Gemini Bay Transcription Pvt. Ltd. vs. Integrated Sales Service Ltd.; CA 8343-8344 of 2018
In a significant ruling, the Supreme Court of India has recently held that the ground of “perversity” or “patent illegality” is not a valid ground to refuse enforcement of a foreign arbitration award. The Supreme Court also held that a foreign award can be binding on non-signatories to the arbitration agreement and thus a foreign award can be enforced against them.
A representation agreement formalizing a business relationship was entered into between Integrated Sales Services Ltd. (“ISS”) (a Hong Kong based company) and DMC Management Consultants Ltd. (“DMC”) (a company registered in India). The said agreement consisted of an arbitration clause which stated that a single arbitrator will be appointed by the parties in the event a dispute arises, and the said agreement was subject to the laws of the State of Delaware, U.S.A. Disputes arose between the parties and arbitration was initiated by ISS against DMC and a few other parties who were not signatory to the representation agreement. The arbitrator passed an award holding the respondents to be jointly and severally liable to ISS.
The matter reached the Supreme Court in an appeal filed by a non-signatory to the representation agreement. The appellant contended that as per Section 47(1)(c) of the Arbitration and Conciliation Act, 1996 (“Act”) the burden of proving the enforceability of a foreign award under Part II of the Act is on the person in whose favour the award is made and such a burden in the case of a non-signatory to an arbitration agreement can only be discharged by adducing evidence which would independently establish that such non-signatory can be covered by the foreign award. The Supreme Court, while dismissing the arguments raised by the appellant observed that the requirements of Section 47(1)(c) of the Act are procedural in nature. The Supreme Court while holding that a non-signatory to an arbitration agreement can be bound by a foreign award, observed that “Section 47(1)(c) being procedural in nature does not go to the extent of requiring substantive evidence to ‘prove’ that a non-signatory to an arbitration agreement can be bound by a foreign award”.
The appellant also argued that the award passed by the arbitrator is perverse. The Supreme Court while relying on its earlier judgement of Ssangyong Engineering and Construction Co. Ltd. vs. NHAI (2019) 15 SCC 131, held that the ground of “patent illegality” or “perversity” is an independent ground of challenge which applies only to awards made under Part I of the Act i.e., domestic awards and the enforceability of a foreign award cannot be challenged on the said ground after the 2015 amendment to the Act.
Project Director, National Highways vs. M. Hakeem Civil Appeal no. ____ of 2021 arising out of SLP (civil) no. 13020 of 2020
The Supreme Court was faced with an interesting question of law i.e., whether the power of a court under Section 34 of the Act to “set aside” an award of an arbitrator would include the power to modify such an award. The National Highways Authority of India filed several appeals against various orders passed by a Division Bench of the Madras High Court through which the Division Bench held that insofar as arbitral awards made under the National Highways Act, 1956, Section 34 of the Arbitration Act must be so read as to permit modification of an arbitral award made under the National Highways Act, 1956, so as to enhance compensation awarded by an arbitrator.
The Supreme Court while relying on a catena of judgements, held that under Section 34 of the Act, the courts have extremely limited grounds to interfere with an arbitral award namely, whether to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996. The Supreme Court also observed that “if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice of a case, ought to be done”.
M/s. Silpi Industries vs. Kerala State Road Transport Corporation CA 1570-1578 of 2021
The Supreme Court recently adjudicated upon an issue relating to the applicability of the Limitation Act, 1963, for arbitration proceedings initiated under Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”). The present case arises out of an appeal filed against the Kerala High Court order which held that the provisions of Limitation Act, 1963 would be applicable to the proceedings under the 1996 Act arising out of MSMED Act. The appellants were the claimants before the arbitrator and the respondent no. 1 was the Kerala State Road Transport Corporation.
While deciding whether the Limitation Act, 1963, would be applicable to arbitration proceedings initiated under Section 18(3) of the MSMED Act, the Supreme Court referred to various provisions of the MSMED Act and observed that the recovery mechanism for the amount due under Sections 16 and 17 of the MSMED Act has been provided in Section 18 of the MSMED Act which states that if any party has a dispute with regard to amount due under Section 17 of the MSMED Act, a reference is required to be made to the Micro and Small Enterprises Facilitation Council.
