1. Mankastu Impex Private Limited v.

Airvisual Limited, Arbitration Petition

No. 32 of 2018, Judgment dated March 5, 2020
Issue: Whether on facts, the parties had agreed that the seat of arbitration is at Hong Kong? If
yes, whether the application filed under Section 11(6) of the Arbitration and Conciliation Act,
1996 (hereinafter referred to as 'the Act') is maintainable to a foreign seated arbitration?

Relevant facts are that Clause 17 of the agreement relating to dispute resolution provided as
under:

"17. Governing Law and Dispute Resolution

17.1 This MoU is governed by the laws of India, without regard to its conflicts of laws
provisions and courts at New Delhi shall have the jurisdiction.

17.2 Any dispute, controversy, difference or claim arising out of or relating to this MoU,
including the existence, validity, interpretation, performance, breach or termination thereof or
any dispute regarding non-contractual obligations arising out of or relating to it shall be referred
to and finally resolved by arbitration administered in Hong Kong. The place of arbitration shall
be Hong Kong. The number of arbitrators shall be one. The arbitration proceedings shall be
conducted in English language.

17.3 It is agreed that a party may seek provisional, injunctive, or equitable remedies, including
but not limited to preliminary injunctive relief, from a court having jurisdiction, before, during or
after the pendency of any arbitration proceeding."

Petitioner had contended that in view of Clause 17.1, the parties had agreed that the proper law
of the contract is the laws of India and the same would also govern the curial law as the MoU
was silent on that aspect. The Respondent submitted that Clause 17.2 of MoU provides that "all
disputes arising out of MoU shall be referred to and finally resolved and administered in Hong
Kong. Therefore, the arbitration would be seated at Hong Kong.

Referring to its earlier decision in Enercon (India) Limited v. Enercon GMBH (2014) 5 SCC 1,
the Supreme Court observed that the location of the Seat will determine the courts that will have
exclusive jurisdiction to oversee the arbitration proceedings and the Seat normally carries with it
the choice of that country's arbitration/curial law.

It further held that that mere expression "place of arbitration" cannot be the basis to determine
the intention of the parties that they have intended that place as the "seat" of arbitration. The
intention of the parties as to the "seat" should be determined from other clauses in the agreement
and the conduct of the parties. On facts, the Supreme Court pointed out that the agreement
between the parties choosing Hong Kong as the place of arbitration by itself will not lead to the
conclusion that parties have chosen Hong Kong as the seat of arbitration. The words, "the place
of arbitration" shall be "Hong Kong", have to be read along with Clause 17.2. The Court noted
that Clause 17.2 provides that "....any dispute, controversy, difference arising out of or relating to
the MoU "shall be referred to and finally resolved by arbitration administered in Hong Kong.....".
The Court opined that the reference to Hong Kong as "place of arbitration" is not a simple
reference as the "venue" for the arbitral proceedings; but a reference to Hong Kong is for final
resolution by arbitration administered in Hong Kong. The agreement between the parties that the
dispute "shall be referred to and finally resolved by arbitration administered in Hong Kong"
clearly suggests that the parties have agreed that the arbitration be seated at Hong Kong and that
laws of Hong Kong shall govern the arbitration proceedings as well as have power of judicial
review over the arbitral award. The Court, therefore, held:

"22.... The words in Clause 17.2 that "arbitration administered in Hong Kong" is an indicia that
the seat of arbitration is at Hong Kong. Once the parties have chosen "Hong Kong" as the place
of arbitration to be administered in Hong Kong, laws of Hong Kong would govern the
arbitration. The Indian courts have no jurisdiction for appointment of the arbitrator."

It further held that the words in Clause 17.1 do not suggest that the seat of arbitration is in New
Delhi. The Court further referred to its earlier decision in Eitzen Bulk A/S v. Ashapura
Minechem Ltd. and another (2016) 11 SCC 508 to iterate that when the parties have chosen a
place of arbitration in a particular country, that choice brings with it submission to the laws of
that country. It referred to Section 2(2) of the Act and observed that since "Part-I is not
applicable to International Commercial Arbitrations, in order to enable the parties to avail the
interim relief, Clause 17.3 appears to have been added."

Since the arbitration was held to be seated at Hong Kong, the petition filed by the Petitioner
under Section 11(6) of the Act was found not maintainable.

2. Vijay Karia and Others v. Prysmian Cavi E Sistemi SRL and others, Civil
Appeal Nos. 1544-45 OF 2020, Judgment dated February 13, 2020
Issue: Scope of challenge to the enforcement of foreign arbitral award under Section 48 of the
Arbitration and Conciliation Act, 1996?

Brief facts are that the Joint Venture Agreement (JVA) was entered between Ravin Cables
Limited (Ravin), Mr. Vijay Karia and other non-corporate shareholders of Ravin and Prysmian
Cavi E Systemi SRL, an Italian based company. Disputes arose and the same were referred to
London seated arbitral tribunal governed by English law. The sole arbitrator appointed under the
London Court of International Arbitration Rules, 2014, passed an award in favor of Prysmian.
Appellants who are shareholders of Ravin represented by Mr. Vijay Karia did not assail the
award before the English Courts but approached the Indian courts with objections to the said
award made under Section 48 of the Arbitration and Conciliation Act, 1996 when it was brought
to India for recognition and enforcement. The High Court found that the award must be
recognized and enforced as the objections did not fall under Section 48 of the Act. The
Appellants filed Special Leave Petitions against the High Court's order of recognition and
enforcement of the foreign award.

