Recent Judgement under Arbitration law in June 2021
1. Non-signatory being directly involved in the contract can be compelled to arbitrate: Delhi HC.
Shapoorji Pallonji and Co. Pvt. Ltd. vs. Rattan India Power Ltd. and Ors.
The petitioner and respondent had entered into four contracts, wherein disputes arose and issue of controversy being whether prima facie an arbitration agreement exists between parties. The respondent submitted that it was not a signatory to the contract and, therefore, could not be compelled to arbitrate. Respondent further submitted that the notice invoking arbitration was a composite notice in respect of four separate contracts and thus, the same was invalid.
The Court said that the party can be compelled to arbitrate even though it is not signatory to the contract. During this judgement the observation which was made by the court is The circumstances in which the group of companies” doctrine could be invoked to bind the non-signatory affiliate of a parent company, or inclusion of a third party to arbitration if there is a direct relationship between the party which is a signatory to the arbitration agreement; direct commonality of the subject-matter; the composite nature of the transaction between the parties.
2. Once it is established that the parties had entered into an arbitration agreement, the courts must relegate the parties to arbitration to adjudicate the dispute: Delhi HC
Spml Infra Ltd vs Ntpc Limited (2021 SCC OnLine Del 2653)
In instant case SPML has filed the present petition under Section 11 of the Arbitration and Conciliation Act, 1996, praying that an Arbitral Tribunal is constituted to adjudicate the disputes that have arisen between the parties in relation to the Contract Agreement. SPMl argues that it was compelled to sign the Settlement Agreement under duress and without free consent so the settlement contract is void while, on the other hand, NTPC argues that once the petitioner has signed the settlement contract earlier contract stands terminated and the petitioner cannot invoke the arbitration clause in it.
Delhi High Court said that once it is clear that the parties had entered into an agreement to refer the disputes to arbitration, the dispute whether the same has been discharged by a settlement is required to be liberally construed in favour of relegating the parties to the arbitration. Unless the contract is not devoid of any merit or not in a bona fide manner, the court must relegate the parties to resolve the dispute to the arbitration forum provided under the terms of the contract.
3. The plea of the agreement being unstamped wouldn’t prevent the Court from appointing an arbitrator while exercising jurisdiction under Section 11 of the Act. : Delhi HC
IMZ Corporate (P) Ltd. v. MSD Telematics (P) Ltd., 2021 SCC Online Del 3016
On January 1, 2020, the parties signed a Memorandum of Understanding with the goal of advancing their respective business interests and profitability. According to the MoU, both parties agreed that they will not recruit, contact, or attempt to contact one other’s workers for the purpose of providing employment. Thereafter, disputes occurred as a result of MSD’s failure to meet its duties under Clause 2.4, as described above. MSD also engaged in a number of criminal activities that violated the terms of the MoU. Being aggrieved with the above, IMZ invoked arbitration. Since MSD did not respond to the notice of Delhi International Arbitration Centre, IMZ approached the Hon’ble High Court. MSD argued that the MoU in question is an unstamped document and same is therefore not a contract enforceable by law.
The Delhi High Court by applying the doctrine of separability said that the arbitration agreement being a separate and distinct agreement from the underlying commercial contract would survive independent of the substantive contract. The arbitration agreement would not be rendered invalid, unenforceable or non-existent, even if the substantive contract is not admissible in evidence, or cannot be acted upon on account of non-payment of Stamp Duty.
4. International Arbitration award can only be set aside on the grounds mentioned under Section 34 of Indian Arbitration and Conciliation Act 1996: Delhi HC.
SAIL v. Jaldhi Overseas PTE Ltd., 2021 SCC Online Del 2642
The Steel Authority of India (SAIL) filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, impugning an Arbitral Award delivered by the Arbitral Tribunal on the ground of patent illegality. SAIL contended that there was an intrinsic inconsistency in the impugned award and it should be set aside on the ground of patent illegality.
The Delhi High Court said that the scope of challenge under section 34 of the Arbitration and Conciliation Act is very limited. The Hon’ble Court observed that since the impugned award is the culmination of International commercial arbitration within the meaning of Section 2(1) (f) of the Act, it can only be challenged on the grounds set out under Section 34(2) of the Act. An arbitral award can be set aside only if it is found that it violates the fundamental policy of Indian law. While on the point whether it is permissible for the Tribunal to order compound interest, the Hon’ble Court observed that it is common knowledge that provision is made for compound interest in contracts for loans advanced by banks and financial institutions and the said contracts are enforced by Courts. Hence, it cannot be said that the award of interest on interest is against the public policy of India.
5. Complex questions involving novation of contract can’t be decided by Court under Section 11 of the Arbitration and Conciliation Act: Supreme Court.
Sanjiv Prakash v. Seema Kukreja, 2021 SCC Online SC 282
The issue arose out of a Memorandum of Understanding executed between members of the Prakash family (i.e. the Appellant and the Respondents), who collectively held the entire share-holding of ANI Media Private Ltd. (“the Company”). The MoU inter alia provided that in the event any members of the Prakash family were desirous of selling/bequeathing their shares, the same was offered to the Appellant. The MoU contained an arbitration clause, which provided for the resolution of disputes by a sole arbitrator.
Subsequently, a Share Holders Agreement was executed between the Prakash family and Thomson Reuters Corporation, whereby the Prakash family divested 49% share-holding of ANI Media Pvt. Ltd. in favour of Thomson Reuters. The Share Holders Agreement also contained an arbitration clause. It further provided that the Agreement was in supersession of all previous agreements between the parties. A Share Purchase Agreement was executed between the Prakash family and Thomson Reuters, which contained an arbitration clause similar to that in the Share Holders Agreement.
The Respondents (members of the Prakash family) decided to transfer their shareholding in the Company to other family members, excepting the Appellant. This led to the Appellant invoking the arbitration clause contained in the MoU, stating that he had the pre-emptive right to purchase the shares of the other members of the family.
In this case, the Hon’ble Apex Court has discussed the narrow scope of Section 11 and held that the issue of novation of an agreement cannot be decided by the Courts in the exercise of the limited prima facie review as to whether an arbitration agreement exists between the parties. The Supreme Court while deciding the issue has placed in reliance on the Judgement in Vidya Drolia vs Durga Trading Corporation, wherein it was held that at the pre-reference stage, the Court can only interfere when it is manifested that the claims are ex facie time-barred and dead, or there is no subsisting dispute. All other cases should be referred to the arbitral tribunal for a decision on merits. This would also be the position in cases where a plea of novation is raised.