of fraud should not prevent arbitration unless the court determines the arbitration agreement to be void. It relied on the Supreme Court’s decision in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2021) 4 SCC 379 : (2021) 2 SCC (Civ) 555. and held that unless the court definitively finds the arbitration agreement void, disputes should be referred to arbitration. 

 

Decision and Conclusion 

 

The court allowed the petition, appointing Justice M. M. Kumar as the arbitrator. It ruled that the disputes should be arbitrated, leaving the determination of arbitrability to the arbitrator. The court clarified that it had not decided the merits of the claims and counterclaims, allowing the parties to present them before the arbitrator.  

 

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.” 

 

Written by – Ananya Chaudhary 

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Delhi High Court Resolves Arbitration Appointment Dilemma in Favor of Tata Capital

Case Title: Tata Capital Financial Services Ltd. v. MS Shree International & Ors. 

Date of Decision: 04.09.2023 

Case Number: ARB.P. 969/2022 

Coram: Hon’ble Mr. Justice Yogesh Khanna 

 

Introduction 

 

The case revolves around the financial relationship between the Petitioner, a non-banking finance company, and the Respondent partnership firm. The Respondent partnership firm had availed loan credit facilities from the Petitioner for various years, with the individual partners serving as guarantors for the repayment of these loans. However, the Respondents defaulted on their repayments, leading to a dispute. 

 

Tata Capital Financial Services Ltd. (the petitioner), a non-banking finance company, filed a petition under Section 11(5) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a sole arbitrator. The arbitration was sought in accordance with Clause 12 of a loan cum guarantee agreement dated 10.08.2020, entered into between the petitioner and respondent no. 1 (MS Shree International), with respondent nos. 2 and 3 being the partners of respondent no. 1. 

 

Facts 

  •  The petitioner is a non-banking finance company, and the respondent no. 1 is a partnership firm.  
  •  The respondent no. 1 availed various loan credit facilities from the petitioner over the years for its dealership business, executing separate Channel Finance Agreements each time.  
  •  Respondent no. 2 and Late Mr. Laxmikant Chaudhary stood as personal guarantors for the loan facility in their individual capacity.  
  • The loan facility was renewed multiple times between 2015 and 2020.  
  • Defaults in repayment of the loan facilities led the petitioner to issue a recall notice on 23.06.2022, invoking arbitration for the recovery of the defaulted amount. 

 

Issues 

The primary issues addressed in this case were:  

  1. The petitioner’s request for the appointment of a sole arbitrator under Clause 12 of the loan cum guarantee agreement. 
  2. The objection raised by the respondents regarding the validity of the notice issued by the petitioner under Section 21 of the Arbitration and Conciliation Act.

 

Observation and Analysis 

The primary issue addressed in this judgment is the validity of the appointment procedure for the sole arbitrator, as stipulated in the loan cum guarantee agreement. The Petitioner’s right to nominate or appoint the arbitrator was rendered invalid by a previous Supreme Court judgment, Perkins Eastman Architects DPC & Anr. versus HSCC (India) Ltd. The Supreme Court ruling stated that a party with an interest in the arbitration outcome cannot have the power to appoint a sole arbitrator. Consequently, the Petitioner was compelled to file this petition seeking the court’s intervention for the appointment of an arbitrator. 

 

One of the Respondents’ objections was regarding the notice issued by the Petitioner under Section 21 of the Arbitration and Conciliation Act, alleging that it was not proper and did not fulfill the requirements. The court, however, rejected this objection, stating that the notice was duly received by the Respondents and that the relevant Channel Agreement in force was the one dated 10.08.2020. 

 

The judgment emphasizes that the purpose of Section 21 is to determine the date of the arbitration’s commencement, and it cited State of Goa vs. Praveen Enterprises (2012) and Badri Singh Vinimay Private Limited vs. MMTC Limited 2020 to support its conclusion that the notice met the legal requirements. 

 

Decision of the Court 

The court ruled as follows:  

   

  •  The petitioner’s request for the appointment of an arbitrator was granted, and Ms. Ina Malhotra was appointed as the arbitrator to adjudicate the disputes between the parties.  

 

  •  The objections raised by the respondents regarding the validity of the Section 21 notice were dismissed. The court held that since the notice was received by the respondents and the last Channel Agreement from 2020 was in operation, there were no valid grounds to challenge the petitioner’s petition for arbitration. 

 

The petition for the appointment of a sole arbitrator was granted based on the validity of the notice and the operative agreement. 

 

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.” 