The Appellants had challenged the foreign award on the grounds that they were unable to present
their case before the arbitral tribunal,1 the tribunal failed to deal with the contentions raised by
the Appellants, and the enforcement is against the public policy of India2 as it is in contravention
with fundamental policy of Indian law3 and in conflict with basic notions of justice.4

The Supreme Court extensively dealt with the law on Enforcement of Foreign Awards and its
development in India and general approach in other jurisdictions. It observed that enforcement of
a foreign award may under Section 48 of the Act be refused only if the party resisting
enforcement furnishes to the Court proof that any of the stated grounds has been made out to
resist enforcement. The said grounds are watertight - no ground outside Section 48 can be looked
at. Also, the expression used in Section 48 is "may".

It further held that the grounds for resisting enforcement of a foreign award under Section 48
may be classified into three groups - grounds which affect the jurisdiction of the arbitration
proceedings; grounds which affect party interest alone; and grounds which go to the public
policy of India, as explained by Explanation 1 to Section 48(2).

Where a ground to resist enforcement is made out, by which the very jurisdiction of the tribunal
is questioned - such as the arbitration agreement itself not being valid under the law to which the
parties have subjected it, or where the subject matter of difference is not capable of settlement by
arbitration under the law of India, there can be no discretion in these matters. Enforcement of a
foreign award made without jurisdiction cannot possibly be weighed in the scales for a discretion
to be exercised to enforce such award if the scales are tilted in its favour. On the other hand,
where the grounds taken to resist enforcement can be said to be linked to party interest alone, for
example, that a party has been unable to present its case before the arbitrator, and which ground
is capable of waiver or abandonment, or, the ground being made out, no prejudice has been
caused to the party on such ground being made out, a Court may well enforce a foreign award,
even if such ground is made out. When it comes to the "public policy of India" ground, again,
there would be no discretion in enforcing an award which is induced by fraud or corruption, or
which violates the fundamental policy of Indian law, or is in conflict with the most basic notions
of morality or justice. It can thus be seen that the expression "may" in Section 48 can, depending
upon the context, mean "shall" or as connoting that a residual discretion remains in the Court to
enforce a foreign award, despite grounds for its resistance having been made out. What is clear is
that the width of this discretion is limited to the circumstances pointed out hereinabove, in which
case a balancing act may be performed by the Court enforcing a foreign award.

The Court further held that given the fact that the object of Section 48 is to enforce foreign
awards subject to certain well-defined narrow exceptions, the expression "was otherwise unable
to present his case" occurring in Section 48(1)(b) cannot be given an expansive meaning and
would have to be read in the context and colour of the words preceding the said phrase. In short,
this expression would be a facet of natural justice, which would be breached only if a fair hearing
was not given by the arbitrator to the parties. Read along with the first part of Section 48(1)(b), it
is clear that this expression would apply at the hearing stage and not after the award has been
delivered, as has been held in Ssangyong.5 A good working test for determining whether a party
has been unable to present his case is to see whether factors outside the party's control have
combined to deny the party a fair hearing. Thus, where no opportunity was given to deal with an
argument which goes to the root of the case or findings based on evidence which go behind the
back of the party and which results in a denial of justice to the prejudice of the party; or
additional or new evidence is taken which forms the basis of the award on which a party has
been given no opportunity of rebuttal, would, on the facts of a given case, render a foreign award
liable to be set aside on the ground that a party has been unable to present his case. This must, of
course, be with the caveat that such breach be clearly made out on the facts of a given case, and
that awards must always be read supportively with an inclination to uphold rather than destroy,
given the minimal interference possible with foreign awards under Section 48.

However, if a foreign award fails to determine a material issue which goes to the root of the
matter or fails to decide a claim or counter-claim in its entirety, the award may shock the
conscience of the Court and may be set aside on the ground of violation of the public policy of
India, in that it would then offend a most basic notion of justice in this country. It must always be
remembered that poor reasoning, by which a material issue or claim is rejected, can never fall in
this class of cases. Also, issues that the tribunal considered essential and has addressed must be
given their due weight - it often happens that the tribunal considers a particular issue as essential
and answers it, which by implication would mean that the other issue or issues raised have been
implicitly rejected. For example, two parties may both allege that the other is in breach. A
finding that one party is in breach, without expressly stating that the other party is not in breach,
would amount to a decision on both a claim and a counter-claim, as to which party is in breach.
Similarly, after hearing the parties, a certain sum may be awarded as damages and an issue as to
interest may not be answered at all. This again may, on the facts of a given case, amount to an
implied rejection of the claim for interest. The important point to be considered is that the
foreign award must be read as a whole, fairly, and without nit-picking. If read as a whole, the
said award has addressed the basic issues raised by the parties and has, in substance, decided the
claims and counter-claims of the parties, enforcement must follow.

The Court further held that a rectifiable breach under FEMA can never be held to be a violation
of the fundamental policy of Indian law. The Court rejected all the grounds of challenge made
against the foreign award and dismissed the appeals.

3. Dyna Technologies Pvt. Ltd v. Crompton Greaves Ltd, Civil Appeal No. 2153
of 2010, Judgment dated December 18, 2019
Issue: Whether the Arbitral Award is required to state the reasons on which it is based in view of
Section 31(3) of the Arbitration and Conciliation Act, 1996?

