new indian legal impetus - singh & associates · 2020. 8. 29. · singh and associates 1 mano singh...

JULY 2020. Vol. XIII, Issue VII

E-337, East of KailashNew Delhi - 110065, INDIA

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®INDIAN LEGAL IMPETUS

S i n g h a n d A s s o c i a t e s

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Manoj K. Singh Founding Partner

EDITORIAL

Dear Friends,

We are pleased to present the July 2020 edition of our monthly newsletter “Indian Legal impetus”. In this edition we have covered recent developments, case laws and issues relating to various disciplines of law in India.

The first article makes a comprehensive study of the much-required changes brought about by the new Consumer Protection Act, 2019 which has come into effect from 20 July 2020.

The second article discusses the power of the Adjudicating Authority to refer disputes to arbitration as was the crux of the case of Indus Biotech Private Limited v. Kotak India Venture Fund-I before the NCLT.

The third article analyses the possibility of courts taking a positive view on emergency arbitration, while the fourth article discusses the scope of section 9 and section 17 of the Arbitration and Conciliation Act, 1996 with regards to interim measures granted by courts and arbitral tribunals, respectively.

It is followed by a case note on the recent Supreme Court judgment in State Trading Corporation of India Ltd vs. Jindal Steel and Power Limited & Ors. which further added to the never-ending conversation around party autonomy in appointment of an arbitrator.

The sixth articles expound on the recent Supreme Court judgment of SEAMEC Ltd. v. Oil India Ltd., which set aside of the Tribunal’s award on grounds of perversity and unreasonableness.

The seventh article discusses the controversial topic of enforcement of foreign awards and refusal to do so citing public policy as seen in the recent case of NAFED v. Alimenta SA.

The eighth article analyses the Supreme Court judgment in Rashid Raza vs. Sadaf Akhtar whereby the Hon’ble Court narrowed down and streamlined the scope of arbitrability of fraud by laying down the twin tests.

The ninth articles analyses the slew of instances where the Courts have been more inclined to allow Price Variation claims instead of claims under Change in Law for increased price of materials, in light of the case of SEAMEC Ltd. v. Oil India Ltd.

The tenth article demystifies the complex procedure given by MCA under its online payment system (MCA21 system). The eleventh article discusses the validity of appointment of an independent director as occupier of a factory under the Occupational Safety, Health and Working Conditions Code, 2019.

The twelfth article analyses the power granted to NCLT/NCLAT under IBC to interfere in commercial contracts of the corporate debtor after appointment of IRP/RP as expounded on in the case of Tata Consultancy Services Limited v. Vishal Ghisulal Jain.

The thirteenth article analyses the rather controversial decision of the CCI to not impose any penalty on a cartel of composite brake blocks manufacturers who were engaging in collusive bidding. The fourteenth article deals with the e-modes to effect service of summons under the Code of Civil Procedure, which the need of the hour.

The fifteenth article deals with the pertinent topic of applicability ‘doctrine fruit of poisonous tree’ to instances of phone tapping and sting operations.

Rounding off our issue are is an article discussing the Supreme Courts suo moto cognizance of situation propagated by COVID-19 on filing of proceedings and the application of its order regarding extension of limitation on police investigations, and a comprehensive take on evolution on law of anticipatory bail.

We hope that our esteemed readers find this information useful and it also enables them to understand and interpret the recent legal developments. We welcome all kinds of suggestions, opinion, queries or comments from all our readers. You can also send in your valuable insights and thoughts at [email protected]

Thank you

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SINGH & ASSOCIATES ADVOCATES & SOLICITORS

NEW DELHI E-337, East of KailashNew Delhi - 110065, INDIA GURUGRAMS&A Tower, Plot No. 5,6,7Udyog Vihar, Phase IVGurugram, Haryana 122008, INDIAMUMBAI Unit No. 101, 10th Floor, Sakhar BhavanPlot No. 230, Ramnath Goenka MargNariman Point, Mumbai - 400021, INDIABENGALURU Condor Mirage, 101/1, 3rd FloorRichmond Road, Richmond TownBengaluru - 560025, INDIA

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INDIAN LEGAL IMPETUSVolume XIII, Issue VII

2020 © Singh & Associates

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All ©Copyrights owned by Singh & Associates R


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Co

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Managing Editor Manoj K. Singh

Published by Singh & Associates

Advocates and Solicitors

EditorVijaya Singh

Aishwarya Satpathy

1. THE CONSUMER PROTECTION ACT, 2019: A NEED OF THE HOUR 04

2. SECTION 8 OF THE ARBITRATION AND CONCILIATION ACT, 1996: IS THE ADJUDICATING AUTHORITY UNDER THE INSOLVENCY AND BANKRUPTCY CODE OBLIGATED TO REFER A DISPUTE TO ARBITRATION? 06

3. VIEW OF INDIAN COURTS TOWARDS IMPLEMENTING THE INTERIM ORDERS OF EMERGENCY ARBITRATORS 08

4. POWERPLAY BETWEEN THE COURTS AND ARBITRAL TRIBUNALS: SCOPE OF SECTION 9 AND 17 OF THE ARBITRATION & CONCILIATION ACT 11

5. PARTIES AUTONOMY TO PREVAIL IN THE APPOINTMENT OF AN ARBITRATOR 13

6. ARBITRAL AWARD LIKELY TO BE SET ASIDE ON THE GROUNDS OF PERVERSE AND UNREASONABLE INTERPRETATION OF CONTRACT 14

7. ENFORCEMENT OF FOREIGN ARBITRAL AWARDS - SCOPE OF PUBLIC POLICY AND RECENT DEVELOPMENTAL PERSPECTIVES 16

8. ARBITRABILITY OF FRAUD RASHID RAZA VS. SADAF AKHTAR - A CASE ANALYSIS 18

9. SEAMEC LTD. V. OIL INDIA LTD.: A CASE FOR PRICE VARIATION CLAUSE OVER CHANGE IN LAW CLAUSE 21

10. ANALYSIS OF THE REFUND PROCESS UNDER MCA21 24

11. APPOINTMENT OF INDEPENDENT DIRECTOR AS AN OCCUPIER OF FACTORY 27

12. WHETHER IBC EMPOWERS NCLT/NCLAT TO INTERFERE IN THE COMMERCIAL CONTRACTS OF THE CORPORATE DEBTOR AFTER APPOINTMENT OF IRP/RP. 31

13. CCI IMPOSES NO PENALTY ON CBB CARTEL – NEED OF THE HOUR OR DANGEROUS PRECEDENT? 33

14. WHATSAPP, TELEGRAM, E-MAIL –TRENDING E-MODES TO EFFECT SERVICE 35

15. DOCTRINE OF “FRUIT OF POISONOUS TREE” AND ITS RELEVANCY – THE QUESTIONABLE ETHICS OF PHONE TAPPING/MEDIA STING OPERATIONS, ETC. 39

16. SUPREME COURT ORDER DATED MARCH 23, 2020, ON EXTENSION OF LIMITATION AND ITS APPLICABILITY ON POLICE INVESTIGATIONS 41

17. ANTICIPATORY BAIL AND ITS LAWS 43

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THE CONSUMER PROTECTION ACT, 2019: A NEED OF THE HOURVIJAYA SINGH

INTRODUCTION“Consumers are the kings and hence they always need to be served the best.” The Parliament of India has repealed the three-decade old Consumer Protection Act, 1986, and replaced it with the new Consumer Protection Act, 2019, w.e.f 20.07.2020. The Government has broadened the horizon of the Act and has given holistic and all–encompassing definitions of consumer, consumer rights (which also include right to consumer awareness), e-commerce, endorsement, product liability, unfair contract, misleading advertisement, inserted ‘telecom’ in the definition of “service”, provided for establishment of Central Consumer Protection Authority with the power of search & seizure and issue directions and penalties against false or misleading advertisements. The new law provides for stringent provisions including rigorous punishment & penalties in tune with the current scenario.

WHO IS A CONSUMER? A person is called a consumer if he “hires or avails any services” and “buys any goods” for self-use and not for commercial purpose. The new Act covers all types of transactions including online transactions through electronic means or by teleshopping or direct selling or multi-level marketing.1

WHERE TO FILE THE COMPLAINT? A consumer can file the complaint from anywhere. Yes, it is true! Any consumer can file a complaint upto Rs. 1 crore in the District Forum where the complainant resides or works irrespective of the place where the seller or service provider is located.2 This comes as a big relief, especially for online buyer as earlier the consumer had to file the complaint in the area where the seller or service provider is located.

Any complaint where the value of the goods or services paid as consideration. exceeds Rs. 1 crore but does not exceed Rs. 10 crore will be entertained by the State

1 Section 2(7), The Consumer Protection Act, 2019

2 Section 34, The Consumer Protection Act, 2019

Commission3 and complaint exceeding an amount of Rs. 10 Crore will entertained by the National Commission.

