Category Archives: Arbitration

Seat of Arbitration – Vital aspect of any Arbitration Proceedings

The seat of arbitration is a vital aspect of any arbitration proceedings. Significance of the seat of arbitration is that it determines the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award. The situs is not just about where an institution is based or where the hearings will be held. But it is all about which court would have the supervisory power over the arbitration proceedings. In Enercon (India) Ltd. v. Enercon GmbH, (2014) 5 SCC 1, it was held as under:

       “The location of the seat will determine the courts that will have exclusive jurisdiction to oversee the arbitration proceedings. It was further held that the seat normally carries with it the choice of that country’s arbitration/curial law.”

It is well settled that “seat of arbitration” and “venue of arbitration” cannot be used interchangeably. It has also been established that mere expression “place of arbitration” cannot be the basis to determine the intention of the parties that they have intended that place as the “seat” of arbitration. The intention of the parties as to the “seat” should be determined from other clauses in the agreement and the conduct of the parties.” Mankastu Impex Pvt. Ltd. v. Airvisual Ltd., (2020) 5 SCC 399.

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Nature of Arbitral Proceedings – Determination of

When both the purchase order as also the pricing agreement subsists and both the said documents contain the arbitration clauses which are not similar to one another, in order to determine the nature of the arbitral proceedings the said two documents will have to be read in harmony or reconciled so as to take note of the nature of the dispute that had arisen between the parties which would require resolution through arbitration and thereafter arrive at the conclusion as to whether the application filed under Section 11 of the Arbitration and Conciliation Act, 1996 would be sustainable so as to appoint an Arbitrator by invoking Clause 7 of the purchase order; more particularly in a situation where the Arbitral Tribunal has already been constituted in terms of Clause 23 of the agreement.    

    In that view of the matter, when admittedly the parties had entered into an agreement and there was no consensus ad idem to the terms and conditions contained therein which is comprehensive and encompassing all terms of the transaction and such agreement also contains an arbitration clause which is different from the arbitration clause provided in the purchase order which is for the limited purpose of supply of the produce with more specific details. In that view, it would not be appropriate for the applicant to invoke clause 7 of the purchase order more particularly when the arbitration clause contained in the agreement has been invoked and the Arbitral Tribunal has already been appointed. Balasore Alloys Limited v. Medima LLC, (2020) 9 SCC 136.

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Invocation of Arbitration Clause – After Final Settlement

In Nathani Steels Ltd. v. Associated Constructions, 1995 Supp (3) SCC 324, it was held as under:        

“Even otherwise we feel that once the parties have arrived at a settlement in respect of any dispute or difference arising under a contract and that dispute or the difference is amicable settled by way of a final settlement by and between the parties, unless that settlement is set aside in proper proceedings, it cannot lie in the mouth of one of the parties to the settlement to spurn it on the ground that it was a mistake and proceed to invoke the arbitration clause. If this is permitted the sanctity of contract, the settlement also being a contract, would be wholly lost and it would be open to one party to take the benefit under the settlement and then to question the same on the ground of mistake without having the settlement set aside.” WAPCOS Ltd. v. Salma Dam Joint Venture, (2020) 3 SCC 169.

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Appointment of Substitute Arbitrator

The legal consequence is well taken care of by the provisions of Section 15(1) of the Arbitration and Conciliation Act, 1996 read with Section 2 of the Act which provides, where the Arbitrator withdraws from office for any reason, a substitute arbitrator should be appointed according to the Rules that were applicable to the appointment of the arbitrator being replaced.        Therefore in the first place a substitute arbitrator may be appointed in view of the clear provisions of law in that regard. Second as to the procedure to be followed, again there is no doubt that it would have to remain the same as had been followed at the time of appointment of the arbitrator who has rescued himself. M/s Manish Engineering Enterprises v. Indian Farmers Fertilizers Cooperative Ltd., 2020 (138) ALR 930.

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Single Contract Case and Two Contract Case – Distinction Between

 In Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v. Sometal SAL, 2010 Bus LR 880, a distinction was made between a “single contract case” and a “two contract case”. A “single contract case” is one where the arbitration clause is contained in a standard form contract to which there is a general reference in the contract between the parties. On the other hand, where the arbitration clause is contained in an earlier contract/some other contract, and a reference is made to incorporate it in the contract between the parties, it is a “two contract case”. The Court held that incorporation by general reference in a single contract case is valid. However, in a “two contract case”, where reference is made to an arbitration clause in a separate contract, the reference must be specific to the arbitration clause. The judgment in  Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v. Sometal SAL, 2010 Bus LR 880  has been affirmed by the Queen’s Bench Division in SEA 2011 Inc. v. ICT Ltd., 2018 EWHC 520 (Comm).

The Court recognised the following broad categories in which the parties attempt to incorporate an arbitration clause:

“(1A and B make a contract in which they incorporate standard terms. These may be the standard terms of one party set out on the back of an offer letter or an order, or contained in another document to which reference is made; or terms embodied in the rules of an organisation of which A or B or both are members; or they may be terms standard in a particular trade or industry.

(2A and B make a contract incorporating terms previously agreed between A and B in another contract or contracts to which they were both parties.

(3A and B make a contract incorporating terms agreed between A (or B) and C. Common examples are a bill of lading incorporating the terms of a charter to which A is a party; reinsurance contracts incorporating the terms of an underlying insurance; excess insurance contracts incorporating the terms of the primary layer of insurance; and building or engineering sub-contracts incorporating the terms of a main contract or sub-sub-contracts incorporating the terms of a sub-contract. (4A and B make a contract incorporating terms agreed between C and D. Bills of lading, reinsurance and insurance contracts and building contracts may fall into this category.” Giriraj Garg v. Coal India Ltd., (2019) 5 SCC 192.