The brief facts of the case are that there was a contract between the Principal i.e. DCM Shriram
Aqua Foods Limited and Crompton Greaves Limited for an aquaculture unit to be set up by the
former. Crompton Greaves Limited issued a work order to the Appellant Dyna Technologies Pvt
Ltd. regarding construction of ponds, channels, drains and associated works. After the
commencement of work, Crompton Greaves terminated the contract. Dyna Technologies claimed
compensation for such premature termination of contract and ultimately the dispute was referred
to Arbitral Tribunal. The controversy revolved around the Claim No.2 related to losses due to
unproductive use of machineries which was accepted by the Arbitral Tribunal in its award.

The said award was challenged under Section 34 of the Act by Crompton Greaves Ltd before the
Single Judge of Madras High Court who had upheld the award. In appeal before the Division
Bench, the award was set aside as the same was found deficient due to lack of reasoning. The
option of Section 34(4) of the Act was found not necessary as the compensation could not be
claimed in terms of the provisions of the work order. Being aggrieved, Dyna Technologies
approached the Supreme Court.

The Supreme Court noted that India adopts a default rule to provide for reasons unless the parties
agree otherwise. It observed that the mandate under Section 31(3) of the Act is to have reasoning
which is intelligible and adequate and, which can in appropriate cases be even implied by the
Courts from a fair reading of the award and documents referred to thereunder, if the need be. The
aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having
regard to the speedy resolution of dispute. It further observed:

"37. When we consider the requirement of a reasoned order three characteristics of a reasoned
order can be fathomed. They are: proper, intelligible and adequate. If the reasoning in the
order are improper, they reveal a flaw in the decision-making process. If the challenge to an
award is based on impropriety or perversity in the reasoning, then it can be challenged strictly
on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is
based on the ground that the same is unintelligible, the same would be equivalent of providing
no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons,
the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an
award based on the degree of particularity of reasoning required having regard to the nature of
issues falling for consideration. The degree of particularity cannot be stated in a precise manner
as the same would depend on the complexity of the issue. Even if the Court comes to a
conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal,
the Court needs to have regard to the documents submitted by the parties and the contentions
raised before the Tribunal so that awards with inadequate reasons are not set aside in casual
and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside,
subject to party autonomy to do away with the reasoned award. Therefore, the courts are
required to be careful while distinguishing between inadequacy of reasons in an award and
unintelligible awards.

38. At this juncture it must be noted that the legislative intention of providing Section 34(4) in
the Arbitration Act was to make the award enforceable, after giving an opportunity to the
Tribunal to undo the curable defects. This provision cannot be brushed aside and the High Court
could not have proceeded further to determine the issue on merits.

39. In case of absence of reasoning the utility has been provided under Section 34(4) of the
Arbitration Act to cure such defects. When there is complete perversity in the reasoning then
only it can be challenged under the provisions of Section 34 of the Arbitration Act. The power
vested under Section 34(4) of the Arbitration Act to cure defects can be utilized in cases where
the arbitral award does not provide any reasoning or if the award has some gap in the
reasoning or otherwise and that can be cured so as to avoid a challenge based on the aforesaid
curable defects under Section 34 of the Arbitration Act. ....."

The Court observed that the award is confusing and has jumbled the contentions, facts and
reasoning, without appropriate distinction. It observed that the Arbitral Tribunal abruptly
concluded at the end of the factual narration, without providing any reasons and given the
complexity of the subject matter, the award was found unintelligible and could not be sustained.

4. BGS SGS SOMA JV (Joint Venture) V. NHPC Limited Civil Appeal Nos.
9307-09 of 2019, Judgment dated December 10, 2019
Issues

 Whether appeal is maintainable under Section 37 of the Arbitration and Conciliation

Act, 1996 against the order of return of the petition filed under Section 34 of the Act
directing such petition to be presented before the court having jurisdiction to entertain
the same?

 Whether the venue of arbitration proceedings, as agreed by the parties in an agreement,

can be considered as the 'seat' of arbitral proceedings?

The brief facts are that a construction contract was issued by the Respondent National
Hydroelectric Power Corporation Limited (NHPC) to the Petitioner BGS SGS SOMA JV for the
hydroelectric power plant on the Subansri River in Assam. The contract contained an Arbitration
clause which stated that "Arbitration proceedings shall be held at New Delhi/Faridabad".
Disputes arose and arbitration clause was invoked accordingly. The Arbitral Tribunal held at
New Delhi passed an award in favor of the Petitioner. Aggrieved by the award, Respondent filed
an application under Section 34 of the Act before the District Courts at Faridabad (which was
later transferred to the Commercial Court at Gurugram). The Petitioner filed an application under
Section 151 read with Order VII Rule 10 of the CPC and Section 2(1)(e)(i) of the Arbitration
Act, 1996, seeking a return of the petition filed under Section 34 for presentation before the
appropriate Court at New Delhi and/or the District Judge at Dhemaji, Assam.

The Commercial Court, Gurugram allowed the application and returned the Section 34 petition
to NHPC, to be filed before the proper court in New Delhi. NHPC filed an appeal under Section
37 of the Act before the Punjab and Haryana High Court. Allowing the appeal, the High Court
held that the appeal filed under Section 37 of the Act was maintainable and that Delhi being only
a convenient venue where arbitral proceedings were held and not the seat of the arbitration
proceedings, Faridabad would have jurisdiction on the basis of the cause of action having arisen
in part in Faridabad. It set aside the District Judge's order of return of the Section 34 Petition.
The Petitioner moved before the Supreme Court against the High Court's judgment.

