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Trends Of Arbitration And The Recent Judgments

Arbitration is a form of alternative dispute resolution. It is a method of resolving disputes between two parties outside of the courts of law, but with the help of a third, unbiased and impartial person or group appointed with the mutual consent of both parties. Arbitration proceedings cannot take place without the consent and willingness of both parties to the dispute. The arbitration takes place in a conference room instead of a courtroom.

The parties either enter into an arbitration agreement in advance, agreeing that in the event of a future dispute, the dispute will be resolved by arbitration, or they may agree to arbitrate once the conflict arises. The law that governs arbitration in India is the Arbitration and Conciliation Act, 1996 in conjunction with the Indian Contract Act, 1872. The two Acts together provide the legal framework that governs and regulates arbitration in India.

Why There Must Be Arbitration:

The importance of arbitration in India is that the legal machinery of our country is extremely slow and time consuming. The arbitration process is both time and cost effective compared to litigation. There is a higher level of expertise in arbitration as the arbitrators are usually retired judges or lawyers who have specialist knowledge and experience in dispute resolution.

There are no rules of procedure in arbitration, instead the parties can agree and agree on whatever they want. This favors arbitration over litigation. In the present era, there is a need for arbitration keeping in mind the delays in litigation, the expenses, the acquittal rate and the number of legal formalities involved.

Development Of Arbitration:

The original 1996 law has been amended several times to bring it in line with international standards. The Act on Arbitration and Conciliation Proceedings (Amendment) from 2021 was amended to Section 36(3) in the form of an explanation to Section 34(2)(a). b) point ii) provides that if the Court finds that the performance of the arbitrator was caused or influenced by fraud or corruption, the award will remain unconditional until the resolution of the challenge under section 34 of the award.

The amendment will have retrospective effect and will apply to all cases whether before or after the commencement of the amendment Act, 2015. Such changes add positive and positive aspects to dispute resolution through arbitration.

These developments and legislative amendments from time to time are evidence of our country's efforts to strengthen and support arbitration not only at the domestic but also at the international level. The most important and ground-breaking step was the establishment of India's first arbitration center in Hyderabad. Chief Justice of India NV Ramana and Telangana Chief Minister K Chandrashekhar Rao jointly inaugurated India's first Arbitration and Mediation Center in Hyderabad on 18 December 2021.

The center has been set up with the best available infrastructure and is expected to serve people not only from India but also from other Asian countries. The center has internationally recognized arbitrators and mediators. India's quest to make arbitration the future of dispute resolution is eternal.

Recent Cases Emerged From Arbitration To Supreme Court:

In the year 2021, there was many arbitral cases which was then appealed at supreme court. There were many judgements which emerged from arbitration.
Three judgements for instance are listed below:
  1. Haryana Space Application Center (HARSAC) and Anr. v. Mr. India Consultants Pvt. Ltd. and Anr.

    Supreme Court of India
    Citation: 2021 3 SCC 103
    Decided: January 20, 2021

    The provision of Section 12, Paragraph 5 of the Arbitration and Conciliation Act of 1996, dealing with the disqualification of the appointment of an arbitrator, is a mandatory and inexcusable provision.

    Facts of the case:
    In the present case, the first appellant (HARSAC) awarded the contract to the respondent (Mr. India) and three other contractors for the works mentioned in the allotment letter dated 28 February 2011 related to the modernization of the land records. Pursuant to the letter of allotment, service level agreements (SLAs) were executed between the parties on March 29, 2011. HARSAC alleged that Pan India failed to complete the assigned works and caused delays in the entire project.

    Even after being granted two overtimes, Pan India could not finish the job. Consequently, HARSAC invoked the Performance Bank Guarantees (PBGs) issued by Pan India on 18 March 2014. Pan India challenged this action in the High Court of Delhi (High Court). The High Court ordered HARSAC not to collect the PBG before resolving the disputes between the parties.

    Pursuant to the instructions, HARSAC invoked the arbitration clause contained in the SLA and appointed the Chief Secretary to the Government of Haryana as the nominated arbitrator. On September 14, 2016, the arbitral tribunal was established and the proceedings began. On 7 January 2019, HARSAC expressed concern over the fact

    that the arbitration was taking more than one and a half years from the date of the first hearing on 7 November 2016. The arbitral tribunal extended the arbitration period twice by six months. Since the arbitration was not concluded within the statutory period of one year or an extended period of a further six months, HARSAC argued that the tribunal's mandate had expired.

    The district judge granted the tribunal an extension of three months to complete the proceedings. HARSAC then applied to the High Court for a review to set aside the order passed by the District Judge, granting an extension of time for the award. In view of the pandemic, the High Court granted an extension of four months to allow the parties to conclude their arguments within three months, and a period of one month reserved for the tribunal to issue the arbitral award. Aggrieved by the said order of the Supreme Court, HARSAC preferred a Special Leave Petition before the Hon'ble Supreme Court.