The consumer can file their complaint electronically4 and also serve the notice through electronic means5 and in addition to this, he/she can opt for hearing or for examination of parties through video conferencing.6

MEDIATIONAt the first hearing after the admission of the complaint if it appears to the Commission - District, State or National - that there is possibility of settlement, the court, after obtaining the written consent from the parties, can refer for settlement through mediation.7 But there will be no appeal against settlement through mediation. Earlier, there was no legal provision for this.

POWER OF REVIEWThe new Act gives power to District Commission8, State Commission9 and National Commission10 to review its own order if there is any apparent error. Earlier, a lawyer had to file an appeal in a State Commission for reviewing any order of District Commission and in a National Commission for reviewing the order of State Commission.

PENALTY FOR NON-COMPLIANCE OF ORDERThe new Act also has a provision for stringent penalty if anyone fails to comply with the order of District Commission, State Commission and National Commission. It is noteworthy to mention that offences may attract a fine up to Rs. 1 lakh and imprisonment up to 3 years.11




6 Section 38(6), The Consumer Protection Act, 2019







5

ESTABLISHMENT OF CENTRAL CONSUMER PROTECTION AUTHORITY (CCPA)The Central Govt. shall establish CCPA for regulating matters related to violation of rights of consumers, unfair trade practices and false or misleading advertisements.12 An investigation wing13 will also be set up for supporting the CCPA for conducting inquiries and investigations with the power of search and seizure14 as prescribed in Cr.P.C but vexatious search is punishable offence as laid down in S. 93 of the new Act.

In the new Act the District Collector also has the power to inquire into or investigate the complaints regarding violation of consumer rights, unfair trade practices and false or misleading advertisements on a reference made to him by the CCPA.15

The CCPA only has the power to issue directions and penalties against false or misleading advertisements to concerned trader or manufacturer or endorser or advertiser or publisher.16 So the consumer can forward their complaint relating to false or misleading advertisements either in writing or in electronic mode to the District Collector or the Commissioner of regional office or the central authority17 and then CCPA, after investigation will issue appropriate direction or may impose a penalty.

PRODUCT LIABILITY18

It means that consumer can seek compensation for harm caused by a product or service. In the new Act there is a separate chapter for product liability, which provides for product liability action by complainant for any harm caused by defective product manufactured by product manufacturer or serviced by product service provider or sold by a product seller. It means that no one can shift the onus on to others by simply saying that it is not manufactured or serviced or sold by me. Earlier there was no such provision and consumer had to approach civil court for compensation.



14 Section 22, The Consumer protection Act, 2019




18 Chapter VI, The Consumer protection Act, 2019

CONCLUSIONThe scope of the new Act has been widened by introduction of various provisions including e-commerce within its purview. Procedural changes have been made like filing of cases electronically, to give notice with different mode and hearing through video conferencing. The new Consumer Act also prescribes the time limit of 3 months to conclude the entire case from the date of receipt of notice by the opposite party.19 But it is not practical to conclude the case within 3 months and especially when the pecuniary jurisdiction has been increased. Juxtapositionally, in the initial phase, the District Commission and State Commission will be over burdened with cases and also mass transfer will take place from National Commission to State Commission and from State Commission to District Commission which will further delay the proceedings as benches and infrastructure is limited as compared to the National Commission.

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19 Section 38(7), The Consumer protection Act, 2019

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SECTION 8 OF THE ARBITRATION AND CONCILIATION ACT, 1996: IS THE ADJUDICATING AUTHORITY UNDER THE INSOLVENCY AND BANKRUPTCY CODE OBLIGATED TO REFER A DISPUTE TO ARBITRATION?

ANKITESH OJHA

INTRODUCTION There has been a lot of discussion on the power of judicial authorities to refer a matter to arbitration. Section 8 of the Arbitration and Conciliation Act, 1996 (the Act) obligates a judicial authority to refer the dispute to arbitration in case there is a valid arbitration agreement. With time, the courts have realized the true intention of Section 8 of the Act and have held that not every judicial authority is bound to make a reference to arbitration.

A fresh controversy has arisen concerning the power of Adjudicating Authority (AA) under the Insolvency and Bankruptcy Code, 2016 (the Code)1 to refer a matter to arbitration. In the case of Indus Biotech Private Limited v. Kotak India Venture Fund-I2 the Mumbai bench of NCLT refused to admit the application filed under Section 7 of the Code and referred the matter to arbitration by the virtue of Section 8 of the Act.

THE AA’S DECISION IN INDUS BIOTECH PRIVATE LIMITED V. KOTAK INDIA VENTURE FUND-I Kotak India Venture fund (Kotak) subscribed to the share capital of Indus Biotech Private Limited (Indus). There was a default by Indus in redemption of the Optionally Convertible Redeemable Preference Shares (OCRPS) and consequently, Indus was dragged into insolvency proceedings for non-redemption of the shares. However, Indus invoked the arbitration clause contained in the Share Subscription & Shareholders Agreements (SSSAs) to resolve the dispute by the way of arbitration. Soon thereafter, an application under Section 8 of the Act was filed by Indus before the AA to

1 Section 5(1), Insolvency and Bankruptcy Code, 2016.

2 IA No.3597/2019 in CP (IB) No.3077/2019

refer the matter back to arbitration in light of a valid arbitration agreement.

Compelling arguments were made by both the parties before the AA. Indus argued that there cannot be an admission of Section 7 application as there exists an arbitration agreement and by the virtue of Section 8 of the Act, the judicial authority has an obligation to refer the dispute to arbitration. Kotak, on the other hand, argued that an arbitral tribunal is not competent to grant the reliefs sought by the financial creditor. They argued that the existence of an arbitration agreement does not affect the insolvency proceedings before the AA.

The AA after hearing the arguments of both the parties referred the dispute to arbitration on the ground that Section 8 is mandatory in nature and hence a judicial authority must compulsorily refer the matter to arbitration. It also based this decision on the point that for the AA to admit an application under Section 7 of the Code, there must be a default and in the instant case there is nothing to satisfy that a default has occurred.

This decision has brought about a lot confusion and has given rise to a couple of questions which need to be addressed. However, the question that deserves our attention is whether the AA is duty-bound to refer a dispute to arbitration. In order to answer this, it is pertinent to clear the air on the tussle between both the legislations.

DOES THE ARBITRATION AND CONCILIATION ACT, 1996 OVERRIDE THE IBC?Although the AA framed the abovementioned question for consideration, it did not say in concrete terms that the Act would prevail over the Code or vice versa. A perusal of Section 238 of the Code can help us arrive at an answer to this question. Section 238 of the Code


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reads as “The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.” It is amply clear that by virtue of this Section, provisions of the Code have overriding effect.

The AA in ABG Shipyard Ltd v. ICICI Bank Ltd.3 dealt with the tussle between the Electricity Act, 2003 and the Code. The AA, on the basis of time of enactment and the objective of the code, held that although both are special laws, the Electricity Act must give way to the Code as the Code was enacted later in time. The Act here is an older piece of legislation and hence, while enacting the Code the legislature was conscious of the existence of the arbitration law.

IS IT WITHIN THE REALM OF THE AA TO REFER THE MATTER TO ARBITRATION?Section 8 of the Act makes it compulsory for the judicial authority before which an application has been made, to refer the matter to arbitration if a valid arbitration agreement exists.4 This provision indicates that the AA has no choice but to refer it to arbitration in case a valid arbitration agreement is present. However, in order to understand the true nature and intention of Section 8, perusal of a Supreme Court decision is imperative. In M/s Emaar Mgf Land Limited v. Aftab Singh5, the Supreme Court held that an authority under the Consumer Protection Act, 1986, is not bound to refer the matter to arbitration merely because a valid arbitration agreement exists. The Court placed reliance on Section 2(3) of the Act to hold that the judicial authorities cannot in every circumstance be duty-bound to make such a reference. Section 2(3) says that “this part (Part I) shall not affect any other law for the time being in force, by virtue of which certain disputes may not be submitted to arbitration.”

The Court also held that the legislative intent behind Section 8 of the Act was not to render the special

3 IA 328/2017 and C.P. (IB) No. 53/7/NCLT/AHM/2017.

4 Section 8 (1) of the Arbitration & Conciliation Act, 1996 reads as “A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists”

5 2018 (6) ArbLR 313 (SC).

remedies under different laws redundant by making it compulsory for every authority to make a reference even if the dispute is inarbitrable. It held in very concrete terms that “The amendment in Section 8 cannot be given such expansive meaning and intent so as to inundate entire regime of special legislations where such disputes were held to be not arbitrable. Something which legislation never intended cannot be accepted as side wind to override the settled law.”