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Application under Section 36(3) of the Arbitration Act – Provisions of CPC are Not Mandatory

Sub-section (3) of Section 36 of the Arbitration Act mandates that while considering an application for stay filed along with or after filing of objection under Section 34 of the Arbitration Act, if stay is to be granted then it shall be subject to such conditions as may be deemed fit. The said sub-section clearly mandates that the grant of stay of the operation of the award is to be for reasons to be recorded in writing “subject to such conditions as it may deem fit”. The proviso makes it clear that the Court has to “have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure”. The phrase “have due regard to” would only mean that the provisions of CPC are to be taken into consideration, and not that they are mandatory. While considering the phrase “having regard to”, this Court in Shri Sitaram Sugar Co. Ltd. v. Union of India, (1990) 3 SCC 223 has held as under :

“The words “having regard to” in sub-section are the legislative instruction for the general guidance of the Government in determining the price of sugar. They are not strictly mandatory, but in essence directory”.

 In the present context, the phrase used is “having regard to” the provisions of CPC and not “in accordance with” the provisions of CPC. In the latter case, it would have been mandatory, but in the form as mentioned in Section 36(3) of the Arbitration Act, it would only be directory or as a guiding factor. Mere reference to CPC in the said Section 36 cannot be construed in such a manner that it takes away the power conferred in the main statute (i.e. the Arbitration Act) itself. It is to be taken as a general guideline, which will not make the main provision of the Arbitration Act inapplicable. The provisions of CPC are to be followed as a guidance, whereas the provisions of the Arbitration Act are essentially to be first applied. Since, the Arbitration Act is a self-contained Act, the provisions of CPC will apply only insofar as the same are not inconsistent with the spirit and provisions of the Arbitration Act. Pam Developments (P) Ltd. v. State of W.B., (2019) 8 SCC 112

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Arbitration Agreement – Does Not Require Registration

An arbitration agreement does not require registration under the Registration Act. Even if it is found as one of the clauses in a contract or instrument, it is an independent agreement to refer the disputes to arbitration, which is independent of the main contract or instrument. Therefore having regard to the proviso to Section 49 of the Registration Act read with Section 16(1)(a) of the Arbitration and Conciliation Act, an arbitration agreement in an unregistered but compulsorily registerable document can be acted upon and enforced for the purpose of dispute resolution by arbitration. Garware Wall Ropes Ltd. v. Coastal Marine Constructions and Engineering Ltd., (2019) 9 SCC 209.

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Invalidity of the Main Agreement – May attach itself to the Arbitration Agreement

Where the contract or instrument is voidable at the option of a party (as for example under Section 19 of the Contract Act, 1872), the invalidity that attaches itself to the main agreement may also attach itself to the arbitration agreement, if the reasons which make the main agreement voidable, exist in relation to the making of the arbitration agreement also. For example, if a person is made to sign an agreement to sell his property under threat of physical harm or threat to life, and the said person repudiates the agreement on that ground not only the agreement for sale, but any arbitration agreement therein will not be binding. Garware Wall Ropes Ltd. v. Coastal Marine Constructions and Engineering Ltd., (2019) 9 SCC 209.

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Till Adjudication of Demand – Government Cannot Withhold Money of Contractor

In Gangotri Enterprises Ltd. v. Union of India, (2016) 11 SCC 720, it was held that the demand of the Government is crystallised or adjudicated upon, the Government cannot withhold the money of the contractor. This judgment is primarily based on the judgment of the Hon’ble Apex Court in Union of India v. Raman Iron Foundry, (1974) 2 SCC 231. In this case it was held that the Government had no right to appropriate the amount claimed without getting it first adjudicated. It was held as under:

            “But here the order of interim injunction does not expressly or by necessary implication, carry any direction to the appellant to pay the amounts due to the respondent under other contracts. It is not only in form but also in substance a negative injunction. It has no positive content. What is does is merely to injunct the  appellant from recovering, suo motu, the damages claimed by it from out of other amounts due to the respondent. It does not direct that the appellant shall pay such amounts to the respondent. The appellant can still refuse to pay such amounts if it thinks it has a valid defence and if the appellant does so, the only remedy open to the respondent would be to take measures in an appropriate forum for recovery of such amounts where it would be decided whether the appellant is liable to pay such amounts to the respondent or not. No breach of the order of interim injunction as such would be involved in non-payment of such amounts by the appellant to the respondent. The only thing which the appellant is interdicted from doing is to make recovery of its claim for damages by appropriating such amounts in satisfaction of the claim. That is clearly within the power of the court under Section 41(b) of the Arbitration Act, 1940 because the claim for damages forms the subject-matter of the arbitration proceedings and the court can always say that until such claim is adjudicated upon, the appellant shall be restrained from recovering it by appropriating other amounts due to the respondent.” State of Gujarat v. Amber Builders, (2020) 2 SCC 540.  

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Appeal u/s 37 of Arbitration & Conciliation Act – Delay Beyond 120 Days

Given the fact that an appellate proceeding is a continuation of the original proceeding as has been held in Lachmeshwar Prasad Shukul v. Keshwar Lal Chaudhuri, AIR 1941 FC 5, and repeatedly followed in various judgments, any delay beyond 120 days in the filing of an appeal under Section 37 from an application being either dismissed or allowed under Section 34 of the Arbitration & Conciliation Act, 1996 should not be allowed as it will defeat the overall statutory purpose of arbitration proceedings being decided with utmost dispatch. N.V. International v. State of Assam, (2020) 2 SCC 109. (See also Union of India v. Varindera Constructions Ltd., (2020) 2 SCC 111.)

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