The Supreme Court formulated the following issues for its consideration:

1. Whether the appeal against the order of return of the petition filed under Section 34 is
maintainable under Section 37 of the Act?

2. Given the arbitration clause in these proceedings, whether the "seat" of the arbitration
proceedings is New Delhi or Faridabad, consequent upon which a petition under Section
34 of the Act may be filed dependent on where the seat of arbitration is located?

After referring to the interplay between Section 37 of the Arbitration Act, 1996 and Section 13 of
the Commercial Courts Act, 2015, as laid down in its earlier judgment in Kandla Export
Corporationv.OCI Corporation,(2018) 14 SCC 715, the Supreme Court observed that there is no
independent right of appeal under Section 13(1) of the Commercial Courts Act, 2015, which
merely provides the forum of filing appeals. The parameters of Section 37 of the Arbitration Act,
1996 alone would have to be looked at in order to determine whether the appeals were
maintainable. It further held that the refusal to set aside an arbitral award must be under Section
34, i.e., after the grounds set out in Section 34 have been applied to the arbitral award in
question, and after the Court has turned down such grounds. In the present case, there was no
adjudication under Section 34 of the Arbitration Act, 1996. The Court also agreed with the
reasoning given in the Delhi High Court's decision in Hamanprit Singh Sidhuv.Arcadia Shares
& Stock Brokers Pvt. Ltd., (2016) 234 DLT 30 (DB) in this regard. It further went on to observe
the settled law that the right to appeal is not an inherent right but a creature of statute i.e. an
appeal can be preferred only where expressly permitted by law. Hence, it was concluded that the
appeals were not maintainable under Section 37 of the Act.

On the second issue, the Supreme Court scrutinized the paragraph 96 of BALCO case6 and
observed that merely relying on paragraph 96 would not be enough as it is not in accordance
with the rest of the judgment. It further referred to its earlier decisions in Enercon (India) Ltd. v.
Enercon GmbH, (2014) 5 SCC 1 and Reliance Industries Ltd. v. Union of India, (2014) 7 SCC
603 and observed that once the seat of arbitration is chosen, it amounts to an exclusive
jurisdiction clause for courts at that seat. It further observed that BALCO had placed reliance
upon the English judgment of Roger Shashoua & others v. Mukesh Sharma [2009] EWHC 957
(Comm) and the principle laid down by the said judgment that wherever there is an express
designation of a "venue," and no designation of any alternative place as the "seat," combined
with a supranational body of rules governing the arbitration, and no other significant contrary
indicia, the inexorable conclusion is that the stated venue is actually the juridical seat of the
arbitral proceeding.

It further held that the 3-judge bench decision in Union of India v Hardy Exploration (2019) 13
SCC 472 was contrary to the 5-judge BALCO as it did not apply the English principle laid down
in Roger Shashoua (which was approved in BALCO).

The Supreme Court finally held that the parties had agreed the arbitration proceedings to be held
at New Delhi and, therefore, New Delhi would be the seat of arbitration and it would have
exclusive jurisdiction to hear the application filed under Section 34 of the Act.

5. Perkins Eastman Architects Dpc & Another v. HSCC (India) Limited, Arbitration Application
No. 32 of 2019, Judgment dated November 26, 2019

Issue: Whether a party having an interest in the outcome or decision of a dispute can appoint a
Sole Arbitrator for the adjudication of the dispute?

The brief facts are that the Applicants were appointed as Design Consultants for comprehensive
planning and designing by the Respondent and the contract was entered into between the parties.
Respondent issued termination notice to Applicants alleging non-compliance of contractual
obligations on the part of Applicants, which assertions were denied. Clause 24 of the agreement
with respect to the arbitration was invoked relevant part of which stated that disputes or
difference shall be referred for adjudication through arbitration by a sole arbitrator appointed by
the Chairman and Managing Director, HSCC within 30 days from the receipt of request from the
designing consultant. It further stated that no other person other than a person appointed by such
CMD as aforesaid should act as arbitrator. The Chairman and Managing Director of the
Respondent appointed a sole arbitrator, after 30 days of receipt of request.

After deciding on facts that the application filed under Section 11(6) of the Act is maintainable
before it, the Supreme Court observed that as per Clause 24 of the agreement, only the Chairman
and Managing Director (CMD) of HSCC has an authority to appoint a sole arbitrator. It referred
to its earlier decisions in TRF Limited v Energo Engineering Projects Limited (2017) 8 SCC
377 wherein it was held that the Managing Director of a party himself was disqualified to act as
an arbitrator by operation of law under Section 12(5) of the Act.

The Supreme Court further observed:

"20. We thus have two categories of cases. The first, similar to the one dealt with in TRF
Limited where the Managing Director himself is named as an arbitrator with an additional
power to appoint any other person as an arbitrator. In the second category, the Managing
Director is not to act as an arbitrator himself but is empowered or authorised to appoint any
other person of his choice or discretion as an arbitrator. If, in the first category of cases, the
Managing Director was found incompetent, it was because of the interest that he would be said
to be having in the outcome or result of the dispute. The element of invalidity would thus be
directly relatable to and arise from the interest that he would be having in such outcome or
decision. If that be the test, similar invalidity would always arise and spring even in the second
category of cases. If the interest that he has in the outcome of the dispute, is taken to be the basis
for the possibility of bias, it will always be present irrespective of whether the matter stands
under the first or second category of cases. We are conscious that if such deduction is drawn
from the decision of this Court in TRF Limited, all cases having clauses similar to that with
which we are presently concerned, a party to the agreement would be disentitled to make any
appointment of an Arbitrator on its own and it would always be available to argue that a party
or an official or an authority having interest in the dispute would be disentitled to make
appointment of an Arbitrator.