Under the Code, an application under Section 7 is an application for initiation of insolvency resolution process. This is a remedy which no authority other than the AA can grant. In such a situation, resorting to Section 8 of the Act to refer the matter to arbitration is something which neither the Act nor the Code approves of. Such a reference would also go against the settled law pertaining to inarbitrability of disputes involving right in rem.

CONCLUSIONThe AA in the instant case by referring the matter to arbitration has not followed the well settled principles of law. It appears that the AA has traveled beyond its jurisdiction by making the reference to arbitration. The AA’s interpretation of Section 8 also seems to deviate from the correct position as it is incorrect to bring even inarbitrable matters under the sweep of Section 8. In conclusion, by virtue of the true intention of Section 8 of th Act, it would not be wrong to say that the AA is not duty-bound to refer a matter to arbitration even when a valid arbitration agreement exists.

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VIEW OF INDIAN COURTS TOWARDS IMPLEMENTING THE INTERIM ORDERS OF EMERGENCY ARBITRATORS

MONALISHA CHOWDHURY

INTRODUCTIONThe aspect of Emergency Arbitration has become vital in the past few years, especially in the light of the fact that in a dispute, a delayed relief may leave the aggrieved party high and dry and in an irreparable situation. This is especially important in the case of arbitration where procedures are determined by the parties to the dispute.

The need for emergency arbitration arises when a party is constrained to seek interim relief before the arbitral tribunal has been constituted. Therefore, the objective of an emergency arbitration is to provide urgent pro tem or conservatory relief measures to a party or parties that cannot await the formation of an arbitral tribunal. The efficacy of an Emergency Arbitration, invoked by a party, depends on the following two principles:

i. Fumus boni iuris- Reasonable possibility that the requesting party will succeed on merits;

ii. Periculum in mora – If the measure is not granted immediately, the loss would not and could not be compensated by way of damages.1

Since the amendment to the UNICTRAL Model Law (Model Law) in 2006 empowering arbitral tribunals to grant interim reliefs to parties, a number of arbitration institutions such as the International Centre for Dispute Resolution (ICDR), Stockholm Chamber of Commerce (SCC), International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC) and Hong Kong International Arbitration Centre (HKIAC) have amended their rules to provide parties with the remedy of emergency arbitration. The Singapore International Arbitration Centre (SIAC), in fact, was a pioneer in this regard as it was the first Asian institution to introduce Emergency Arbitration provision in July 2010.

1 https://www.vantageasia.com/emergency-arbitration-journey-siac-india/

EMERGENCY ARBITRATION AND INDIAThere was an expectation that the Arbitration and Conciliation (Amendment) Act, 2015, would incorporate the concept of emergency arbitration, but that did not happen. The recommendation of the Law Commission’s 246th Report to amend Section 2(d) to include emergency arbitrator was rejected in the 2015 amendment.

However, despite the above, arbitration institutions in India such as Delhi International Arbitration Centre (DAC), Court of Arbitration of the International Chambers of Commerce-India, International Commercial Arbitration (ICA), Madras High Court Arbitration Center (MHCAC), Mumbai Center for International Arbitration (MCIA) have incorporated provisions in relation to Emergency Arbitration Provisions.

EMERGENCY ARBITRATION AND THE VIEW OF COURTSMost arbitration institutious (both Indian and International) provide for an Emergency Arbitrator in their rules. Therefore, instead of filing a petition under Section 9 of the Arbitration and Conciliation Act, the parties can approach the Emergency Arbitrator for relief. However, the enforcement of interim relief passed by emergency arbitrators, particularly in case of foreign seated arbitrations, is unclear, especially because judicial decisions regarding interim orders of Emergency Arbitrators are few and far in between. The issue of emergency arbitration has been considered by the Bombay High Court and the Delhi High Court in two judgements which we shall discuss in brief herein below:

HSBC PI HOLDINGS (MAURITIUS) LIMITED V. AVITEL POST STUDIOZ LIMITED AND ORS.2

The case involved an arbitration agreement in which the parties reserved their right to seek interim reliefs

2 MANU/MH/0050/2014


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before the national courts of India, even though the arbitration was conducted outside the country. The parties resorted to EA seated in Singapore, where a favorable order was given to the party under the SIAC Rules of Arbitration. The party sought to enforce the same in India. The claimant filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996, in view of the order of the Emergency Arbitrator. The Bombay High Court while upholding the award of the Emergency Arbitrator and granting interim relief observed that the ‘...petitioner has not bypassed any mandatory conditions of enforceability’ since it was not trying to obtain a direct enforcement of the interim award.

It is important to note that the agreements in the present case were entered into between the parties prior to the Supreme Court of India’s judgement in Bharat Aluminum Co. v. Kaiser Aluminum Technical Service Inc. (BALCO)3 thus the ratio decidendi of BALCO did not apply to this case. It is significant as in the BALCO judgement, the Supreme Court held that Part I of the Arbitration Act would not be applicable to international commercial arbitrations.

RAFFLES DESIGN INTERNATIONAL INDIA PRIVATE LIMITED & ORS. V. EDUCOMP PROFESSIONAL EDUCATION LIMITED & ORS.4

The case involved an arbitration agreement which was governed and construed in accordance with the laws of Singapore. The parties resorted to EA seated in Singapore, wherein an interim order was passed, which was later enforced in the High Court of the Republic of Singapore. The party who obtained the favorable order later filed an application under the amended Section 9 of the Arbitration and Conciliation (Amendment) Act, 2015, seeking interim reliefs alleging that the other party is acting in contravention to the orders passed in the Emergency Award. The Delhi High Court held that the emergency award passed by the emergency arbitrator cannot be enforced under the Arbitration Act. However, the Delhi High Court while allowing the maintainability of such petitions highlighted the relevancy of the amended Section 2(2) of the Act. The proviso to Section 2(2) of the amended act has widened the ambit of the powers invested in the court to grant interim reliefs, as Section 9 shall now apply to

3 (2012) 9 SCC 552

4 MANU/DE/2754/2016

international commercial arbitrations, even if the place of arbitration is outside India (effectively overriding the BALCO judgement).

RECENT DEVELOPMENTSRecently, this issue arose again before the Delhi High Court in the case of Ashwani Minda & Ors. vs U-Shin Ltd. & Ors.5. After failing to obtain any interim relief from the Emergency Arbitrator appointed under the Japan Commercial Arbitration Association (JCAA) Rules, the petitioner in this case approached the Delhi High Court under Section 9 seeking the same relief. The Delhi High Court held that the Section 9 petition was not maintainable since the parties had excluded the provisions of Part I of the Act, including Section 9. It further held that even otherwise, having consciously elected to approach the emergency arbitrator, it was no longer open to the petitioner to approach the court under Section 9 merely because it was unsuccessful before the emergency Arbitrator; and that the court in a petition under Section 9 of the Act cannot sit as a court of appeal to examine the order of the EA. The Court also distinguished the Raffles judgment, stating:“61… two factors distinguish the said case from the present one. Firstly, in that case, there was no Clause in the Dispute Resolution Mechanism by which the parties had excluded the applicability of Section 9 of the Act and secondly, unlike in the present case, the Rules governing the Arbitration were SIAC Rules, which permit the parties to approach the Courts for interim relief. Parties had agreed that it would not be incompatible for them to approach the Courts for interim relief.”

CONCLUSIONThe Ashwani Minda judgement has cleared the air slightly over the enforceability of the Emergency Arbitrator’s interim order, wherein now the practice of first approaching the Emergency Arbitrator and then filing a Section 9 petition (even in cases where Section 9 is not excluded), may no longer be permissible.

In case of India-seated arbitrations, there is no precedent since orders passed by the arbitral tribunal can be enforced like the order of a court. It is, therefore, likely that orders passed by emergency arbitrators may also be enforceable. In conclusion, we can say that the provisions of Section 9 of the Arbitration and

5 MANU/DE/1043/2020

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Conciliation Act remain an important and essential remedy in arbitration proceedings.

The advantages, however, of emergency arbitrations as opposed to Indian Courts are numerous. Mutual agreement of subjecting the dispute to a neutral jurisdiction so that the juridical seat of the tribunal can be decided in a way that both the parties are comfortable with it, far outweigh filing petitions before the court of appropriate jurisdiction. Further, even an emergency arbitration would take place within a stipulated timeframe, as opposed to timeframe of obtaining interim reliefs from a court which is usually uncertain. More importantly, in a COVID-19 affected world where courts are shut down across the country and courts and arbitral tribunals are functioning through video conferencing, the convenience and importance of emergency arbitrations can no longer be ignored. Therefore, it is high time that the legislature incorporates emergency arbitration into the Arbitration and Conciliation Act and gives the concept a legal backing.

