Tag Archives: contract

Appointment of Arbitrator – Arbitrability of Dispute

In Booz Allen and Hamnilton Inc. v. S.B.I. Home Finance Ltd., (2011) 5 SCC 532, Hon’ble Supreme Court considered the arbitrability of dispute and scope of Section 11 of the Arbitration and Conciliation Act and held as under:

       “The nature and scope of issues arising for consideration in an application under Section 11 of the act for appointment of arbitrators, are far narrower than those arising in an application under Section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under Section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of “arbitrability” or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the Arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrabe, the aggrieved party will have to challenge the award by filing an application, under Section 34 of the Act, relying upon sub-section 2(b)(i) of that Section.”
       In Dura Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729, Hon’ble Supreme Court considered the provisions of sub-section (6) and sub-section (6A) of Section 11 of the Arbitration and Conciliation Act, 1996 and held as under:

       “From a reading of Section 11(6A), the intention of the legislature is quite clear, i.e. the court should and need only look into one aspect – the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple – it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.” Swatantra Properties (P) Ltd. v. Airplaza Retail Holdings Pvt. Ltd., 2018 (5) AWC 5168.

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Injunction To Restrain Encashment of a Bank Guarantee – Principles of

In Himadri Chemicals Industries Ltd. v. Coal Tar Refining Company, (2007) 8 SCC 110, the Hon’ble Apex Court has crystallized the principles which should be followed in the matter of injunction to restrain encashment of a Bank Guarantee or a letter of credit and it was held as under:

       “(1) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realize such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract.

       (2) the bank giving such guarantee is bound to honour it as per the terms irrespective of any dispute raised by its customer.

       (3) The courts should be slow in granting an order of injunction to restrain the realization of a Bank Guarantee or a Letter of Credit.

       (4) Since a Bank Guarantee or a Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees or Letters of Credit.

       (5) Fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation.

       (6) Allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in irretrievable harm or injustice to one of the parties concerned.”

       In Adani Agri Fresh Ltd. v. Mahaboob Sharif and Others, (2016) 14 SCC 517, it was held that bank guarantee is an independent contract between bank and the beneficiary thereof. Bank is always obliged to honour its guarantees as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance bank has given guarantee is immaterial and of no consequence.

       In Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engineering Corporation Ltd., (2007) 6 SCC 470, it was held that if bank guarantee is an unconditional and irrevocable one, it is not open to the bank to raise any objection whatsoever to pay the amounts under the guarantee. The person in whose favour guarantee is furnished by the bank cannot be prevented by way of an injunction in enforcing the guarantee in terms of the agreement entered between the parties has not been fulfilled. M/s Drake & Skull Water Energy India Pvt. Ltd. v. Paschimanchal Vidyut Vitran Nigam Ltd., 2008 (128) ALR 843.

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Applicability of Arbitration & Conciliation Act, 1996

Sub-section (1) of Section 85 of the Arbitration and Conciliation Act, 1996 repealed three enactments including the Arbitration Act, 1940. Sub-section (2) stipulates, inter alia, that notwithstanding such repeal, the repealed enactment, namely, the 1940 Act would continue to apply in relation to arbitral proceedings which had commenced before the 1996 Act came into force unless the parties were to agree otherwise. The second limb of first clause of said sub-section (2) further stipulates that notwithstanding such repeal, the provisions of the 1996 Act would apply in relation to arbitral proceedings which commenced on or after the 1996 Act came into force.

As is clear from MMTC Ltd. v. Sterlite Industries (India) Ltd., (1996) 6 SCC 716, what is material for the purposes of the applicability of the 1996 Act is the agreement between the parties to refer the disputes to arbitration. If there be such an arbitration agreement which satisfies the requirements of Section 7 of the 1996 Act, and if no arbitral proceeding had commenced before the 1996 Act came into force, the matter would be completely governed by the provisions of the 1996 Act. Any reference to 1940 Act in the arbitration agreement would be of no consequence and the matter would be referred to arbitration only in terms of the 1996 Act consistent with the basic intent of the parties as discernible from the arbitration agreement to refer the disputes to arbitration.

