Tag Archives: Arbitrator

Appointment of Arbitrator – No Claim Certificate Obtained by Fraud, Coercion, Duress or Undue Influence

In Union of India v. Master Construction Company, (2011) 12 SCC 349, it was held as under:

            “In our opinion, there is no rule of the absolute kind. In a case where the claimant contends that a discharge voucher or no claim certificate has been obtained by fraud, coercion, duress or undue influence and the other side contests the correctness thereof, the Chief Justice/his designate must look into this aspect to find out at least, prima facie, whether or not the dispute is bona fide and genuine. Where the dispute raised by the claimant with regard to validity of the discharge voucher or no – claim certificate or settlement agreement, prima facie, appears to be lacking in credibility, there may not be a necessity to refer the dispute for arbitration at all.”

            From the proposition which has been laid down by the Hon’ble Apex Court, what reveals is that a mere plea of fraud, coercion or undue influence in itself is not enough and the party who alleged is under obligation to prima facie establish the same by placing satisfactory material on record before the Chief Justice or his Designate to exercise power under Section 11(6) of the Arbitration and Conciliation Act, 1996 which has been considered by the Hon’ble Supre Court in New India Assurance Co. Ltd. v. Genus Power Infrastructure Ltd., (2015) 2 SCC 424 as below:

            “It is therefore clear that a bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up a plea, must prima facie establish the same by placing material before the Chief Justice/ his Designate.”

            It is true that there cannot be a rule of its kind that mere allegation of discharge voucher or no claim certificate being obtained by fraud/coercion/undue influence practiced by other party in itself is sufficient for appointment of the arbitrator unless the claimant who alleges that execution of the discharge agreement or no claim certificate was obtained on account of fraud/coercion/undue influence practiced by the other party is able to substantiate the same, the correctness thereof may be open for the Chief Justice/his Designate to look into this aspect to find out at least prima facie whether the dispute is bona fide and genuine in taking a decision to invoke Section 11(6) of the Arbitration and Conciliation Act, 1996. United India Assurance Co. Ltd. v. Antique Art Exports Pvt. Ltd., (2019) 5 SCC 362.

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Arbitration – Notice Under Section 21 of the Act is Mandatory

Considering that the running theme of the Arbitration and Conciliation Act is the consent or agreement between the parties at every stage, Section 21 performs an important function of forging such consensus on several aspects viz., the scope of the disputes, the determination of which disputes remain unresolved; of which disputes are time-barred; of identification of the claims and counter claims and most importantly, on the choice of arbitrator. Thus, the inescapable conclusion on a proper interpretation of Section 21 of the Act is that in the absence of an agreement to the contrary, the notice under Section 21 of the Act by the claimant invoking the arbitration clause, preceding the reference of disputes to arbitration, is mandatory. In other words, without such notice, the arbitration proceedings that are commenced would be unsustainable in law. Alupro Building Systems Pvt. Ltd. v. Ozone Overseas Pvt. Ltd., 2017 SCC Online Del 7228.   

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Arbitral Award – Interference With

An arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian law, or (b) the interest of India, or (c) justice or morality. (Renusagar Power Co. Ltd. v. General Electric Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] ) Patent illegality was added to the above three grounds in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705. Illegality must go to the root of the matter and in case the illegality is of trivial nature it cannot be held that the award is against the public policy. It was further observed in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 that an award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court.

In  DDA v. R.S. Sharma and Co., (2008) 13 SCC 80 it was held that an award can be interfered with by the Court under Section 34 of the Act when it is contrary to:

(a) substantive provisions of law; or

(b) provisions of the 1996 Act; or

(c) against the terms of the respective contract; or

(d) patently illegal; or

(e) prejudicial to the rights of the parties.

The fundamental policy of India was explained in  ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 as including all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. It was held inter alia, that a duty is cast on every tribunal or authority exercising powers that affect the rights or obligations of the parties to show a “judicial approach”. It was further held that judicial approach ensures that an authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and its decision is not actuated by any extraneous considerations. It was also held that the requirement of application of mind on the part of the adjudicatory authority is so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law. The Court further observed that the award of the Arbitral Tribunal is open to challenge when the arbitrators fail to draw an inference which ought to be drawn or if they had drawn an inference which on the face of it is untenable resulting in miscarriage of justice. The Court has the power to modify the offending part of the award in case it is severable from the rest, according to the said judgment ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263.

The limit of exercise of power by courts under Section 34 of the Act has been comprehensively dealt in  Associate Builders v. DDA, (2015) 3 SCC 49. Lack of judicial approach, violation of principles of natural justice, perversity and patent illegality have been identified as grounds for interference with an award of the arbitrator. The restrictions placed on the exercise of power of a court under Section 34 of the Act have been analysed and enumerated in  Associate Builders v. DDA, (2015) 3 SCC 49 which are as follows:

(a) The court under Section 34(2) of the Act, does not act as a court of appeal while applying the ground of “public policy” to an arbitral award and consequently errors of fact cannot be corrected.