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POWERPLAY BETWEEN THE COURTS AND ARBITRAL TRIBUNALS: SCOPE OF SECTION 9 AND 17 OF THE ARBITRATION & CONCILIATION ACT

SHREYA SHARMA

Disputes arising out of a contract containing an arbitration clause, unless specified otherwise, are referred to arbitration.1 However, in many instances to safeguard their rights parties need to seek interim reliefs either from the courts or from the Arbitral Tribunal which may be done before or after invocation of arbitration, during the arbitration proceedings and after the passing of the Arbitral Award. At such times the provisions provided in the Arbitration and Conciliation Act, 1996, come into play for providing interim reliefs to the contracting parties.

There has been an increased preference for arbitration over the years especially for resolving commercial disputes and this is because the law of arbitration encourages “party autonomy”. However, certain provisions of the Arbitration and Conciliation Act, namely Section 9 and Section 17, safeguard the interests of one party over another, if the latter’s actions are unbecoming in terms of equity, fair play or natural justice, or they inherently violate the underlying agreement – by granting interim protection to the former2.

Any contracting party is at liberty to file an application for interim measures during or before the arbitration proceedings. Under Section 9, a party is at liberty to file an application before the court for claiming interim reliefs and under Section 17 a party is at liberty to file an application before the arbitral tribunal for claiming interim reliefs.

INTERIM RELIEFS FROM THE COURT Section 9 of the Arbitration and Conciliation Act, permits interim measures and any party to an arbitration agreement can seek relief by way of an interim application from the court3 under Section 9 of

1 Section 7 of the Arbitration and Conciliation Act,1996 provides that in case of existence of arbitration agreement, parties can refer their disputes to arbitration c

2 Baby Arya v. Delhi Vidyut Board (AIR 2002 Del 50).

3 Defined under Section 2(1) (e) of the Arbitration and Conciliation Act

the Arbitration and Conciliation Act before the commencement of the arbitral proceedings or after the pronouncement of award but before its enforcement. Sub sections (2) and (3) of Section 9 were introduced by the 2015 amendment. The sub Section (3) is a provision in the nature of an exception4 as the legislature has very clearly communicated its intent that the court does not have the mandate to entertain an application under Section 9 after the arbitral tribunal’s constitution. The words being used by the legislature are “the Court shall not entertain”, which makes it crystal clear that once Arbitration has been invoked and the Arbitral Tribunal has been constituted then court shall not entertain applications under Section 9 of the Arbitration and Conciliation Act. However, an exception to this rule has also been provided i.e., the court may entertain an application under Section 9 after the constitution of arbitral tribunal only under extraordinary circumstances, i.e., when the remedy available under Section 17 can be said to be becoming inefficacious5. Otherwise, in other circumstances, remedy in form of an interim relief after the constitution of arbitral tribunal first lies under Section 17 of the Act.

The object of insertion of both the Sub-Sections i.e., (2) and (3) is to see that the steps are not unnecessarily resorted to for interim measure under Section 9 or that the measures under this section are not unduly protracted by the party who may have obtained the order for interim measures under Section 9 but would while away the time in commencing the actual arbitral proceedings in order to continue enjoying the interim measures. Therefore, by resorting to Sub-Section (2) in Section 9, it is provided that if before the commencement of arbitral proceedings a court has

4 Manbhupinder Singh Atwal vs. Neeraj Kumarpal Shah [(2019)4GLR3229], Para 5.1.1


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passed order of interim measure of protection under Sub-Section (1), arbitration proceedings shall have to commence within a period of 90 days from the date of such order.6

Therefore, the circumstances wherein the court can exercise powers under Section 9 of the Act for giving interim reliefs are as follows:

1. Before the Arbitral Tribunal has come into existence i.e., before the constitution of Arbitral Tribunal

2. After the pronouncement of Arbitral Award but before its enforcement

3. When the remedy available under Section 17 would be inefficacious

It is also pertinent to mention that a relief granted by a court under Section 9 in the form of an order may be enforced like any other order under any other statute passed by the court.

INTERIM RELIEFS FROM THE TRIBUNALSection 17 of the Arbitration and Conciliation Act gives power to the arbitral tribunal7 to grant interim reliefs to any of the parties when an application under the said Section is filed before the tribunal. Section 17 of the Act comes into play only when the arbitral tribunal has been constituted and an award has not been passed by the tribunals. Hence, the circumstances when the arbitral tribunal is at liberty to decide an application under Section 17 are:

1. During the continuance of arbitral proceedings, i.e., after the tribunal has been constituted

2. Before the arbitral tribunal passes an arbitral award

Before the 2015 Amendment Act came into force, Section 17 gave a wide range of powers to the arbitral tribunal as the tribunals had powers to issue any sort of interim measures of protection and there was no exception or limitation carved out in the 1940 Act. However, the 2015 Amend ment Act limited the powers of the arbitral tribunal and carved out the situations


7 Defined under Section 2(1)(d) of the Arbitration and Conciliation Act

and the manner of exercising powers under Section 17 of the Act.

However, even before the 2015 amendment, the courts had time and again made it clear that the powers granted to arbitral tribunal under Section 17 were limited in nature and less in comparison to Section 9 of the Act, i.e., the power vested with the court to grant interim relief has always been more than the arbitral tribunal.

In the case of M.D., Army Welfare Housing Organisation v. Sumangal Services Pvt. Ltd.8, it was held “An arbitral tribunal is not a court of law. Its orders are not judicial orders. Its functions are not judicial functions. It cannot exercise its power ex debito justitiae. The jurisdiction of the arbitrator being confined to the four-corners of the agreement, he can only pass such an order which may be subject matter of reference.”. It was further held, “In absence of an agreement to the contrary, in terms of the provisions of Arbitration Act, 1940 an arbitrator can pass only an interim award or a final award. Such awards are enforceable in law. The award of an arbitrator whether interim or final are capable of being made a rule of court, decree prepared and drawn up in terms thereof and put to execution.” The Hon’ble Supreme Court further clarified in this judgment that an arbitral tribunal, under Section 17 of the Act, has no jurisdiction to pass interim measures against a third party.

It is also pertinent to mention here that all the orders passed under Section 17 of the Act are appealable only under Section 37 of Act. Though unclear earlier, the Amendment Act of 2015 has made it crystal clear that any order issued by an arbitral tribunal under Section 17 shall be deemed to be an order of the court for all purposes and shall be enforced in the same manner as if it were an order of the court.

Therefore, the powerplay between the courts and arbitral tribunals continues to exist in India. However, the recent amendments have aimed to clarify the scope of powers that the courts and arbitral tribunals possess under Section 9 and 17 of the Act respectively.

***

8 (2004) 9 SCC 619


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PARTIES’ AUTONOMY TO PREVAIL IN THE APPOINTMENT OF AN ARBITRATOR

RAHUL PANDEY

The Arbitration and Conciliation Act was enacted by the legislature to ensure party autonomy in deciding the dispute adjudication process. The UNCITRAL Code (Model Law and Rules) has also adopted and promulgated the theory of parties being self-sufficient by providing that parties are free to agree on the process to be followed in conducting the proceedings. In India, the arbitration process is governed by the Arbitration and Conciliation Act, 1996 (based on UNCITRAL Code) which clearly upholds parties' autonomy as the prime and fundamental aspect. The parties are free to opt for arbitration as their adjudication process and while preparing an arbitration agreement (Sec.7), parties even have the ease to agree on the process being governed by an ad hoc or an institutional arbitration, number of arbitrators (Sec.10), governing law, seat and the venue. Thus, it can be summed up that the independency in adopting or determining the process in appointing an arbitrator by the parties clearly upholds the autonomy aspect.

In a recent ruling by the Apex Court in the matter of State Trading Corporation of India Ltd v/s Jindal Steel and Power Limited & Ors [Civil Appeal No. 2747 of 2020], the Court has duly relied on the aforesaid principle and set aside the impugned order of the High Court wherein the latter had suo moto appointed an arbitrator. The Apex Court has duly clarified the position that the Court needs to look into the agreement and cannot act on its own in appointing an arbitrator if the parties have agreed on a procedure for the same.

FACTS OF THE CASEIn the aforesaid matter, dispute arose between the parties pertaining to an agreement executed between the Appellant and the first Respondent. The said Respondent was to supply 1.50 lakh MT of steel rail manufactured by it to Iranian Islamic Republic Railways valuing around Rs. 820 Crores in 12 shipments between October 2016 and November 2017. Respondent had furnished a performance bank guarantee to the tune of Rs. 88.40 Crore and the same was extended from time to time. When the dispute arose, the Respondent approached the Hon’ble Delhi High Court u/s 9 of the

Act seeking restraining order against the Appellant from encashing the performance bank guarantee and its release along with other reliefs. The Hon’ble Court vide its order dated 20.04.2020 declined to restrain the encashment or release of the bank guarantee and directed the Respondent to extend the bank guarantee and the same got extended till 22.07.2020. Thereafter, the Respondent appealed against the order dated 20.04.2020 and the Hon’ble Division Bench vide its order dated 04.06.2020 suo moto appointed an arbitrator.