    Judgement:
    The Hon'ble Supreme Court initially held that the appointment of the Chief Secretary to the Government of Haryana as the nominated arbitrator of the petitioner, which was the nodal agency of the Government of Haryana, would be invalid under Section 12(5) of the Arbitration Act read with the Seventh Schedule. Section 12(5) of the Arbitration Act was found to provide that, notwithstanding any prior agreement to the contrary, any person whose relationship with the parties falls within any of the categories set out in the Seventh Schedule shall not be eligible to be appointed as an arbitrator. The Honorable Supreme Court decided that Section 12, Paragraph 5, as amended by the Seventh Schedule, is a mandatory and unforgivable provision of the Arbitration Act.

    In the facts of this case, it was held that the Chief Secretary to the Government would not be eligible to be appointed as an arbitrator as he would have a decisive influence on HARSAC being the nodal agency of the State. Counsel for both parties agreed during negotiations to replace the existing court by appointing a sole arbitrator to complete the arbitration. The Supreme Court then appointed a substitute arbitrator to preside over the proceedings following the stage it had reached and render the arbitral award within six months from the date of receipt of the order.
     
  2. Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd.

    Supreme Court of India
    Citation: 2021 SCC OnLine SC 157
    Decided: March 2, 2021

    The limitation period for filing a motion pursuant to 34 of the Arbitration and Conciliation Act of 1996 begins on the date of delivery of a signed copy of the arbitration award by the parties.

    Facts of the case:
    In the instant case, the disputes between Dakshin Haryana Bijli Vitran Nigam Ltd. (appellant) and Navigant Technologies Pvt. Ltd. (Respondent) were referred to arbitration following the termination of the Service Level Agreement (SLA) dated May 2, 2012. The arbitral tribunal granted the Respondent's claims by a majority decision, while a third arbitrator dissenting from the majority approved the minority award. On April 27, 2018, the parties were notified of the majority award and informed that the minority award would be entered separately. They have been provided with a draft copy of the majority award to identify any computational, clerical or typographical errors which will be addressed on 12 May 2018.

    On May 12, 2018, the parties were provided with a copy of the dissenting award issued by the third arbitrator. The matter was then listed on May 19, 2018, with instructions to the parties to identify any computational, clerical, and typographical errors in the minority opinion in the meantime. As no such errors were brought to the attention of the arbitral tribunal, signed copies of the final award were provided to the parties on 19 May 2018 and the proceedings were terminated.

    Aggrieved by the award, the applicant filed objections under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) in the Hisar Civil Court (Civil Court) on 10 September 2018, with objections preferred within three months plus a 30 (thirty) day additional period established pursuant to Section 34, paragraph 3 of the Arbitration Act, calculated from May 12, 2018, the date of receipt of the award.

    The said petition was dismissed by the Civil Court for filing after the prescribed period of limitation, with the majority judgment being made available to the parties on 27th April 2018. The appellant, who was dismissed, preferred an appeal under Section 37 of the Act, which was also dismissed by the order of the Punjab High Court and Haryana (High Court) dated 11 December 2019. The appellant challenged the order of the High Court in the Supreme Court by way of special leave application. Hence the matter under discussion.

    Judgement
    The Hon'ble Supreme Court held that the Arbitration Act recognizes only one award which may be unanimous or divided into a majority opinion and a dissenting opinion. The Hon'ble Supreme Court observed that only the majority award is eligible to be enforced as an arbitral award. Conversely, the dissenting arbitrator's opinion is only an opinion, but the injured party can freely rely on the dissenting opinion.

    The Supreme Court recognized the condition under Section 31, Paragraph 2 of the Arbitration Act for the signing of the award by members of the arbitration court. A written award becomes legally binding only after it is verified by the signature of the members of the arbitration court who made it. It was found that the use of the word "shall" makes this condition a mandatory condition which cannot be waived.

    The Honorable Supreme Court also stated that the joint interpretation of Section 31, Paragraph 1 and Sub-paragraph 4 indicated that the Arbitration Act only envisaged a single date when the arbitration award would be issued. That is, the date on which the signed arbitral award is made available to the parties pursuant to Section 31, paragraph 5, whereby the arbitral tribunal requires the parties to provide a copy of the award which is signed.

    So, the Hon'ble Supreme Court held that the date for calculation of limitation is the date of delivery of the signed copy of the award. It was further clarified that the dissenting opinion must also be delivered on the same day as the majority award, as the arbitral tribunal then becomes functus officio. Accordingly, the Supreme Court ruled that the 34 petition filed by the complainant is within the limitation period set by the Arbitration Act.
     
  3. N.N Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. & Ors.

    Supreme Court of India
    Citation: 2021 SCC Online SC 13
    Decided: January 11, 2021

    Failure to pay the stamp duty from the commercial contract will not invalidate the arbitration agreement.

    Facts of the case:
    To the first respondent, Indo Unique Flame Ltd. (Indo), a work order dated 18th September, 2015 (Work Order I) was issued for beneficiation/washing of coal by Karnataka Power Corporation Ltd. (KPCL). Pursuant to Work Order I, Indo provided Bank Guarantees (BG I) of INR 29.29 million in favor of KPCL through the second respondent i.e., State Bank of India (SBI).