(b) A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the sole judge of the quantity and quality of the evidence.

(c) Insufficiency of evidence cannot be a ground for interference by the court. Re-examination of the facts to find out whether a different decision can be arrived at is impermissible under Section 34(2) of the Act.

(d) An award can be set aside only if it shocks the conscience of the court.

(e) Illegality must go to the root of the matter and cannot be of a trivial nature for interference by a court. A reasonable construction of the terms of the contract by the arbitrator cannot be interfered with by the court. Error of construction is within the jurisdiction of the arbitrator. Hence, no interference is warranted.

(f) If there are two possible interpretations of the terms of the contract, the arbitrator’s interpretation has to be accepted and the court under Section 34 cannot substitute its opinion over the arbitrator’s view. M.P. Power Generation Co. Ltd. v. ANSALDO Energia SPA, (2018) 16 SCC 661.

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Arbitral Award – Delivery of

       In Union of India v. Tecco Trichy Engineers & Contractors, (2005) 4 SCC 239, a three Judge Bench of the Hon’ble Supreme Court, in respect to the issue of limitation for filing application under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the arbitral award, held that the period of limitation would commence only after a valid delivery of an arbitral award takes place under Section 31(5) of the Act. It was held as under:

       “The delivery of an arbitral award under sub-section (5) of Section 31 is not a matter of mere formality. It is a matter of substance. It is only after the stage under Section 31has passed that the stage of termination of arbitral proceedings within the meaning of Section 32 of the act arises. The delivery of arbitral award to the party, to be effective, has to be “received” by the party. The delivery by the Arbitral Tribunal and receipt by the party of the award sets in motion several periods of limitation such as an application for correction and interpretation of an award within 30 days under Section 33(1), an application for making an additional award under Section 33(4) and an application for setting aside an award under Section 34(3) and so on. As this delivery of the copy of award has the effect of conferring certain rights on the party as also bringing to an end the right to exercise those rights on expiry of the prescribed period of limitation which would be calculated from that date, the delivery of the copy of award by the Tribunal and the receipt thereof by each party constitutes an important stage in the arbitral proceedings.”

       In State of Maharashtra v. ARK Builders (P) Ltd., (2011) 4 SCC 616, while following the Judgment in  Union of India v. Tecco Trichy Engineers & Contractors, (2005) 4 SCC 239 held that the expression “….party making that application had received the arbitral award….” cannot be read in isolation and it must be understood that Section 31(5) of the Act requires a signed copy of the award to be delivered to each party. By cumulative reading of Section 34(3) and 31(5) of the Act, it is clear that the limitation period prescribed under Section 34(3) of the Act would commence only from the date of signed copy of the award delivered to the party making the application for setting it aside. Anil Kumar Jinabhai Patel v. Pravinchandra Jinabhai Patel, (2018) 15 SCC 178.

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Application Under Section 34 of the Arbitration and Conciliation Act – Condonation of Delay

In Assam Urban Water Supply and Sewerage Board v. Subash Projects and Marketing Ltd., (2012) 2 SCC 624, an argument was raised with reference to Section 43 of the Arbitration Act that provisions of Limitation Act, 1963 have been made applicable to Arbitrators and when application is made for setting aside award hence all provisions of Act, 1963 should be held applicable but it was negative. In aforesaid judgment an attempt was made to attract Section4 of the Limitation Act, but it was observed as under:

       “The above section enables a party to institute a suit, prefer an appeal or make an application on the day court reopens where the prescribed period for any suit, appeal or application expires on the day when the court is closed. The crucial words in Section 4 of the Limitation Act are ‘prescribed period’. Section 2 (j) of the Limitation Act defines ‘period of limitation’ which means the period of limitation prescribed for any suit, appeal or application by the Schedule, and ‘prescribed period’ means the period of limitation computed in accordance with the provisions of this Act. Section 2 (j) of the Limitation Act when read in the context of Section 34(3) of the Arbitration Act, becomes amply clear that the prescribed period for making an application for setting aside arbitral award is three months. The period of 30 days mentioned in the proviso that follows sub-section (3) of Section 34 of the Arbitration Act is not the period of limitation and therefore, not ‘prescribed period’ forf the purposes of making the application for setting aside the arbitral award. The period of 30 days beyond three months which the court may extend on sufficient cause being shown under the proviso appended to sub-section (3) of Section 34 of the Arbitration Act being not the period of limitation or, in other words, ‘prescribed period’, section 4 of the Limitation Act is not at all attracted.