Thereafter, challenging the impugned order and contending that suo moto appointment of the arbitrator in the proceedings under Section 9 of the Act is contrary to the agreed Clause 19 of the Agreement between the parties the appellant has filed the appeal. After going through the agreement, the Hon’ble Apex Court duly held that “Clause 19 of the Agreement between both the parties provides a mechanism to settle the dispute arising between the parties by arbitrations in accordance with the Rules of Arbitration of the Indian Council of Arbitration. When the parties have agreed upon the procedure for appointment of arbitrator, ignoring the same, in the appeal arising out of the proceedings under Section 9 of the Act, the High Court, in our view, was not right in suo moto appointing an arbitrator”.

RATIO DECIDENDIThe Hon’ble Apex Court duly ruled and upheld the autonomy of the parties in terms of the reference of the dispute and the mechanism as adopted by them to resolve it, and ruled that the procedure adopted by the parties must be followed and be adhered to in the spirit of law and public policy. The Court cannot interfere in the opted mechanism unless the same is in violation of any law and thus, the interference by the High Court in appointing an arbitrator, bypassing the set procedure, was contrary to the rule of law.

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ARBITRAL AWARD LIKELY TO BE SET ASIDE ON THE GROUNDS OF PERVERSE AND UNREASONABLE INTERPRETATION OF CONTRACT

DIVYANSH AGARWAL

INTRODUCTION Time and again courts in India have been criticised for interfering with the decisions of the Arbitral Tribunal and setting aside the award after dwelling on the merits of the case. In yet another case the hon’ble Supreme Court, in its decision in South East Asia Marine Engineering & Construction (hereinafter referred as “SEAMEC”) Ltd. v. Oil India Ltd. (hereinafter referred as “OIL”)1 set aside the award on the grounds of decision being perverse and against the wording & purpose of the contract. The article analyses the judgement and highlights the key takeaways for lawyers.

FACTS SEAMEC was awarded a work order by OIL for the purpose of carrying out drilling and other ancillary operations in Assam (hereinafter referred as “Contract”). The contract contained a ‘change in law clause’ (hereinafter referred as “Clause 23”) which read as follows:

“Clause 23: Subsequently Enacted Laws: Subsequent to the date of price of Bid Opening if there is a change in or enactment of any law or interpretation of existing law, which results in additional cost/reduction in cost to Contractor on account of the operation under the Contract, the Company/Contractor shall reimburse/pay Contractor/Company for such additional/reduced cost actually incurred.” (emphasis supplied)

During the durateon of the contract, there was a hike in the cost of High-speed diesel (HSD), a material basic for the SEAMEC’s drilling operations. An executive order brought the change in the price. SEAMEC asserted that the change in cost is due to the change in law and hence requested OIL to reimburse the same in view of clause 23 of the agreement. OIL refused this reimbursement stating that the order did not amount to change in law and hence, dispute arose between the parties.

1 Civil Appeal No. 673 of 2012 (decided on 11 May 2020).

Aggrieved, SEAMEC invoked arbitration against OIL in terms of the Contract.

The question to be decided by the Arbitral Tribunal was whether the circular issued under the authority of State or Union means Law in the literal sense. The Arbitral Tribunal held that the circular issued under the authority of the state or union is “change in law” because although it is not law in the literal sense it has the “force of law”.

JUDGMENT The Supreme Court affirmed the decision of the High Court which set aside the award. The reason given by the Hon’ble court was that the interpretation of the terms of contract by the Arbitral Tribunal is erroneous and against the wording and purpose of the contract. Applying the limited powers under Section 34 of the Arbitration and Conciliation Act 1996, the High Court held that it can interfere with an award if it has been made while overlooking the terms and conditions of the contract. The Supreme Court too, under the power granted to it by section 34, and relying on the decision of Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd.,2 held that the court will interfere with the award only if it is perverse and no other interpretation of the terms of the contract was possible.

CONCLUSIONIt is to be borne in mind while interpreting this judgment that the proceedings to challenge the award under section 34 started before 2015 and hence, the pre-2015 amendment law will be applicable. Prior to the 2015 amendments, the law gave wider power to the court to interfere in the award on the grounds of patent illegality on account of impossibility of the interpretation provided to a contract. While deciding the question of maintainability the court relied on its earlier decision in Dyna Technologies Pvt. Ltd. v.

2 2019 SCC Online SC 1656


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Crompton Greaves Ltd., where it observed that “awards should not be interfered with in a casual and cavalier manner, unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation, which may sustain the arbitral award”. From the aforementioned judgement we can conclude that although the Arbitral Tribunal has the power to interpret the terms and conditions of the contract, the interpretation has to be based on the cases decided by the hon’ble Supreme Court and after understanding the intention of the parties while incorporating such clauses in the agreement. The Arbitral Tribunal cannot interpret the terms of the contract in a manner such that it is essentially re-writing the terms of the agreement. The hon’ble court also held that the rule of thumb remains that rule of interpretation is that the document forming a written contract should be read as a whole and so far, as possible as mutually explanator. The court also agreed that usually it would not have had delved into the merits of interpretation were such an interpretation reasonably possible.

As the law of the land is made by the Parliament and interpreted by the lawyers and the judges, there cannot be a comprehensive list of what is reasonable and what is not. Further the reasonableness of a judge can differ from another based on the evidence and conditions presented before him. Therefore, it is interesting to note here that yet again the Hon’ble Court has retained its power to decide on when to interfere and dwell on the merits of an issue (as interpreted by the Arbitral Tribunal) relying solely on the sagacity of the hon’ble justices. In the present case, the Court justified its decision of interfering with the decision of the Arbitral Tribunal based on understanding the terms of the contract, the intention of the parties to bear the consequences of change in price and overreaching liberal interpretation of the terms of the Contract by the Arbitral Tribunal.

KEY TAKEAWAYS A key takeaway for clients, legal practitioners and the readers in general is that change in law will include only actual and unexpected change in law. The change in law must be a material change and mere price fluctuations even due to the executive orders of the state may not be considered as change in law. Such price fluctuations are a business risk which the contractor undertakes in a fixed price contract. Thus,

it can be said that yet again the Hon’ble Court has reaffirmed that contracts made to be executed by the contractor at fixed prices need to be fulfilled and the contractor cannot escape the business losses or additional expenses on vague grounds of changes in price. It would not be fair to call this judgement as against the ethos of arbitration practices but in fact, concludes that the Court has re-stated its stand that the contractor will not be allowed to relinquish business losses based on ingenious interpretations of the contract.

Also it is noteworthy here that SEAMEC relying upon the decision of McDermott International Inc v Burn Standard Co Ltd.3 raised the contention that where two interpretations of a contract are possible, the court should not interfere with the award. However, the Hon’ble Court held that this is not a case of two interpretations but a case of perversity and unreasonableness. Thus, a takeaway for legal practitioners is that when an award is challenged, to strengthen its maintainability (awards for which the section 34 proceeding started before 2015) the legal practitioner can use the ground of perversity and unreasonableness for explaining a faulty interpretation of the contract rather than the contention of possibility of multiple interpretations existing, as the same gives wider power of review to the courts.

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3 (2006) 11 SCC 181

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ENFORCEMENT OF FOREIGN ARBITRAL AWARDS - SCOPE OF PUBLIC POLICY AND RECENT DEVELOPMENTAL PERSPECTIVES

S. SREESH

Recent judicial pronouncements on the subject of enforcement of foreign arbitral awards have shed light on the need for a consistent approach from the courts in defining the scope of interference under public policy for denying the enforcement of the same. This article is an attempt to explain and elaborate on the prevailing legal position with reference to the recent Supreme Court and Delhi High Court judgments on this subject. Section 48(2)(b) of Arbitration and Conciliation Act 1996 (hereinafter A&C Act) which is modelled on the lines of Article V of the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958 (hereafter New York Convention) is an enabling provision which takes a pro-enforcement bias towards the foreign awards. However, the recent judgment of Supreme Court in NAFED v. Alimenta SA (2020 SCCOnline SC 381), is a step taken in the opposite direction. Before addressing the inherent fallacies of the judgment, the Supreme Court in Vijay Karia v. Prysmian Cavi, (2020 SCCOnline SC 177), analyzed the elements of public policy defence available for denying enforcement of a foreign award. It noted that while the courts in the country of arbitral situs have the jurisdiction to set aside the arbitral award, the courts of secondary jurisdiction i.e., for the purposes of enforcement, may refuse to do so only on the grounds mentioned in Article V of the New York Convention. Thus, it interpreted the usage of ‘may’ in Section 48(1) and (2) to connote the discretion with the court to enforce an award which must be exercised, only if the resisting party is able to furnish proof based on the conditions mentioned in the provision.