    Thereafter, Indo entered into a sub-contract (Work Order II) on 28 September 2015 with the petitioner N.N. Global Mercantile Pvt. Ltd. (N.N. Global) for the transportation and handling of coal. In terms of work order II, N.N. Global provided a bank guarantee (BG II) of INR 3.36 crore in favor of SBI on 30 September 2015. Disputes arose between the parties in Work Order I which led to the invocation of BG I by KPCL on December 6, 2017. Accordingly, BG II issued by N.N. Global in favor of SBI started invoking Indo.

    Saddened by the invocation of BG II, N.N. Global filed a suit in the Commercial Court, Nagpur (Commercial Court) against Indo and SBI (Respondents). N.N. Global prayed for a declaration to the effect that Indo is not entitled to encash BG II as Work Order II was never executed. N.N. Global argued that the appeal of BG II was not within the meaning of Work Order II providing a conditional warranty attached to the performance of the work.

    Since Indo never allotted any work under Work Order II, N.N Global argued that Indo suffered no loss which would justify the appeal of BG II. By a preliminary injunction, the Commercial Court ordered the status quo to be maintained regarding the encashment of BG II provided to N.N. Globally in favor of SBI.

    In response, Indo filed an application under Section 8 of the Arbitration and Conciliation Act 1996 (Arbitration Act) seeking to refer the dispute to arbitration. The Commercial Court refused to uphold Indo's claim, holding that the arbitration clause in Work Order II was not broad enough to include BG II, which was itself an independent contract.

    Indo filed a writ petition in the Bombay High Court (High Court) to set aside the order of the Commercial Court. The High Court held that since both the parties had admitted the existence of an arbitration agreement between them, the application filed by Indo under Section 8 of the Arbitration Act was maintainable. Affected by the contested judgment of the High Court, N.N. Global approached the Supreme Court in this matter.

    N.N. Global argued before the Hon'ble Supreme Court that the parties could not be referred to arbitration because Work Order II was unstamped and therefore had no probative value and could not be acted upon. In his counter argument, Indo argued that non-payment of stamp duty is a rectifiable defect and therefore the application under Section 8 of the Arbitration Act should be allowed.

    Judgement:
    In the present case, the Supreme Court outlined, among other things, a debatable proposition as to whether non-payment of stamp duty from a commercial contract would invalidate the arbitration agreement contained therein. Commenting on the validity of an arbitration agreement in an unstamped contract, the Honorable Supreme Court emphasized the severability of the arbitration agreement from the basic contract.

    It was held that when parties enter into a commercial contract containing an arbitration clause, they have essentially entered into two separate contracts, i.e., firstly, a substantive contract and secondly, an arbitration agreement. The Hon'ble Supreme Court ruled that the autonomy of the arbitration agreement was based on the dual concept of the severability of the arbitration agreement and the principle of kompetenz-kompetenz.

    The doctrine of severability3 or severability means that the invalidity of the underlying substantive contract would have no effect on the validity of the arbitration agreement, except where the arbitration agreement is directly challenged. The principle of kompetenz-kompetenz4 meant that the arbitral tribunal has the exclusive power to decide its jurisdiction, including any objections and questions regarding the existence and validity of the arbitration agreement.

    On the argument that Work Order II is not stamped, the Hon'ble Supreme Court dealt with the statutory scheme of the Maharashtra Stamps Act, 1958 (Stamps Act). It was held that the Stamp Act was a tax measure enacted to secure revenue to the State in certain classes of instruments. The Hon'ble Supreme Court observed that non-payment of stamp duty under the Stamp Act would render the substantive contract inadmissible in evidence. However, such a defect would no longer exist if the stamp duty was paid.

    Due to the different nature of an arbitration agreement and a substantive contract, and due to the fact that no stamp duty was prescribed for an arbitration agreement in the Stamp Act, the Supreme Court concluded that there would be no legal impediment to the enforceability of the arbitration agreement. in the present case. While drawing these findings the Hon'ble Supreme Court set aside the decision in the case of SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Co. Pvt. Ltd.5 Therefore, this dispute was held to be arbitrable.

Conclusion:
Arbitration is the recent trend nowadays. Also, the future would be more with arbitral awards. There are a lot of advantages for cases in arbitration which would attract more people to resolve their issue quickly instead of going through the long-term court process. Though many cases have been referred to arbitration recently, still there are many drawbacks for which people don't prefer arbitration.

Reference links:
  • https://lawstreet.co/know-the-law/future-arbitration-in-india
  • https://www.mondaq.com/india/arbitration-dispute-resolution/1146106/indian-arbitration-yearly-roundup-25-important-arbitration-judgments-of-2021
  • https://www.mondaq.com/india/arbitration-dispute-resolution/1146106/indian-arbitration-yearly-roundup-25-important-arbitration-judgments-of-2021


Written By Jinal Jain, Chennai

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