 

Written by – Ananya Chaudhary 

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Recourse Against Arbitral Award Under Section 37

CONCEPT OF ARBITRAL AWARD – BRIEF INSIGHT

The term “arbitral award” is defined under section 2(1)(c) of the Arbitration and Conciliation Act. An award is a conclusive decision reached by the arbitrators regarding a particular aspect of a claim that was brought up during the arbitration. To put it simply, the decision of the arbitrator is final and must be followed by both parties. A person who is selected to arbitrate or settle a dispute that has been brought up between two or more parties is known as an arbitrator. An argument or disagreement can be settled by a procedure known as arbitration when those involved on both sides of a disagreement give their case to an impartial third party. The entire arbitration proceeding is documented in the award. It’s like a judicial ruling that settles all the issues in a case after the judge has carefully evaluated all the evidence presented to them.

The arbitral tribunal is required to issue its award in disputes that are not subject to international commercial arbitration within a period of twelve months from the date on which the party’s respective pleadings have been resolved under section 29A.

Section 30 of the act provides for settlement of the dispute. With the parties’ consent, the arbitral tribunal may employ mediation, conciliation, or other measures to facilitate settlement at any moment during the arbitral procedures. If the parties are able to resolve their dispute during arbitration, the arbitral tribunal will issue an award which has the same status as an arbitral award.

According to the provisions of Section 31 of the Act, the arbitral award must be in writing and must have the signatures of each member of the arbitral panel. Because of this, the only time an award is fully binding and final is once all the arbitrators have signed it. Unless the parties agree otherwise, it must specify the rationale behind the award. Reasoning is the bridge between the underlying evidence and that conclusion. The 1996 Act emphasizes the reasoned awarded so that the parties and reviewing courts comprehend the facts as well as the general line of thinking that the arbitrator used to conclude that this was the deciding factor. At any point throughout the arbitral procedure, the arbitral tribunal is authorised to issue an interim award pursuant to section 31(6). However, in most cases, this authority is only exercised once the parties have moved past the stage of filing a claim statement and defence statement with the arbitral tribunal.

SETTING ASIDE OF ARBITRAL AWARD- A LEGISLATIVE APPROACH

Whenever an arbitral award is handed down that rule in favour of one of the disputing parties, they look for ways to overturn the decision. Only the reasons that are specified in section 34 of the act can result in the nullification of an award. The award either in its entirety or in part, may be modified in some ways as a result of setting aside.[1]

Observable characteristics of section 34 are as follows:

  1. It forbids the use of any other challenge to an arbitral award than the one described in subsection (1).
  2. According to subsection (2) of section 34, it limits the bases on which an award can be challenged, including
  • When the party is under some incapacity or the agreement is invalid- The court ruled in the State of P. v. Allied Construction[2] that the legislation to which the parties have submitted an agreement is the test for its legitimacy. In the absence of any such evidence, the legality would be evaluated per the applicable law.
  • Proper notice was not given to parties making the application – The court in Dulal Podda v. Executive Engineer, Dona Canal Division[3] found that an ex parte award granted by an arbitrator appointed at the appellant’s request without providing notice to the respondent was invalid and can be set aside
  • The arbitral tribunal’s composition was not according to the agreement made by the parties.
  • If the arbitrator’s award goes outside the parameters of the case, the decision might be vacated. An issue that was being addressed as part of a writ petition was sent to arbitration in the case of Rajinder Kishan Kumar v. Union of India.[4] The writ petition did not request monetary damages for the land’s potential being diminished due to the other party’s effluent and slurry discharges. The opposite side discharged effluents and sludge into the land, causing devastation. The decision to grant such compensation was found to go beyond the scope of the reference and was therefore subject to review for reversal.
  • It allows for the award to be sent back to the arbitral tribunal so that any problems with it can be fixed.
  1. Subsection (3) states that an application for setting aside a judgment may be submitted within a period that is considered to be quite short.

The Appellant petitioned the Learned Single Judge of the Bombay High Court to set aside the award under Section 34 of the Act, contending that the matters before the Arbitral Tribunal were not arbitrable since they were not within the scope of the arbitration clause in the Agreement.

For example, in Union of India v. Popular Construction Company[5], it was unclear whether or not an application contesting an award under Sec. 34 would be subject to the time limits set by Section 5. This issue was raised since it wasn’t apparent whether or not the time limits specified in subsection (c) of section 5 of the limitation act would apply. The legislative history, intent, and anticipated results were all considered by the court when reaching its decision. Following subsection (2) of section 29 of the limitation act, it was determined that this phrase related to an express exclusion that would exclude the application of subsection (5).