The parameters prescribed insofar as enforcement of foreign arbitral awards by the Supreme Court were drawn from its judgment in Renusagar v. General Electric Co., (1994 Supp (1) SCC 644) and later on confirmed in Shri Lal Mahal v. Progetto Grano ((2014) 2 SCC 433). Both judgments postulate the conditions prescribed in under Part II of the Act that warrant interference, are very limited i.e., a) fundamental policy of Indian law; or b) the interests of India; or c) justice or morality. It clarified that the interpretation of scope of public policy for setting aside of an award does not apply in its

true import and its usage in Section 48 has a narrow connotation. The distinguishing factor being the opportunity afforded to the parties to have a second look at the award at the enforcement stage. Explanation 2 to the provision, codifies the parameters prescribed in Renusagar case to conclude that a contravention with the fundamental policy of Indian law does not allow the court to review the award on merits. In Vijay Karia’s case the court recognized and distinguished two distinct scenarios - firstly, where the arbitral tribunal fails to address a core or material issue which goes to the root of the matter and secondly, where an arbitral tribunal addresses the material issue, but its reasoning on merits appears to be flawed or poor. In the event of former, Section 48(2)(b) can be invoked whereas the defence is not permitted in the case of latter. Contrary to the legal position, the Supreme Court in NAFED v. Alimenta SA, consciously ventured into examining the award on merits despite operation of constructive res judicata against the parties opposing the enforcement. A review of the award on merits contravenes the overall object of Section 48 in Part II and the pro enforcement bias under Article V of New York Convention. Since, the primary objective for a party to approach under Part II is securing enforcement, the courts ought to show restraint and not be inclined to interfere, regardless of the reasons rendered by tribunal in the award. The court is limited to act on the narrow set of exceptions prescribed under Section 48 and under no circumstance justified in examining the merits.

Incidentally, the questions framed for determining enforceability of the foreign award were beyond the scope of applicable provision of law i.e., Section 7 of the Foreign Awards (Recognition and Enforcement) Act 1961. Needless to say, the Court ventured into a detailed enquiry on substantive aspects of the award. On merits, the Court arrived at a conclusion that the export obligations of NAFED under its contract with Alimenta could not fulfilled as it was unable to secure the requisite approval from the authorities and this consequently amounted to frustration of contract under Section 56 of Indian Contract Act. The absence


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of requisite permission and operation of a legal bar from fulfilling its export obligations cannot adversely affect the interests of NAFED. Hence, the Court concluded that such an enforcement of arbitral award would be in violation of public policy of India.

In this instance, the Court drew reference to the public policy test laid down in Renusagar’s case and noted that a mere contravention would not be sufficient for refusing enforcement and something more than contravention of law is necessary warranting interference. Nevertheless, the end result turned to be an aberration as it eventually refused enforcement of the arbitral award by impeaching it on merits. By doing so, the Court rendered the award which was passed in 1989 and arbitration proceedings which commenced nearly four decades ago as unenforceable.

Although this judgment may open the doors for an expansive interpretation of awards, the recent judgment of Supreme Court in Centrotrade Limited v. HCL Ltd., reported in (2020 SCCOnline SC 479) and the Delhi High Court judgment in Glencore Industries Limited v. Hindustan Zinc Limited (25 June 2020) helps in restoring a positive sentiment to the foreign award holders by adopting a pro enforcement stance by exhibiting restraint in its approach.

In Centrotrade Limited v. HCL Ltd., the Supreme Court put to rest nearly two decades of litigation between the parties and allowed the foreign award to be enforced. It upheld the two tier arbitration mechanism and the validity of the award rendered by the ICC Arbitral Tribunal/Appellate Body located in London. The Appellate Body overturned the award rendered by the first tier arbitration mechanism located in India. Adding further, the Supreme Court relied on its earlier judgment in Vijay Karia’s case to emphasize the restricted parameters under Section 48(1)(b) for interference with the enforcement of a foreign award. Given the object of the provision is to enable enforcement of the foreign award, denying the award holder to realize the benefits of the award would be an antithesis to the legislative intent.

Similarly, the Delhi High Court, in its recent judgment in Glencore Industries Limited v. Hindustan Zinc Limited, examined the issue of territorial jurisdiction for enforcing a foreign arbitral award. The award rendered by the Arbitral Tribunal was challenged before the Rajasthan High Court by the judgment debtor which

was pending adjudication. Meanwhile, the decree-holder/Glencore sought to enforce the award in Delhi based on the existence of bank accounts belonging to the judgment debtor in Delhi. The preliminary objection on maintainability taken by the judgment debtor was the absence of any assets within the territorial jurisdiction and lack of cause of action. Notwithstanding the same, the judgment debtor contended the pendency of enforcement proceedings in Rajasthan where its assets are located barred it from instituting another proceeding in Delhi. The Court remarked that such proceedings do not act as a bar for instituting alternate proceeding for realization of dues under the foreign award. The only relevant factor for the court is existence of judgment debtor’s assets within the territorial limits of place of enforcement. At the stage of enforcement, the court is concerned only with the subject matter of the award and the presence of assets at the place of enforcement. Parallel enforcement proceedings, if any or proceedings to set aside an award do not prevent the award holder from pursuing enforcement in alternate locations.

The recent developments show signs of restraint from courts in their approach towards interfering with the enforcement of foreign arbitral awards. The narrow exceptions are to be construed with an eye on ensuring the award holder is able to realize the fruits of the award without stretching the timeline and not allowing the judgment debtor to have second bite at the cherry. Thus, a consistent approach by the courts towards foreign arbitral awards is essential for building confidence in the international arbitration regime in India. The Supreme Court’s interpretation in NAFED v. Alimenta SA can be seen as nothing more than an exception to its general stance towards pro-enforcement. We anticipate the courts to exercise inherent discretion cautiously without prejudicing the award holder’s rights.

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ARBITRABILITY OF FRAUD RASHID RAZA VS. SADAF AKHTAR: CASE ANALYSIS

RAHUL SARASWAT

INTRODUCTIONIn recent years, alternative dispute resolution has become a booster for global commercial activities and has changed the traditional perception on the role of national judicial systems. Arbitration is a popular mechanism for alternative dispute resolution and has secured its status as a valuable tool for settlement of different disputes. Arbitration as a mode of resolution of commercial disputes is making serious inroads in Indian jurisprudence. The 1996 Arbitration Act has been amended thrice since 1940, to keep up with the best practices of international arbitration. The time is not far when India will emerge as an international hub for arbitration.

Arbitrability of a matter means whether it is capable of arbitration.1 The legislation neither defines arbitrability nor does it illustrate the matters which are capable of arbitration. However, the Supreme Court in Booz Allen2, not only defined arbitrability but also illustrated the matters which are incapable of settlement through arbitration. The most controversial issue w.r.t arbitrability was arbitrability of matters involving allegations of fraud. The Supreme Court in A. Ayyasamy3 (hereinafter to be referred as Division Bench) classified the allegations of fraud into “simple allegations” or “fraud simpliciter” and “serious allegations” or “complex fraud” and held that simple allegations of fraud are capable of arbitration, however, complex fraud permeates the entire contract and therefore, is not capable of arbitration. Moreover, this position has been reiterated by the three judges’ bench of the Supreme Court in Rashid Raza vs. Sadaf Akhtar4 wherein the bench narrowed down and streamlined the scope of arbitrability in fraud by laying down the twin tests.

1 Joseph Mante, Arbitrability and public policy: an African perspective, 33 OXFORD ARBITRATION INTERNATIONAL 277 (2017).

2 Booz-Allen & Hamilton Inc vs Sbi Home Finance Ltd. & Ors., AIR 2011 SC 2507.

3 A. Ayyasamy v. A. Paramasivam and Ors., (2016) 10 SCC 386.

4 (2019) 8 SCC 710

BRIEF FACTUAL BACKGROUND The allegations of siphoning of the funds and various other business improprieties, by one partner against another led to the dispute. As per the partnership deed, the partner invoked arbitration by filing a Section 11 petition before the High Court. The High Court rejected the petition by following the test laid down in Division Bench and held:

However, considening everything, the Court was of the firm view that the nature of the dispute involving serious allegations of fraud of complicated nature are not fit to be decided in an arbitration proceeding. The dispute may require voluminous evidence on the part of both the parties to come to a finding which can be only properly undertaken by a civil court of competent jurisdiction.

The petitioner challenged the decision of the High court by filing a special leave petition before the hon’ble Supreme Court of India.

DECISION BY THE BENCHThe Division Bench settled the law regarding arbitrability of disputes involving allegation of fraud. The Court has put it ‘simply’ by stating that the matters which involve simple allegations of fraud and touches upon the internal affairs would not affect the arbitration agreement and the contract whereby the parties can be referred to arbitration. However, in cases where there are serious allegations, the court must not refer such matters to arbitration as civil courts are more competent to deal with such matters. The Division Bench made a distinction between serious allegation of fraud and a simple allegation of fraud whereby the simple allegation of fraud does not permeate the entire contract and the arbitration agreement. This distinction was further made clear by the Division Bench whereby the Bench illustrated the serious allegation of fraud:

y Allegations which would make a case of criminal offence.