21. But, in our view that has to be the logical deduction from TRF Limited. Paragraph 50 of the
decision shows that this Court was concerned with the issue, "whether the Managing Director,
after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator" The
ineligibility referred to therein, was as a result of operation of law, in that a person having an
interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as
an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such
person cannot and should not have any role in charting out any course to the dispute resolution
by having the power to appoint an arbitrator. The next sentences in the paragraph, further show
that cases where both the parties could nominate respective arbitrators of their choice were
found to be completely a different situation. The reason is clear that whatever advantage a party
may derive by nominating an arbitrator of its choice would get counter balanced by equal power
with the other party. But, in a case where only one party has a right to appoint a sole arbitrator,
its choice will always have an element of exclusivity in determining or charting the course for
dispute resolution. Naturally, the person who has an interest in the outcome or decision of the
dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence
of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 and
recognised by the decision of this Court in TRF Limited."

The Supreme Court also made reference to sub-para (vii) of paragraph 48 of its earlier decision
in Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd (2009) 8 SCC 520 laying down that if
there are justifiable doubts as to the independence and impartiality of the person nominated, and
if other circumstances warrant appointment of an independent arbitrator by ignoring the
procedure prescribed, such appointment can be made by the Court.

The Apex Court further referred to Voestapline Schienen Gmbhv.Delhi Metro Rail Corpn. Ltd.
(2017) 4 SCC 665 and the 246th Report of the Law Commission of India and allowed the
application filed under Section 11(6) of the Act by appointing a Sole Arbitrator to decide the
disputes between the parties arising out of the agreement.

6. M/s Canara Nidhi Limited v. M Shashikala And Others, Civil Appeal Nos.
7544-45 of 2019, Judgment dated September 23, 2019
Issue: Whether the parties can adduce evidence to prove the specified grounds under Section
34(2) in an application filed under Section 34 of the Arbitration and Conciliation Act, 1996?

Brief facts are that the Appellant Financial Institution advanced a loan to the Respondent No.1
and the other respondents stood as guarantors. Dispute arose as the Respondent failed to repay
the loan and it was referred to arbitration as per the arbitration clause in the agreement. The
Arbitrator, after the submission of oral and documentary evidence, passed an award and directed
the Respondents to pay the principal amount along with the interest. Assailing the award,
Respondents filed an application under Section 34 of the Act before the District Judge.
Respondents also filed an Application under Section 151 of CPC to permit the Respondents to
adduce fresh evidence. The said application was was dismissed by the court stating that there is
no necessity of adducing fresh evidence. Aggrieved by the dismissal of the application,
Respondent No.1 moved to the High Court and filed a writ petition. The High Court, after
referring to the judgment in Fiza Developers and Inter Trade Private Limited v AMCI (India)
Private Limited and Another (2009) 17 SCC 796, directed the District Judge to "recast the
issues" and allowed the Respondents to file affidavits of their witnesses with corresponding
opportunity to the Appellant. Aggrieved by the High Court decision, Appellant moved to the
Supreme Court and filed an appeal under the same.

The Supreme Court observed that in Fiza Developers, the question which arose for consideration
by the Court was whether issues as contemplated under Order XIV Rule 1 of the CPC should be
framed in the application under Section 34 of the Act and the Court had answered the same in the
negative. The Supreme Court further observed legislative changes after the decision in Fiza
Developers and noted that Section 34 of the Act was amended with insertion of sub-section (5)
and (6) w.e.f. 23.10.2015. It further referred to the Report of Justice B.N Srikrishna
Committee and the amendment made to Section 34 by the Amendment Act of 2019 which had
substituted the words 'furnishes proof that' with the words 'establishes on the basis of Arbitral
Tribunal's record that' in Section 34(2)(a) of the Act. The Court further referred to its earlier
decision in Emkay Global Financial Services Ltd v. Girdhar Sondhi (2018) 9 SCC 49 which
had held that the decision in Fiza Developers must be read in the light of the amendment made in
Section 34(5) and 34(6).

The Supreme Court clarified the legal position that the application filed under Section 34 will not
ordinarily require anything beyond the record that was before the arbitrator and the cross-
examination of persons swearing into the affidavits should not be allowed unless absolutely
necessary. Applying the above principles, the Supreme Court found no exceptional circumstance
to grant opportunity to the Respondents to file affidavits and to cross examine the witnesses and
allowed the appeal.

Footnotes

1. Section 48(1)(b)

2. Section 48(2)(b) of the Arbitration and Conciliation Act, 1996.

3. Explanation 1(ii) to Section 48(2) of the Arbitration and Conciliation Act, 1996.

4. Explanation 1(iii) to Section 48(2) of the Arbitration and Conciliation Act, 1996.

5. Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India

(NHAI) Civil Appeal No. 4779 of 2019

6. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552.
India: Case Study - Hindustan Construction Company Limited And Anr. v.
Union Of India And Ors*
13 January 2020

by Economic Laws Practice

Economic Laws Practice

Why is the decision so important?

On 27 November 2019, the Supreme Court of India (SC), delivered a seminal verdict in the case
of Hindustan Construction Company Limited & Anr. v. Union of India & Ors. wherein, inter
alia2, the constitutional validity of Section 87 of the Arbitration and Conciliation Act, 1996 (Act)
was challenged.