In situations where the relevant clause made reference to the applicability of “the provisions of the Indian Arbitration Act and Rules made thereunder” as was the case in MMTC Ltd. v. Sterlite Industries (India) Ltd., (1996) 6 SCC 716, on the strength of Section 85(2)(a) the governing provisions in respect of arbitral proceedings which had not commenced before 1996 Act had come into force would be those of the 1996 Act alone. On the same reasoning even if an arbitration agreement entered into after the 1996 Act had come into force were to make a reference to the applicable provisions of those under Indian Arbitration Act or the 1940 Act, such stipulation would be of no consequence and the matter must be governed under the provisions of the 1996 Act. An incorrect reference or recital regarding applicability of the 1940 Act would not render the entire arbitration agreement invalid. Such stipulation will have to be read in the light of Section 85 of the 1996 Act and the principles governing such relationship have to be under and in tune with the 1996 Act. Purushottam v. Anil, (2018) 8 SCC 95.

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Power of Arbitrator – To grant interest pendente lite

In Irrigation Department v. G.C. Roy, (1992) 1 SCC 508, the Hon’ble Apex Court thoroughly considered the question of power of the arbitrator to award interest pendente lite and held that when the agreement between the parties does not prohibit grant of interest and where the party claims interest and that dispute has been referred to an arbitrator does have the power to award interest pendente lite.

Subsequently in Port of Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516 and Madnani Construction Corporation (P) Ltd. v. Union of India, (2010) 1 SCC 549 held that according to the view taken in Irrigation Department v. G.C.Roy, (1992) 1 SCC 508, the arbitrator does have the power to award interest pendente lite. The Court observed that it essentially depends upon the ouster in each clause, which means that unless there is an express bar that provides that the arbitrator cannot award interest pendente lite, the grant of interest pendente lite will predominantly be based on the arbitrator’s discretion to award the same.

In Sayeed Ahmed and Co. v. State of U.P., (2009) 12 SCC 26, the Hon’ble Apex Court referred to the decision in Superintending Engineer v. B.Subba Reddy, (1999) 4 SCC 423 and observed thus:

“Two more decisions dealing with cases arising under the Arbitration Act, 1940 require to be noticed. In Superintending Engineer v. B.Subba Reddy, (1999) 4 SCC 423 the Hon’ble Apex Court held that interest for pre-reference period can be awarded only if there was an agreement to that effect or if it was allowable under the Interest Act, 1978. Therefore, claim for interest for pre-reference period, which is barred as per the agreement or under the Interest Act, 1978 could not be allowed. The Court however held that the arbitrator can award interest pendente lite and future interest.”

A three Judge Bench of the Hon’ble Apex Court in Union of India v. Ambica Contsruction, (2016) 6 SCC 36, held that the power of an arbitrator to grant pendente lite interest will depend upon several factors such as; phraseology used in the agreement clauses conferring power relating to arbitration, nature of claim and dispute referred to arbitrator, and on what items power to award interest has been taken away and for which period. It was observed:

“Thus, our answer to the reference is that if the contract expressly bars the award of interest pendente lite, the same cannot be awarded by the arbitrator. We also make it clear that the bar to award interest on delayed payment by itself will not be readily inferred as express bar to award interest pendente lite by the arbitral Tribunal, as ouster of power of the arbitrator has to be considered on various relevant aspects referred to in the decisions of this Court, it would be for the Division Bench to consider the case on merits.”

Further, the Hon’ble Apex Court considered an identical clause in the contract in Ambica Construction v. Union of India, (2017) 14 SCC 323, wherein it observed that the clause of GCC did not bar the arbitrator from awarding interest pendente lite and affirmed the award passed by the arbitrator. The three Judge Bench of the Court held that the contention raised by the Union of India based on the clause of GCC that the arbitrator could not award interest pendente lite was not a valid contention and the arbitrator was completely justified in granting interest pendente lite. Relying on the three Judge Bench judgment in Union of India v. Ambica Contsruction, (2016) 6 SCC 36 and Irrigation Department v. G.C.Roy, (1992) 1 SCC 508, the Court held that the bar to award interest on the amounts payable under the contract would not be sufficient to deny the payment of interest pendente lite. Raveechee and Company v. Union of India, (2018) 7 SCC 664.