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y Allegations of fraud so complicated that it becomes essential that such complex issues can be decided only by civil court on the appreciation of the voluminous evidence that needs to be produced.

y Serious allegations of forgery/fabrication of documents in support of the plea of fraud.

y Where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself5.

The Supreme Court, in this matter, reiterated the above-mentioned law as laid down by the division bench and held that the dispute between the parties falls within the ambit of “simple allegation” and touches upon the internal affairs and therefore, the High Court erred in dismissing the petition of the appellant. The Court referred the parties to arbitration and appointed an arbitrator. Therefore, if the public at large is not being affected by allegations of fraud between the two disputing parties, the matters are capable of settlement through arbitration.

THE TWIN TESTThe Supreme Court in this matter built up on the Division Bench decision and streamlined the approach to be taken while determining the serious allegation of fraud. The Court culled out two working tests from the Division Bench decision:

1. Does this plea permeate the entire contract and above all, the agreement of arbitration, render-ing it null and void?

2. Whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain?

These twin tests now act as a guideline for the counsels and the arbitrators dealing with issues of fraud while adjudicating matters. Therefore, from the above discussion and position of law we can conclude that

5 A. Ayyasamy v. A. Paramasivam and Ors., (2016) 10 SCC 386.

matters involving allegation of fraud are arbitrable if they fall withing these three ambits:

1. Simple allegations which do not have any impact in the public domain.

2. The allegation does not vitiate the entire contract rendering it void; and

3. The allegation does not nullify the arbitration agreement.

CONCLUSION AND ANALYSIS The decision is in-fact a much-appreciated precedent on the issue of arbitrability of fraud. The Supreme Court has time and again taken a pro-arbitration approach and this decision will assist counsels and arbitrators facing such an issue. Though the Supreme Court has streamlined or narrowed the threshold for examining the arbitrability of matters involving the allegations of fraud still there remain three critical issues which require discussion:

1. The arbitration matters specially in construction or maritime, are presided over by arbitrators who are industry experts such as engineers, port captains etc. For such arbitrators it would be a tough and tedious task to examine the allegations of fraud and may require two court’s assistance or any expert assistance as fraud by its nature can be a civil or criminal action.

2. The Supreme Court in both Division Bench and the present matter forgot to refer to the 246th Law commission report which recommended:

“The Commission believes that it is important to set this entire controversy to a rest and make issues of fraud expressly arbitrable and to this end has proposed amendments to section 16”6

Not only the judiciary, the legislature also failed to embrace the recommendation in the amendments. Had the judiciary or the legislature emphasized on the recommendation, all frauds would be made arbitrable.

The Hon’ble Division Bench’s decision arose under Section 8 of the 1996 Act. However, the present matter arose under Section 11. It is a matter of concern as

6 246th Law commission report. Para 54, Pg. 28.

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under Section 11 the judiciary have to confine themselves to examination of the existence of arbitration agreement whereas, under section 8 the judiciary possesses a wider jurisdiction including the power of examining the arbitration agreement and deciding whether to refer the parties to arbitration or not.

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SEAMEC LTD. V. OIL INDIA LTD.: A CASE FOR PRICE VARIATION CLAUSE OVER CHANGE IN LAW CLAUSE

AISHWARYA SATPATHY

Before finalizing the contract price for any given project, a contractor has to factor in a number of elements ranging from cost of materials to the cost of complying with the legal and regulatory framework. Yet, involvement in a long-term works contract inadvertently means that the contractor has to face unpredictability with regards to fluctuation in prices of goods/materials or the introduction of a new law or change in legal scenario, compliance with which can significantly increase costs. Higher pre-estimation of such costs while placing bids might place the contractor at a risk of losing the tender, and if he quotes his price without factoring in these economic dynamics, he might incur losses. To account for such contingencies, works contract often contain a Price Variation Clause and a Change in Law Clause to allow alteration of contract price. These clauses safeguard the interest of the contractor against the element of speculation.

Apart from the usual unanticipated rise in market price of materials/goods/components in any given economy by way of inflation or changes in market conditions such as high demand, labour shortages, profit margins, etc., such fluctuations may also be brought about by the government’s effecting a change in legislation which may directly/indirectly mandate an increase/decrease in price of a certain good. There have been many instances where under powers granted to it, the government has increased the price of materials crucial to operations by enacting laws to that effect. This has often left contractors fraught with the issue of whether to raise claim for the differential price escalation under the Price Variation Clause or Change in Law clause, with many leaning towards the latter.

In the case of SEAMEC Ltd. v. Oil India Ltd.1, although the Supreme Court agreed that increase in the price of High-Speed Diesel had been by way of a government circular attracting the ‘Change in Law’ clause, yet the Arbitral Tribunal had erred by foregoing interpreting the contract as a whole – that the contract was granted on a ‘fixed price basis’ and variations to the contract price could not be permitted. Keeping aside the

1 Civil Appeal No. 673 of 2012 (decided on 11 May 2020).

controversial discussion surrounding the interference of the Court with the Arbitral Tribunal’s interpretation of the contract (under the ambit of S. 34 of the Arbitration and Conciliation Act, 1996), the mere inclusion of a Price Variation clause or a Change in Law clause in a works contract should imply that the parties had agreed to allocate risk of price escalation to the employer despite it being a fixed-sum contract. This article aims to draw the difference between Price Variation and Change in Law, while providing the best recourse against a situation similar to SEAMEC.

FUNDAMENTALS OF A PRICE VARIATION CLAUSE AND CHANGE IN LAW CLAUSEA typical Price Variation clause may read like:

“The Contract Price shall be adjusted for increase or decrease in rates and price of labour, cement, steel, plant, machinery and spares, fuel and lubricants and other material inputs in accordance with the principles, procedures and formulae specified.”

On the other hand, a Change in Law clause may read as:

“If, after the deadline set for Bid submission in the country where the Site is located, any law, regulation, ordinance, order or by-law having the force of law is enacted, promulgated, abrogated or changed (which shall be deemed to include any change in interpretation or application by the competent authorities) that subsequently affects the costs and expenses of the Contractor and/ or the Time for Completion, the Contract Price shall be correspondingly increased or decreased, and/ or the Time for Completion shall be reasonably adjusted to the extent that the Contractor has thereby been affected in the performance of any of its obligations under the Contract…”

It is obvious that while the Price Variation clause is given to account for fluctuations in market prices of commodities determined by employing formulae such

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as the Wholesale Price Index (WPI), the origin of Change in Law clause was to account for change in tax liabilities2 e.g., introduction of GST, implementation of safeguard/anti-dumping duties, etc. However, the scope of the latter has been widened to include all laws in force3 and not be just industry or sector specific.

Yet, it has been seen that despite courts recognizing a change in law which can artificially inflate the prices of materials essential to operations, they have been wont to disentitle the aggrieved party, i.e. the contractor of the reimbursement it sought under this clause citing some other contractual detriment.

SEAMEC LTD. V. OIL INDIA LTD.: BACKGROUNDSEAMEC Ltd. (Appellant) was awarded a contract by Oil India Limited (Respondent) in 1995, for drilling wells and other ancillary operations in Assam. While the operations were underway, the price of High-Speed Diesel (HSD) was increased through a Government of India circular (Govt. Circular). As HSD was crucial for drilling purpose, the Appellant raised a claim for the increased price, by invoking the Change in Law clause under the Contract.

The Arbitral Tribunal interpreted the clause liberally. It held that “while an increase in HSD price through a circular issued under the authority of State or Union is not a “law” in the literal sense, but has the “force of law” and thus falls within the ambit of Change in Law clause” and passed the award in favour of the Appellant. The Respondent’s application under Section 34 of the Act for setting aside the award was dismissed by the District Court stating that the award was not baseless, not against the public policy of India, nor patently illegal, and therefore, did not warrant interference. The decision of the District Court was further challenged before the Guwahati High Court in an appeal under Section 37 of the Act.

The High Court set aside the award on the ground that it overlooked the terms of the contract -the Change in Law clause was akin to a Force Majeure clause. Aggrieved by the decision of the High Court, the Appellant filed an appeal before the Supreme Court.

2 M/s Sumitomo Heavy Industries Ltd v. Oil & Natural Gas Company (AIR 2010 SC 3400).

3 Energy Watchdog v. Central Electricity Regulatory Commission ((2017) 14 SCC 80)

The Supreme Court noted that the Tribunal had considered the Govt. Circular as a change in law, not only due to the principles of interpretation, but also based on the testimony of the Respondent’s witness. This testimony cleared that the Respondent had been aware – even during the time of entering the Contract – that a change in fuel price was never brought about by a statutory enactment, but always through a Government Order, etc. Therefore, the change in law was broadly construed to include the Govt. circular.