Award holders in India have historically had an arduous time realizing the proceeds of an award
when awards are challenged by award debtors and the enforcement proceedings are
automatically stayed. By the present decision, the SC, under the Act, has given means to an
award holder to secure a part or whole of the award amount pending the outcome of the
petition to set aside the award under the Act. The award debtor, pending the outcome of the
challenge to the award, is compelled to file an application for stay against the enforcement of the
award wherein it may be required to deposit the award amount in court. This position which was
made available through the Arbitration and Conciliation (Amendment) Act, 2015 (2015
Amendment Act) has now been extended to even those matters which commenced prior to 23
October 2015.

What is the background of the case?

1996

A key issue under the Act was that a petition for setting aside the award, filed under section 34
by an award debtor, meant an automatic stay against the enforcement of the award3. This seemed
antithetical to the nature of arbitration, i.e., a speedy and efficacious alternate dispute resolution
mechanism. Therefore, an award holder could not realize the amounts under an award, until the
setting aside petition was finally disposed.

2015

The above dichotomy, amongst others, was sought to be rectified by 2015 Amendment Act
whereby under section 36(3) the award debtor was now required to make a specific application
seeking a stay against the enforcement of the award. The said stay could be granted by the court
subject to conditions including deposit of the award amount. Soon after the 2015 Amendment
Act came into force, questions arose as to the applicability of the 2015 Amendment Act i.e.
whether it was applicable retrospectively or prospectively. In the ensuing months companies that
had received arbitral awards in their favor were unsure if the awards were enforceable or would
suffer the fate of an automatic stay. Thus, section 26 of the 2015 Amendment Act, which dealt
with the applicability thereof came under judicial scrutiny in various courts across the country.

2017

In the meanwhile, the ambiguity was noted by the Srikrishna Committee Report4 in 2017. The
said report recommended that certainty ought to be brought about by clarifying that the 2015
Amendment Act was prospective in nature.

The Supreme Court's decision in BCCI5

Before a legislative clarification on the applicability of the 2015 Amendment Act could be made,
the SC in BCCI v. Kochi Cricket Private Limited (BCCI) clarified that while the 2015
Amendment Act was prospective in nature, the change brought about in the position vis-à-vis the
erstwhile automatic stay against enforcement, was retrospectively applicable. Thus, even for
arbitrations pre-dating October 23, 2015, the award holder could not be simply shut out by a
pending setting aside petition against the award.

2019

Unfortunately, despite the observation of the SC in BCCI, the legislature, enacted the Arbitration
and Conciliation (Amendment) Act, 2019 (2019 Amendment Act), repealing section 26 of the
2015 Amendment Act and clarifying through section 87 that the 2015 Amendment Act was
prospectively applicable only. This meant that those companies which (in pending matters) had
relied upon the BCCI decision to claim benefit of the section 36(3) of the Act and the provisions
for enforcement, were forced to reevaluate their positions.

The Issue before the SC

These companies (Petitioners) hence moved the SC, by way of a writ, challenging the
constitutionality of section 87 introduced by the 2019 Amendment Act, the repeal of section 26
of the 2015 Amendment, as also certain provisions of IBC.

What was the verdict and reasoning?

The SC agreed with the Petitioners that the reading of the unamended Act leads to the conclusion
that there was a conscious deviation from the UNCITRAL Model Law by not allowing two bites
at the cherry to an award debtor, i.e., one during setting aside proceedings under section 34 and
one during enforcement proceedings under section 36. The SC read section 35 (which deals with
finality of an award) along with section 34 and 36 to state that it was never intended that a setting
aside petition would automatically stay enforcement.
This obviously was a complete departure from the earlier position that had been stated by the SC
itself. In NALCO6, Fiza7 and National Buildings8 the SC had held that a setting aside petition
would inherently stay the enforcement of an award. Thus, in the decision under discussion, while
coming to its conclusion as above, the SC expressly overruled these decisions.9

The SC also relied upon section 9, which enables a party to apply for interim reliefs after making
of the award but before it is enforced, in support of the conclusion that the award is enforceable
and there is no automatic stay against enforcement upon the filing of a setting aside petition. The
SC clarified that even under the Act, there was never any automatic stay intended and that the
2015 Amendment Act was merely clarificatory in this regard. By extension, the SC implied that
the 2015 Amendment Act was therefore retrospectively applicable.

The SC clarified that having held that there was no automatic stay under the unamended Act, the
2015 Amendment Act was only introduced to clarify such position. Therefore, section 87 was
contrary to the object sought to be achieved by the 2015 Amendment Act as it sought to make
the 2015 Amendment Act only applicable from 23 October 2015. Further, the legislature without
referring to the BCCI decision which had pointed out the pitfalls of introducing such a provision,
had brought into play a provision that was manifestly arbitrary, without adequately determining
principle, and contrary to public interest. The SC agreed with the Petitioner that the introduction
of section 87 resurrects the mischief sought to be corrected by the 2015 Amendment Act and was
therefore unconstitutional. The SC hence found the introduction of section 87 and the repeal of
section 26 of the 2015 Amendment Act to be violative of Article 14 of the Constitution of India.

The SC then clarified that the position in BCCI continues to hold good as on date, i.e., by filing a
setting aside petition there would be no automatic stay against the enforcement of any arbitral
award, irrespective of when the arbitration was commenced.