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Appointment of an Impartial Arbitrator

It is settled that in exercise of jurisdiction under Section 11 of the Arbitration and Conciliation Act, the Court is to enforce terms of agreement for securing appointment of arbitrator. However, it is not denuded of jurisdiction to follow a different course, for justifiable cause, by giving reasons. Different contingencies requiring such departure have clearly been noticed. The ultimate object is to secure appointment of an impartial arbitrator and secure speedy resolution of dispute by way of arbitration. The scheme underlying the Arbitration and Conciliation Act has to be construed by harmoniously interpreting its provisions. It is imperative for the court to examine qualification and impartiality of arbitrator as well as to secure speedy resolution of dispute. The terms of arbitration agreement providing for arbitrator to be named by designation cannot be read in isolation. It also cannot be construed in a manner inconsistent with the scheme of the Act. The question is answered holding that an application under Section 11(6) of the Arbitration and Conciliation Act would lie also in a case where arbitrator is named, by designation, where (i) arbitrator named is not impartial, or (ii) he lacks required qualification, or (iii) for any other justifiable cause to secure speedy resolution of dispute, by way of a reasoned order. M/s AARGEE Engineering and Company v. ERA Infra Engineering Ltd., 2017 (122) ALR 179.

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Arbitration Agreement – Need Not be Signed by All the Parties

Section 7(3) of the Arbitration and Conciliation Act provides that the arbitration agreement shall be in writing, which is a mandatory requirement. Section 7(4) states that the arbitration agreement shall be in writing, if it is a document signed by all the parties. But a perusal of clauses (b) and (c) of Section 7(4) would show that a written document which may not be signed by the parties even then it can be arbitration agreement. Section 7(4)(b) provides that an arbitration agreement can be culled out from an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement. Govind Rubber Limited v. Louis Dreyfus Commodities Asia Private Limited, (2015) 13 SCC 477.

In Rukmanbai Gupta v. Collector, (1980) 4 SCC 556, Hon’ble Supreme Court held that Arbitration agreement is not required to be in any particular form. What is required to be ascertained is whether the parties have agreed that if the dispute arises between them in respect of the subject matter of contract, such dispute shall be referred to arbitration, then such an arrangement would spell out an arbitration agreement.

Section 7(4) of the Arbitration and Conciliation Act defines an agreement to be an arbitration agreement is in writing if it contained (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means] which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

Thus, it can be safely concluded that an arbitration agreement need not be signed by the parties if the record of the agreement is provided by exchange of letters, telex, telegrams or other means of telecommunication. Sub-section 4(c) of Section 7 of the Act provides that there can be an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. Due to development of Science and Technology, the statutory recognition of agreement in circumstances mentioned in clauses (b) and (c) of Section 7(4) of the Act, can be easily understood in the present day of E-commerce and internet purchases, tele purchases, ticket booking on internet where agreements are entered in standard forms of contract and terms and conditions are agreed upon. In such agreement, if the identity of the parties is established and there is a record of agreement and if there is an Arbitration clause showing that parties are ad-idem, then the signature is not a mandatory requirement under clauses (b) and (c) of sub-section (4) of the Act or under sub-section (5) of Section 7 of the Act. M/s Blue Star Ltd. v. M/s Z-Square Shopping Mall Pvt. Ltd., 2018 (129) ALR 836.

 

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Arbitral Tribunal – Award of Interest

Section 31(7) of the Arbitration and Conciliation Act, by using the words “unless otherwise agreed by the parties”, categorically specifies that the arbitrator is bound by the terms of the contract so far as award of interest from the date of cause of action to date of the award is concerned. Therefore, where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest.
In Union of India v. Saraswat Trading Agency, (2009) 16 SCC 504, the Hon’ble Apex Court has observed in the said case that if there is a bar against payment of interest in the contract, the arbitrator cannot award any interest for such period. Union of India v. Bright Power Projects (I) Pvt. Ltd., 2015 (4) AWC 3862.

The grant of award of interest on arbitrable claims by the Arbitral Tribunal is not inherently illegal or against any public policy or per se bad in law or beyond the powers of the Arbitral Tribunal. In other words, it is permissible to award interest in arbitrable claims by the Arbitral Tribunal.

Indeed, Sections 31(7)(a) and (b) of the Act empower the Arbitral Tribunal to award interest on the awarded sum and secondly, it is always subject to the agreement between the parties.

It is a well settled principle in Arbitration Law that the award of an Arbitral Tribunal once passed is binding on the parties. The reason being that the parties having chosen their own arbitrator and given him authority to decide the specific disputes arising between them must respect his decision as far as possible and should not make any attempt to find fault in each issue decided by him only because it is decided against one party. It is only when the issue decided is found to be bad in law in the light of any of the specified grounds set out in Section 34 of the Act, the Court may consider it appropriate to interfere in the award else not. Union of India v. Susaka Pvt. Ltd., (2018) 2 SCC 182.

 

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