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9 Jan

A single person cannot be party to arbitration when the arbitration agreement mandates joint holders to be a party : Bombay HC

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TITLE : Ketan Champaklal Divecha V DGS Township Pvt. Ltd. &

CORAM : Hon’ble Justice Manish Pitale

DATE : 2^nd January 2024

CITATION : Arbitration Application No. 21860 of 2023

FACTS

Maintainability of the present petition was challenged under Section 9 and 11 of the Arbitration and Conciliation Act, 1996. According to the respondents, the arbitration clause, in the present case, is so worded and structured that the petitioner, being a member of Co-operative Housing Society, alone cannot seek resolution of disputes under the arbitration clause. In the current case, it was found that the actual area of the plot was less than the area on the basis of which the development agreement was executed.

LAWS INVOLVED

Section 2(1)(h) of the Arbitration and conciliation act states that :

(h) “party” means a party to an arbitration agreement

The arbitration agreement states that :

“35.1 All disputes, claims and questions whatsoever which may arise with respect to this Agreement between the Parties hereto touching or relating to or arising out of these presents or the construction or application thereof or any clauses or thing herein contained or in respect of the duties responsibilities and obligations of either party hereunder or as to any act of omission of any party or as to any other matter in anywise relating to these presents or the rights, duties. and liabilities of either party under these presents shall be referred to arbitration under Arbitration and Conciliation Act, 1996 or any statutory modification and/or re-enactment thereof in the following manner:

35.2 The Society and the Members as one Party and the Developer as the other Party may forward a panel of names to facilitate the task of selection of the Sole Arbitrator, and a Sole Arbitrator shall then be appointed jointly by the Society and the Developer;”

ISSUES

Whether individual members of the society being signatories of the development agreement entitled to invoke arbitration?

JUDGEMENT

The court analysed Section 2(1)(h) of the Act defines who a party is. Section 7 thereof defines an ‘arbitration agreement’, as an agreement by parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship. The arbitration clause in the present case has to be interpreted on the basis of the aforesaid definition of ‘party’ and ‘arbitration agreement’. The arbitration agreement states that ‘society and members’ as one party and the developer as the other party. The court held that with respect to the arbitration clause, an individual member does not have the capacity to invoke arbitration.

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Written by- Sanjana Ravichandran

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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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4 Dec

First pay, then recover : Bombay HC to insurance company on the failure to intimate cancellation of policy to the insurer

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TITLE : HDFC ERGO General Insurance Company Ltd v Nayajoddin Nijamuddin and Ors

CITATION : First Appeal No. 2929 of 2019

CORAM : Hon’ble Justice Kishore C. Sant

DATE: 1^st December, 2023

INTRODUCTION :

This appeal has been filed by the insurance company against the judgement of insurance claims to be granted by the Motor Accident Claims Tribunal.

FACTS :

The insurance company, appellant has opposed the claim of insurance on the ground of breach of terms and conditions of the policy. An autorickshaw met with an accident and the passenger succumbed to his injuries. An compensation of Rupees 25 lakhs was claimed against the owner of the rickshaw and the insure company. An insurance premium was paid of Rs.35,430 through cheque after the accident which later bounced as the account of insurance was closed and cancelled the insurance policy. The tribunal held that the policy was not valid and legal as there was no intimation of cancellation of policy.

COURT’S ANALYSIS

The issue infront of the court was whether there was sufficient notice of cancellation of insurance policy by the company to the insurer and whether third party can claim insurance. The court held that the intimation of cancellation was not delivered to the insurer as it was sent to an incomplete address. The court found that there is no reason to interfere with the findings of the tribunal which held that a third party is entitled to compensation on beneficial legislation grounds.

Written by- Sanjana Ravichandran

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7 Nov

Penalty Is Supposed To Be @ 1% Of The Cost Of Incomplete Work Per Week Of Delay Subject To Maximum Of 10 % Of The Total Cost Of Contract: High Court Of Delhi

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Title: National Projects Constructions Corporation Ltd. (Npcc) V M/S Aac India Pvt. Ltd

Citation: Fao (Comm) 140/2021

Coram: Hon’ble Mr. Justice Yashwant Varma And Hon’ble Mr. Justice Dharmesh Sharma

Decided On: November 02, 2023

Introduction:

This Judgment shall decide the present appeal preferred by the appellant under Section 37 of the Arbitration and Conciliation Act, 1996 read with Section 13(1A) of the Commercial Courts Act, 2015 for setting aside the impugned judgment dated 12 March 2021 passed by learned Additional District Judge-03, South District, Saket Courts, New Delhi in ARBTN No.20824/2016, whereby the learned ADJ chose to partially set aside the award dated 29 August 2016 on the aspect of liquidated damages to be paid by the appellant to the respondent.