Our view: It is well known that over INR 38,000 crores is held up in litigation in the roads
sector itself as the sums due under arbitral awards have not been deposited on account of
automatic stay available to the award debtor by simply filing a setting aside petition under
section 34. This malady is spread across various other sectors as well and not just limited to
cases where the governmental agencies are award debtors. The decision of the SC will therefore
provide much needed relief to award holders who no longer need to wait the average six to seven
years before realizing the awarded amounts. In the short term, this would perhaps inject much
needed liquidity in strained sectors and alleviate the balance sheets of several companies.
However, the key takeaway is the paradigm shift in the attitude and approach of the judiciary
towards arbitration in India which bodes well for the future of arbitration in India.

Footnotes

* WP (Civil) No. 1074 of 2019

2. At the outset, this decision involved other facets including a challenge to the provisions of the
Insolvency and Bankruptcy Code, 2016. However, we will not venture into that realm in the
present discussion.

3. National Aluminum Company Ltd. (NALCO) v. Pressteel & Fabrications (P) Ltd. and
Anr., 2004 1 SCC 540 – While the judgment held that the mere filing of an application under
Section 34 of the Act operates as an automatic stay on the operation of the award, the judgment
also observed that a recommendation had been made by the relevant Ministry to the Parliament
to amend the language of Section 34 because an automatic stay would be against the principles
of an efficient alternate dispute resolution system.

4. Report of the High Level Committee to Review the Institutionalisation of Arbitration

Mechanism in India – available at http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf  

5. BCCI v. Kochi Cricket Private Limited, (2018) 6 SCC 287

6. National Aluminum Company Ltd. (NALCO) v. Pressteel & Fabrications (P) Ltd. and Anr.,
(2004) 1 SCC 250

7. Fiza Developers and Inter-trade Pvt. Ltd. V. AMCI (India) Pvt. Ltd., (2009) 17 SCC 796

8. National Buildings Construction Corporation Ltd. V. Lloyds Insulation India Ltd., (2005) 2
SCC 367

9. The SC clarified that the said decisions were only overruled on this limited aspect.
Perkins Eastman v HSCC : Is It The End Of Party Appointed Sole
Arbitrators?
04 January 2020

by Arjun Krishnan and Shourya Bari

Samvad Partners

The issue of appointment of arbitrators under Section 11 of the Arbitration & Conciliation Act,
2016 ("Act"), was discussed by the Supreme Court of India in Perkins Eastman Architects DPC
& Anr. v. HSCC (India) Ltd.1 It ruled on issues of an (i) appointment of an arbitrator by one of
the parties or their officers and employees & (ii) whether the Supreme Court can exercise its
power under S. 11 when an arbitrator has already been appointed.

Background:

Before to analyzing these issues, a brief narration of the facts is necessary.

A contract was entered into between a 'consortium of applicants' ["Applicant" in the Arbitration
Application] and Hospital Services Consultancy Co. Ltd. ["Respondent"]. The contract
contained an elaborate 'Dispute Resolution' clause ["Arbitration Clause"]. The Arbitration
Clause provided that, (i) any dispute or difference shall be referred to arbitration before a sole
arbitrator appointed by the Chief Managing Director ["CMD"] of the Respondent, and, (ii) such
appointment has to be within 30 days from receipt of request for arbitration.

Dispute arose between the parties, and the Applicant called upon the CMD of Respondent to
appoint a sole arbitrator through a letter dated 28.06.2019. The Applicant claimed that no
arbitrator was appointed within 30 days. On 30.07.2019 (a couple of days post the 30 days'
timeline) the Chief General Manager addressed a letter purporting to appoint a sole arbitrator.

Contesting this appointment on grounds of (i) delay in appointment, & (ii) requirement of an
independent and impartial arbitrator to be appointed, the Applicant moved an Application under
S. 11 (6) before the Supreme Court.

Discussion:

a. Impartiality and Independence of an Arbitrator

The argument of delay in appointment was dismissed by the Supreme Court on grounds of
hyper-technicality. However, the issue of appointment of an arbitrator by the Respondent's CMD
was discussed at length.

Applicant argued that the CMD could not have appointed the sole arbitrator. The Applicant
relied on the Fifth & Seventh Schedules of the Act to advance this argument. The Fifth &
Seventh Schedules flow from S. 12 of the Act, which provides for grounds of challenge to an
arbitrator. The Fifth Schedule lists out circumstances, which give rise to justifiable doubts as to
the independence or impartiality of arbitrators. Under S. 12 (5), if the relationship of an arbitrator
falls within the list in the Seventh Schedule, the arbitrator would be ineligible to be appointed as
an arbitrator. Both the Fifth & Seventh Schedules include in its scope a scenario where the
arbitrator is a manager, director or part of the management in one of the parties. Evidently, the
CMD would fall foul of the Section 12 read with the Fifth & Seventh Schedules if he was
appointed an arbitrator.

However, in the present dispute, he was supposed to appoint a sole arbitrator and not act as one.
The Arbitration Clause expressly provided that an arbitrator could not be appointed through any
other mechanism. This specific issue fell for consideration. If the CMD could not have been an
arbitrator himself in accordance with the Act, could he legally exercise an authority to appoint
a sole arbitrator?

The Court held that the CMD could not have appointed a sole arbitrator. It relied heavily on a
three-judge decision of the Supreme Court in TRF Limited v. Energo Engineering Projects
Ltd..2 TRF was concerned with a clause that permitted the Managing Director of a company to
either act as an arbitrator or nominate an arbitrator. The MD nominated an arbitrator, whose
appointment was challenged. The Supreme Court in TRF held that if the MD could not have
acted as an arbitrator, he could not have appointed an arbitrator either, applying the principle
that what cannot be done directly may not be done indirectly.