In Commissioner, M.P. Housing Board v. Mohanlal and Company, AIR 2016 SC 3592, issue of condonation of delay in respect of an application under Section 34 of the Arbitration and Conciliation Act came up for consideration before the Court. After Arbitral Award was given on 11.11.2010, contractor being aggrieved therefrom, instead of filing application/objection under Section 34(1) of the 1996 Act, preferred to file an application under Section 11 of the Act, 1996, in High Court seeking appointment of Arbitrator to adjudicate the dispute. Application was rejected by the Court observing that there is already an arbitral award, hence no further action under Section 11 of Act, 1996 can be allowed. Thereafter contractor filed objection before the Court challenging award on 26.09.2011. He also filed an application under Section 14 requesting to exclude time consumed in the proceedings before High court when he filed application under Section 11 and the same was rejected. That application was allowed by the District Judge taking recourse to Section 141 of the Limitation Act. M.P. Housing Board challenged order of District Judge in Civil Revision Before High Court but failed and that is how matter came to Supreme Court. Relying on Union of India v. Popular Construction company, (2001) 8 SCC 470, Court held that period of limitation under Section 34(3) is mandatory and would bar application of Section 5 of the Limitation Act. Suman Devi v. Addl. Commissioner, 2019 (132) ALR 471.

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Appointment of Arbitrator – Applicability of Article 137 of Limitation Act

It is not in dispute that Article 137 of the Limitation Act would apply to applications filed under Section 11 of the Arbitration and Conciliation Act, 1996. In Major (Retd.) Inder Singh Rekhi v. DDA, (1998) 2 SCC 338, the Hon’ble Apex Court held that in application for appointment of arbitrator Article 137 of the Limitation Act will apply.

       Article 137 of the Limitation Act, 1963 is applicable to applications both under Civil Procedure Code and under the Special Acts. Article 137 constitutes the residuary Article in regard to applications. The starting point of limitation under Article 137 is the date when “the right to apply arises”. Article 137 being a residuary Article to be adopted to different classes of applications, the expression “the right to apply” is expression of a broad common law principle and it has to be interpreted according to the circumstances of each case. In Ramanna v. Nallaparaju, 1995 (2) SCR 936, the Hon’ble Apex Court has held that “the right to apply” means “the right to apply first arises”.

       Under the Arbitration and Conciliation Act, 1996, right to apply to the Court having jurisdiction would arise from the date such controversy arises between the parties. Central Electronics Limited v. Friends Cable Industries, Noida, 2017 (125) ALR 588.

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Termination of – Arbitration Proceedings

Section 32 of the Arbitration and Conciliation Act, 1996 contains a heading “Termination of Proceedings”. Sub-section (1) provides that the arbitral proceedings shall be terminated by the final arbitral award or by an order of the Arbitral Tribunal under sub-section (2). Sub-section (2) enumerates the circumstances when the Arbitral Tribunal shall issue an order for the termination of arbitral proceedings. Clause (c) of Section 32(2) of the Arbitration and Conciliation Act, 1996 contemplates two grounds for termination, i.e. (i) the Arbitral Tribunal finds that the continuation of the proceedings has for any other reason become unnecessary, or (ii) impossible. The eventuality as contemplated under Section 32 shall arise only when the claim is not terminated under Section 25(a) and proceeds further. The words “unnecessary” or “impossible” as used in clause (c) of Section 32(2), cannot be said to be covering a situation where proceedings are terminated in default of the claimant. The words “unnecessary” or “impossible” has been used in different contexts than to one of default as contemplated under Section 25(a). Sub-section (3) of Section 32 further provides that the mandate of the Arbitral Tribunal shall terminate with the termination of the arbitral proceedings subject to Section 33 and sub-section (4) of Section 34. Section 33 is the power of the Arbitral Tribunal to correct any computation errors, any clerical or typographical errors or any other errors of a similar nature or to give an interpretation of a specific point or part of the award. Section 34(4) reserves the power of the court to adjourn the proceedings in order to give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of the Arbitral Tribunal will eliminate the grounds for setting aside the arbitral award. On the termination of proceedings under Sections 32(2) and 33(1), Section 33(3) further contemplates termination of the mandate of the Arbitral Tribunal, whereas the aforesaid words are missing in Section 25. When the legislature has used the phrase “the mandate of the Arbitral Tribunal shall terminate” in Section 32(3), non-use of such phrase in Section 25 (a) has to be treated with a purpose and object. The purpose and object can only be that if the claimant shows sufficient cause, the proceedings can be recommenced. Srei Infrastructure Finance Ltd. v. Tuff Drilling Pvt. Ltd., (2018) 11 SCC 470.

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