According to the terms of the act, the arbitral tribunal judgement may be overturned if it runs counter to the general direction of the public policy in India. The act does not include a definition for the phrase “public policy”. According to the definition, public policy is “a set of principles following which communities need to be regulated to achieve the good of the entire community or public”.[6] This is a relatively straightforward way of putting what is a complex concept into words. A broad meaning was ascribed to the concept of “public policy” in the supreme court’s most recent decision which was rendered in the case of ONGC v. Saw Pipes.[7] The court concluded that there is no need to give a restricted meaning to the phrase “public policy of India” in a case where the legitimacy of an award is being contested. On the other hand, a broader interpretation is required for the illegitimate award that was handed out by the tribunal to be overturned.

 

APPEALABLE ORDER

Section 37 of the Arbitration and Conciliation act states provisions regarding the appealable orders. The right to appeal is a legal provision and it cannot be expanded via implication since an appeal is a statutory creation. The basis for appeal does not rest on every single order that was handed down by the arbitration panel. Only some kinds of orders are subject to appeal, and only to the precise listed under section 37 of the act.

Only the court orders listed below, as specified in subsection (1) of Sec. 37 of the Arbitration and Conciliation Act of 1996. In subsection (1), there are three subsections: (a), (b), and (c). In accordance with section 8 of the act and subject to the provisions of section 8 of the act, subsection (a) addresses an order of the court to either refer the parties to the arbitration or the court’s decision not to refer the parties to the arbitration. The phrase “and from no others” makes it abundantly obvious that the legislature intended for there to be no other grounds for appeal before an appellate court than those pertaining to the directives specified in section 37.

Sub-clause (b) states that if a court grants any measure or decides not to grant any interim measure then the appeal shall lie under section 9. Whereas sub-clause (c) talks about parties’ right to appeal when the court under Sec. 34 sets aside an arbitral award or the court’s denial to set aside the same.

Sub-section 2 of the act states about the appeal contesting the admissibility of a plea for lack of jurisdiction. A court may hear an appeal from an arbitral tribunal’s decision to accept a plea under subsection (2) or (3) of section 16. A tribunal’s ruling on its jurisdiction is not an interim award. Nevertheless, if a claim of lack of jurisdiction is recognised by the tribunal, section 37 of the act permits an appeal of the order.

Sub-clause (b) of sub-section 2 states a court may hear an appeal from an arbitral tribunal’s ruling granting in denying an interim remedy under section 17.

A “second appeal” from an order that has been handed down in appeal is specifically forbidden under sub-section 3 of the Act, except for an appeal to the Supreme Court. The provisions of Article 133 of the Constitution of India are not altered in any way as a result of this section. As long as the requirements of the article are met, a person will be able to appeal the decision to India’s highest court, the Supreme Court.

 

SECTION 37 VIS A VIS SECTION 34

According to what was stated above, Section 37 grants the ability to appeal to either party in specific scenarios where the court issues an order. Specifically, appeals to a court order issued under section 34 are the topic of discussion in subparagraph 1(c) (Recourse for an arbitral award.). This demonstrates that there is a connection between the two sections since in this situation, for there to be an appeal, there needs to be a decree from the under 34. If there isn’t already an order in place, there can’t be an appeal. However, even for an appeal to be valid, it cannot address the merits of the award. It is a known fact and principle that, in the field of arbitration that an appeal under section 37 can only be made regarding the law and the facts. This is further enumerated in the case of MMTC Ltd. V. Vedanta Ltd.[8]

The Respondent, M/s Vedanta Ltd., has filed an arbitration claim with the Appellant, MMTC Ltd., seeking payment for goods that the Respondent sold to Hindustan Transmission Products Ltd. (“HTPL”) via the Appellant, according to the terms of an agreement between the parties dated 14 December 1993 (“Agreement”). The Arbitral Tribunal, by majority judgement dated 27 June 2001 (“Award”), among other things, granted the claims of the Respondent and ordered the Appellant to pay the same with interest.

The Appellant submitted a petition to the Learned Single Judge of the Bombay High Court following Section 34 of the Act to have the award overturned. In the petition, the Appellant argued, among other things, that the disputes that were brought before the Arbitral Tribunal could not be arbitrated because they did not fall under the purview of the arbitration clause that was included in the Agreement. After reviewing all of the evidence and paperwork, the Learned Single Judge issued an order on August 5, 2002, rejecting the challenge, the Appellant simply raised the premise that the disputes before the Arbitral Tribunal were not arbitrable in their challenge to the order issued by the Learned Single Judge. By ruling dated February 9, 2009, the Division Bench declined to review the Appellant’s request for a review of the Learned Single Judge’s decision and instead rejected the appeal.

Accordingly, the Appellant filed a Civil Appeal with the Supreme Court of India challenging the aforementioned judgement from the Division Bench of the Bombay High Court dated 9 February 2009.