However, according to the Court, the Tribunal should have taken into consideration all the clauses of the Contract. After perusing all the materials on record, the Court came to the conclusion that the parties had not agreed to a broad interpretation of the Change in Law clause, and therefore the Tribunal should have harmoniously constructed the contract as a whole. The Court also observed that the contract had been awarded on the basis of SEAMEC’s bid and that the rates, terms and conditions of the Contract were to be in force until the completion of the last well. To this end, the Court concluded that he Contract was awarded on a fixed price basis with no scope for price variation – that to mitigate the risk of the employer footing price fluctuations, the contractor had agreed to factor in the contingency into the contract price while submitting its final bid.

ANALYSIS OF THE SUPREME COURT’S DECISIONThe entire purpose of the clause was to specifically entitle the contractor to an increased price claim, in case the event in question caused the overall cost of undertaking the works to inflate for the contractor. The adjudication should have been limited to whether the event causing the increase in cost was indeed a ‘change in law’ – something that the Tribunal constrained itself to. Even if the parties had intended for the contract to be a fixed price contract, the inclusion of Change in Law clause, which has become an industry standard at this point, should imply that parties do anticipate price escalation on a limited aspect. The Supreme Court’s decision effectively not only rendered the clause superfluous, but also potentially added to the woes of a contractor who often has to suffer from unequal bargaining power with the government while negotiating contractual terms.


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RECOURSE TO PRICE VARIATION CLAUSEThe case of SEAMEC is a not a unique one where contractors have faced reluctance on part of the judiciary to acknowledge and implement change in law to the former’s benefit. In Energy Watchdog v. Central Electricity Regulatory Commission, even though the price of imported Indonesian coal was raised astronomically by the Indonesian Government, the Supreme Court refused to grant relief by way of compensatory tariff citing the Change in Law clause, stating that change in foreign law could not invoke said clause.

The presence and invocation of a Price Variation clause could have been beneficial in these cases. The Supreme Court has duly observed and held in the matter of Food Corporation of India v. AM Ahmed & Co.4 that even if there is no clause pertaining to price escalation, the contractor shall be entitled to same if the delay was attributable to employer. In this case, the Arbitral Tribunal found that there was escalation by way of statutory wage revision and therefore, came to the conclusion that it was reasonable to allow escalation under the same. Similar precedent was set by the Supreme Court in JG Engineers Pvt. Ltd. v. Union of India5 wherein it upheld an award entitling the contractor to price escalation despite it being conditional in term of the contract for the extended period of contract, wherein delay was attributable to the employer.

Even if the courts seem more inclined toward granting relief under an Price Escalation clause, it has to be borne in mind that an arbitrator must apply terms of contract for determining valuation of claim if it is a result of price variation of materials. In Bedi Construction Co. v. Delhi Development Authority6, it was held that if increase in prices of material purchased by contractor or labour rate is more than 10% of value of contract, then the contractor can only make a claim in respect of increase in prices that also for the amount which goes beyond 10% of the contract value. Thus, to a contractor it may seem more feasible to invoke a Price Variation clause to compensate for statutory increase of prices of materials given that the drafting of this clause is usually more forthcoming than a Change in Law clause, even though there is always a threshold to the relief that can

4 (AIR 2007 SC 829)

5 (AIR 2011 SC 2477)

6 ((2009) ILR Supp. 8 Del 52)

be granted under a Price Variation clause as opposed to a Change in Law clause.

***

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ANALYSIS OF THE REFUND PROCESS UNDER MCA21KUMAR DEEP

INTRODUCTION In order to avail various services offered by the Ministry of Corporate Affairs (MCA), under MCA21 system (i.e. online services), online payment is required to be made at the MCA website by a User (i.e. service seeker). At present the payment for MCA21 services may be made through different modes viz. Credit card/ Debit Card, NEFT, Net Banking and Challan (i.e. by generating Challan online and depositing the same with an authorized bank branch). While making payment for the MCA21 services, sometimes users make multiple payments or incorrect payment or excess payment at MCA portal. Therefore, the MCA has established a refund process so that users may claim the refund of such extra/additional/incorrect payments. The refund process is applicable for services related to Companies and Limited Liabilities Partnerships (LLPs).

CIRCUMSTANCES IN WHICH REFUND PROCESS MAY BE INITIATED The process of refund under MCA21 may be initiated in the following circumstances:

1. IN CASE OF MULTIPLE PAYMENTS When the user makes multiple filings of eForm No. INC-2/INC-7/old Form 1 or INC-29/ eForm 2 LLP or eForm No. SH-7/old Form 5 or eForm 3LLP and makes multiple payments i.e. more than once for the same form/service then refund process may be initiated by such user. It may be noted that in case any filed form has been approved by the concerned Registrar of Companies (ROC), then refund shall not be allowed for such approved e-Form.

Instances of multiple payments may occur due to different issues like a technical problem at the MCA payment gateway or MCA system responding slowly due to slow network or a session timeout at the time of making payment for filing eform. Due to such reasons, the amount may be debited from the payees' account but the receipt of such payment may not be generated compelling the user to make multiple payments for the same eForm. Therefore, the MCA has allowed refund for such multiple payments to the users.

2. IN CASE OF INCORRECT PAYMENTSCertain payments may be made by a user through an incorrect option under Pay Miscellaneous fee facility in respect of MCA filing fees and/or stamp duty fees. There may be instances when payment of stamp duty fee may be made into account identified for MCA filing fee or payment of MCA filing fee may be made into account identified for stamp duty fee. Further, there may be other reasons due to which payment may be incorrectly made by a user to the account of MCA. Such reasons may be payment after expiry of SRN due date or payment made without any SRN or payment of fee related to CLB or other regulatory authorities paid through Pay Miscellaneous fee. In such situations, the MCA allows refund of payments which are incorrectly made by users.

3. IN CASE OF EXCESS PAYMENTSometimes a user may make excess payment due to some incorrect data entered in the e-Form or incorrect data entered in the MCA21 system. There may be some additional payment by the user due to the delay in filing of eform on account of technical problems of the MCA system. In such circumstances, the payment which are in addition or excess to the required sum may be refunded by the MCA to the ser.

4. IN CASE OF INCORRECT PAYMENT VIA NEFTWhen a user has selected NeFT as mode of payment and makes an error as specified in the above three points while making payment with the MCA, then the refund may be claimed for such incorrect payment by the user.

5. PROCESS TO INITIATE REFUNDA user may initiate refund process by filing the Refund Form with the MCA. The Refund Form for claiming refund is available at the MCA website. It is worth noting here that the Refund Form can be filed only with respect to such transactions whose payment status shows as ‘PAID’ at the MCA portal. Further, no filing fee is required for filing the said Refund Form. However, the user is required to mandatorily attach with the Refund Form, the copy of challan duly acknowledged by the bank in respect of SRN for which


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refund is sought and scanned copy of cancelled cheque of the user. In addition to these documents, any other information/document may be provided as an optional attachment with the Refund Form.

The Refund Form may be filed only for claiming refund of such fees which relate to MCA21 services and hence, any amount of stamp duty cannot be claimed for refund under this process. In order to claim refund of stamp duty, the user is required to make request for such refund with the concerned state/ union territory. The Refund Form also cannot be filed for payments related to Public Inspection of documents and Request for Certified Copies.

It is also provided that there shall be a deduction in the amount to be refunded based on time period within which refund eForm is filed. Accordingly, the time slab for filing the Refund Form and the corresponding deduction in refund amount is as under:

Time within which refund application is made

Default value for deduction

0-90 days 2.5%91-180 days 5%181- 270 days 7.5%271-365 days 10%365 days 25%

Therefore, in order to get maximum amount of refund, the Refund Form should be filed within the stipulated time period as shown above. It is however, to be noted that there will be no deduction for refund of such fees which has been made via NeFT. Further, the maximum time allowed to file the Refund Form is 1095 days of making payment, meaning thereby, that no refund will be granted in case Refund Form is filed after 1095 days of the date of payment originally made by the user.

After filing the Refund Form with the MCA, the same shall be processed and necessary intimation through email shall be sent by the MCA to the user regarding approval or rejection of the said filed Refund Form. Where the Form is found to be eligible for refund, an intimation of the same via email shall be sent by MCA to the user along with the format of G.A.R 33 form.

Then the user is required to take print out of the said G.A.R 33 form, fill the required details therein and send the same to the Drawing and Disbursement Officer, Ministry of Corporate Affairs at Room No. 580A, 5th Floor, “A” Wing, Shastri Bhawan, Rajendra Prasa

new indian legal impetus - singh & associates · 2020. 8. 29. · singh and associates 1 mano singh...

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