Facts:

The appellant, which is a Government Enterprise under the Ministry of Water Resources and also a company registered under the Companies Act, 1956 consequent to letter of intent dated 03 March 2017 entered into an agreement dated 13 March 2007 as Project Management Consultant of the Central Reserve Police Force with the respondent, which was a micro enterprise stated to be having a turnover of less than Rs. 10 Lacs, for installation of Fire Protection System for the Auditorium Block, CRPF Campus, Vasant Kunj, New Delhi. The project was stipulated to be completed within a period of 7 months from the date of issuance of LOI for total contract value of Rs. 90,79,200/-. However, performance got delayed.

appellant claimed that the respondent was in breach of its obligations under the contract and delayed its performance by taking about 33 months for completion of work, and therefore, in terms of clause 35.5 of the contract, LD was levied and adjusted against the payment payable to the respondent not only for the abnormal delay but also for causing damage to the reputation of the appellant for the delay caused; and accordingly payment for a sum of Rs. 1,13,97,341/- i.e., 10% of the work cost of the CRPF camp project was withheld. The respondent in terms of clause 52 of the ̳General Conditions‘ of the contract invoked arbitration.

The award was challenged by the respondent/claimant under Section 34 of the A&C Act and the learned ADJ vide the impugned judgment dated 12 March 2021 considered the proposition of law propounded in ONGC Ltd. v. Saw Pipes Ltd. And several other cases.

The impugned award is assailed in the present appeal before this Court inter alia on the grounds that the learned ADJ completely misconstrued the letter dated 09 October 2009 on the record and placed an erroneous construction on the provisions of the contract; and that despite concluding that there was delay on the part of the claimant/respondent in completing the project, contradicted itself by not allowing imposition of LD and rather modified the award, which course has no sanction in law.

Court’s Analysis and Judgement:

The court decided that liquidated damages and penalty were stipulated to be @ 1% of the cost of incomplete work per week of delay subject to maximum of 10 % of the total cost of contract value and it was stipulated that LD may be adjusted and set off against any sum payable to the Contractor/NPCC. It is also manifest that the contract stipulated payment by CRPF to the appellant alone. The appellant was enjoined upon to verify the bills towards the work done received from the sub-contractors. As an inevitable corollary, on imposition of LD, the appellant was well within its rights to withhold 10% of the contract value in such proportion from each of the sub-contractors including the claimant/respondent.

There are a catena of cases on the proposition that where damage or loss is difficult or impossible to prove, the Court is empowered to award liquidated amount stipulated in the contract, if it is a genuine pre-estimate of damage or loss, or reasonable compensation for the said amount loss or damage. So there was no ̳patent illegality‘ committed by the Arbitrator in passing the impugned award and the award could not have been modified by the learned ADJ in exercise of his powers under Section 34 of the A&C Act.

Written by- Sushant Kumar Sharma

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9 Aug

Courts Cannot Determine Whether Agreement Is A Works Contract Under MSMED Act; Only Arbitration Can Be Used- Delhi High Court

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Title: Jaiprakash Associates Ltd. v. Micro and Small Enterprises Facilitation Council & Anr.
Decided on: 2nd August, 2023

+ LPA 565/2023 & CM Nos.37242/2023, 37243/2023 & 37244/2023

CORAM: HON’BLE THE CHIEF JUSTICE & HON’BLE MR. JUSTICE SAURABH BANERJEE

Introduction

The Delhi High Court has dismissed an appeal that challenged the jurisdiction of the Micro and Small Enterprises Facilitation Council (MSEFC) to refer disputes to arbitration under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act). The court emphasized that the determination of whether an agreement is a works contract falls under the purview of the arbitrator under the MSME Act, and the court cannot adjudicate on such an issue.

Facts

The appeal arose from two reference orders issued by the MSEFC involving disputes related to civil works, electrical works, and structural works at ‘Wishtown Klassic Block Towers, Jaypee Greens, Noida (UP)’. The disputes involved Jaiprakash Associates Ltd. (JAL) and Krishna Buildestates Pvt. Ltd. (KBPL). KBPL had registered under the MSME Act and invoiced JAL for work contracts/agreements both before and after its MSME registration. Disputes arose from these contracts, and KBPL approached the MSEFC to refer the disputes to arbitration. The MSEFC issued reference orders referring the disputes to the Delhi International Arbitration Centre (DIAC).

Advocate Anil Dutt represented the Petitioner (JAL), while Advocate Avishkar Singhvi appeared for the Respondents (KBPL).

Analysis

The Delhi High Court examined the contention that the agreements were distinct composite work contracts involving both services and goods. The court noted that the Single Judge had held that the work contracts initiated before KBPL’s MSME registration but with some agreements’ bills and work taking place post-registration were subject to the MSME Act. The court further observed that the disputes involved both services and goods and referred to several factors supporting the application of the MSME Act, such as the interlinked agreements and ongoing work.

The court held that whether an agreement is a works contract falls under the jurisdiction of the arbitrator as per the MSME Act. The court stated that it cannot determine this issue and that the Single Judge had rightly left it open to be decided by the arbitrator.

Held

The Delhi High Court dismissed the appeal, upholding the MSEFC’s jurisdiction to refer the disputes to arbitration under the MSME Act. The court reiterated that the determination of whether the contracts were work contracts is within the scope of the arbitrator’s authority and cannot be adjudicated upon by the court. The court emphasized the importance of upholding the fairness and credibility of the arbitration process.

Written by- Ankit Kaushik

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