Considering the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment”), the Supreme Court examined the existing position of law concerning the scope of interference with an arbitral ruling in India under Sections 34 and 37 of the Act. After examining the scope of judicial interference, the Supreme Court ruled that it cannot exceed the limitations outlined in Section 34 and hence cannot replace the judgement reached by the Arbitral Tribunal with its finding. By way of clarification, the Court’s powers under Section 37 are limited to verifying that the High Court’s powers under Section 34 have not been exceeded. The Court, therefore, determined that it lacked the jurisdiction to evaluate the award on its own.

The Supreme Court further noted that it must exercise extreme caution and move slowly to disturb concurrent conclusions if an arbitral award has been confirmed under Section 34 and then in an appeal under Section 37.

In light of the foregoing, and after considering the evidence in the record on the question of the arbitrability of the disputes, the High Court, in exercising its powers under Sections 34 and 37 of the Act, confirmed the Award and found that it was a reasonable interpretation of the Agreement and the evidence presented. Therefore, the Supreme Court did not hear the Appellant’s civil appeal and dismissed the Award.

One of the only exceptions to this rule was enumerated in the case of Sarkar and Sarkar v. State of West Bengal,[9]

A correct decision was made by the Calcutta High Court in Sarkar and Sarkar v. State of West Bengal, wherein it was held that the role of the court which has appellate jurisdiction, under Sec. 37(2)(a) is to evaluate the decision made by the tribunal in accordance with Section 16 about the legality of the arbitration agreement, whether it is factually and legally correct, as well as the arbitrability of the matter at hand. In addition, it was concluded that in contrast to Section 34 when read in conjunction with Section 37, the court’s authority in its function as a first appellate court is not limited in any way. This decision was made in light of the fact that the court is the first appellate court. As a consequence of this, it gives power to the court to evaluate all the aspects of the case. As a consequence of this, the court is in a position to decide whether or not the interpretation of an arbitration clause offered by an arbitrator is accurate. The fact that India’s highest court, the Supreme Court, upheld the decision that was issued by the Calcutta High Court in 2018 makes this development much more significant.

CONCLUSION

This decision establishes the law as it stands, as it has been repeatedly ruled in precedent that courts must exercise judicial restraint when using their jurisdiction under Sections 34 and 37 of the Act unless the conclusions of the Arbitral Tribunal are prima facie perverse or unconstitutional. The Court made its decision because it is well-established by precedent that judges should be cautious when applying the Act’s Sections 34 and 37. In reality, the Act was amended in 2015 to make it clear that an arbitral judgement cannot be reversed due to a mistake in the application of law or a different interpretation of the facts. This rule went into effect on January 1, 2016. There can be no revaluation of the evidence or the merits of the dispute, as the Supreme Court correctly concludes, thus the conclusions in the arbitral decision cannot be reviewed. The Supreme Court reached this decision by considering the whole scheme of the provisions found in Sections 34 and 37 of the Act, as well as the 2015 Amendment, both of which seek to limit the Court’s supervisory function. The purpose of these provisions and amendments is to prevent courts from interfering with arbitration proceedings to the extent that they undermine the expediency and finality that such procedures offer as a means of alternative dispute settlement. The right to appeal is universally recognised as an invaluable legal right. Indian legal system, in particular, provides vast powers of appeal thus, ensuring that the interests of aggrieved litigants are safeguarded. However, the setup does have side effects which can be problematic for speedy disposals of disputes. This could be particularly alarming in arbitration as speedy disposal of disputes is one of the many factors that make commercial arbitration so popular. Supreme Court has acknowledged this perspective while dealing with appeals arising out of International Commercial Arbitrations under Sec. 50 of the Act. In this light, the court has rightly cemented the legal position surrounding the scope of an appeal under Sec. 37 of the Act. 

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Written by- Shreya Sharma

[1] Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration, London: Sweet and Maxwell, January 17, 2008

[2] State of U.P. v. Allied Construction (2003) 7 SCC 396

[3] Dulal Podda v. Executive Engineer, Dona Canal Division (2004) 1 SCC 73

[4] Rajinder Kishan Kumar v. Union of India AIR (1999) SC 463

[5] Union of India v. Popular Construction Company (2001) 8 SCC 470 (India)

[6]Aishwarya Padmanbhan, Analysis of Section 34 of the Arbitration and Conciliation Act – Setting Aside of Arbitral Award and Courts’ Interference: An Evaluation with Case Laws, In Manupatra,  on January 1, 2011

[7]  ONGC v. Saw Pipes 2003 (5) SCC 705 (India)

[8] MMTC Ltd. V. Vedanta Ltd (2019) S.C.C. SC 220(India)

[9] Sarkar and Sarkar v. State of West Bengal (2018) 12 S.C.C. 736 (India)

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

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

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

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Written by- Ankit Kaushik

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