In this decision, the Court was cognizant that the arbitration clause was different from in TRF i.e.
the CMD was not authorized to arbitrate himself, but only had the power to appoint/nominate the
sole arbitrator. Nevertheless, the Court held that the logic of TRF would apply, and the
appointment by the CMD would be invalid. This was because the reason for ineligibility was the
connection of the appointing authority with the dispute itself i.e. the interest that he would have
in the outcome of the decision – in this case, by virtue of being the CMD of one of the parties.
This connection or ineligibility would remain irrespective of whether the CMD acted as
arbitrator herself, or only had the power to appoint arbitrators. The Court noted that ineligibility
strikes at the root of an arbitrator's power to arbitrate as well as to appoint a nominee to conduct
the arbitration.

In the course of this discussion, the Court distinguished the facts with a scenario where both
parties appoint arbitrators of their choice. The latter situation would have to be treated differently
because in such a scenario, whatever advantage a party may derive by nominating an arbitrator
of its choice would be counter-balanced by equal power with the other party.

The Supreme Court concludes its discussion on this issue stating that if there are justifiable
doubts as to the independence and impartiality of the person nominated, and if other
circumstances warrant appointment of an independent arbitrator by ignoring the procedure
prescribed, such appointment can be made by the Court. The Court relied on Indian Oil
Corporation v. Raja Transport (P) Ltd.3 to arrive at this conclusion.

b. Power of the Supreme Court under Section 11 of the Act.

In a brief discussion on this issue, the Court delineated its powers under S. 11 of the Act. The
Court relied on Walter Bau AG v. Municipal Corporation of Greater Mumbai and Anr.4, to
prescribe that unless the appointment of the arbitrator is ex-facie valid and such appointment
satisfies the Court, acceptance of such appointment as ousting jurisdiction under S. 11 (6)
cannot be sustained in law. Simply put, the appointment must be valid on the face of it and the
must satisfy the Court exercising jurisdiction under S. 11 (6).

In this context, it is to be noted that this decision was distinguished from the one in Pricol Ltd. v.
Johnson Controls Enterprise Ltd.5 In Pricol, the party which filed an Application under S. 11
(6) had already submitted to the jurisdiction of the arbitrator, which precluded the Court from
exercising its jurisdiction under S.11. This distinction should therefore be read as limiting the
powers of the Court under S. 11.

On the Issue of the definition of 'International Commercial Arbitration'

Section 11 (12) (a) read with Section 11 (6) provides that an Application for appointment of
arbitrator can be maintained before the Supreme Court only if it is an international commercial
arbitration. Therefore, it was necessary to determine whether this specific dispute arose out of an
international commercial arbitration.

It is important to note that the Applicants are a consortium. In accordance with the Consortium
Agreement, Perkins Eastman (the foreign party registered in New York City, United States of
America) was to be the focal point for the Agreement. There was a requirement in the Agreement
to declare a lead member of the Consortium and Perkins Eastman was so declared. However, the
Respondent argued that both Applicants were jointly & severally liable for execution of the
project. This argument sought to minimize the implications of there being a foreign lead
member. The Court, nevertheless made it clear that irrespective of their joint and several
liability, lead member status of Perkins Eastman remained unaltered.

Now in this background, it is imperative to understand the Court's analysis of Section 2 (1) (f)
(iii) of the Act. This section defines an international commercial arbitration. In an arbitration
with respect to a commercial dispute arising out of legal relationships, if one of the parties fall
within the scope of sub-clauses (i) to (iv) of Section 2 (1) (f), the arbitration would be an
international commercial one.

In the present factual matrix, we are specifically concerned with S. 2 (1) (f) (iii). It includes an
'association' or a 'body of individuals' whose central management and control is exercised in any
country other India. The Court placed reliance on Larsen & Toubro Limited SCOMI Engineering
BHD v. MMRDA6, to rule that an 'association' as referred in Section 2 (1) (f) (iii) would include a
consortium consisting of two or more body corporate, with at least one of whom is a body
corporate incorporated in a country other than India. Then, within the consortium, it is to be
determined as to which body corporate has the determining voice. In the present factual matrix,
the Court found the lead member Perkins Eastman to be so. Accordingly, the consortium was
held to fall within Section 2 (1) (f) (iii), and Section 11 (6) was determined to be applicable.

Conclusion:

This decision clarifies three crucial points of law. First, that a person who is ineligible to act as
an arbitrator cannot also appoint an arbitrator. Second, the Court has the power to intervene
under S. 11 unless the appointment on the face of it is valid, and the Court is satisfied with
respect to the same. Third, in arriving at these two conclusions, the Court laid down that an
unincorporated consortium with the lead member, or the member with determining voice being
controlled and managed in a country other than India would come within the scope of S. 2 (1) (f)
(iii).

This judgment will have a significant impact, especially on government contracts that frequently
contain one-sided arbitration clauses. Though the decision may cause significant disruption in
the short run, in the long run it is likely to provide benefits in the form of a more robust &
impartial Indian arbitration eco-system.

Footnotes

1. Judgment delivered on 26.11.2019 in Arbitration Application No. 32 of 2019

2. (2017) 8 SCC 377

3. (2009) 8 SCC 520

4. (2015) 3 SCC 800

5. (2015) 4 SCC 177

6. (2019) 2 SCC 271