The Supreme Court observed that as per the MSMED Act, the Council is empowered to conduct conciliation in the matter or seek assistance of any institution providing alternate dispute resolution services by making a reference to such institution for conducting conciliation. If the conciliation is not successful, as contemplated under Section 18(2) of the said Act, then the same stands terminated under Section 18(3) of the said Act. Thereafter, the Council shall either itself take up the dispute for arbitration or refer it to any institution providing alternate dispute resolution services for such arbitration and the provisions of Arbitration and Conciliation Act, 1996 are made applicable as if the arbitration was in pursuance of arbitration agreement between the parties. Applicability of Limitation Act, 1963 to the said arbitrations would be covered by Section 43 of the 1996 Act. The Supreme Court further held that a bare reading of Section 43 makes it clear that the Limitation Act, 1963 shall apply to the arbitrations, as it applies to proceedings in court.
Medima LLC vs. Balasore Alloys Limited- AP/267/2021 (Calcutta High Court)
In a recent judgement, the Calcutta High Court was faced with the question whether a ‘Governing Law’ clause contained in an agreement, for referring the disputes to arbitration before the International Chamber of Commerce, excludes the operation of Section 9 of the Act.
As per the arbitration agreement between the parties, the arbitration proceedings were governed by the laws of Great Britain with the seat of arbitration in London, UK. The petitioner before the Calcutta High Court sought protective orders to secure the dues payable by the respondent.
While adjudicating upon the issue, it was observed by the Calcutta High Court that the Law Commission in its 246th Report found various difficulties which could be faced by a successful party in a foreign-seated arbitration especially in the matter of obtaining temporary relief against the award-debtor where the assets of the award-debtor were located in India. The Calcutta High Court opined that an award-holder may face several disadvantages in case the award-debtor sells its assets which will render the foreign award infructuous.
The Calcutta High Court also delved into various judgements and observed that parties must demonstrate an intention not to subject the arbitration agreement to the application of Section 9 of the Act. In a situation the parties choose to not subject the Arbitration Agreement to the application of Section 9 of the Act, then Section 9 of the Act would not be applicable. In light of the same, the Calcutta High Court allowed the petition under Section 9 of the Act and accordingly the Petitioner was entitled to seek interim measures against the Respondent. NV Investment Holdings LLC vs. Future Retail Limited and Ors., Civil Appeal Nos. 4492-4493, 4494-4495 and 4496-4497 of 2021
In this Judgement the Supreme Court gave two findings in relation to emergency arbitrators, first that an award/order by an Emergency Arbitrator under the Arbitration Rules of the Singapore International Arbitration Centre [“SIAC Rules”] would be covered by Section 17(1) of the Arbitrator and Conciliation Act, 1996 [“the Act”]; and second, that an order passed under Section 17(2) of the Act in enforcement of the award of an Emergency Arbitrator by learned single judge of the High Court is not appealable. 
In this case Amazon had initiated an arbitration and submitted an application, requesting emergency interim relief in the form of injunctions against the transaction between Future Retail and Reliance Retail from the emergency arbitrator appointed under the SIAC Rules. The Emergency Arbitrator allowed Amazon's application and granted an injunction. Future Retail, however, pushed through with the disputed transaction, contending that the Award is null and void and the emergency arbitrator as not a proper arbitrator and hence the award being illegal, in order to pursue licenses from statutory authorities and regulatory agencies. Future Retail did not challenge the Emergency Arbitrator’s award under Section 37 of the Act and instead, filed a suit before the Delhi High Court asking for interim relief to restrain Amazon from writing to the statutory authorities relying on the award of the Emergency Arbitrator. In the meantime, Amazon filed an application under Section 17(2) of the Act which was heard and disposed of by a learned single judge of the Delhi High Court. A Single Judge of the Delhi High Court passed an order of status quo restraining Future Retail from going ahead with the disputed transaction. This order was followed by a detailed judgement where the Single Judge held that the interim award made by the Emergency Arbitrator was enforceable under the Indian Act. However, the operation of both these orders was stayed by a Division Bench of the High Court by two separate orders passed on Future Retail’s appeal. Aggrieved by the said order, Amazon approached the Hon’ble Supreme Court.
The Supreme Court, while answering the first question held that the Arbitration Act gives full party Autonomy to have a dispute decided as per institutional Rules which can include Emergency Arbitrators delivering interim orders, described as “awards”. These orders are an essential step in aid of decongesting the civil courts and affording expeditious interim relief to the parties. Such orders are referable to and are made under Section 17(1) of the Arbitration Act. Answering the second question the Supreme Court held that a literal reading of Section 17 would show that under Section 37(2)(b), the grant or non-grant of interim measures refer only to Section 17(1) of the Act. In the context of Section 37(2)(b), the entirety of Section 17 was referred when these sections were enacted in 1996. However, by the 2015 Amendment Act Section 17 has been bifurcated into two sub-sections, whereas no corresponding amendment was made to Section 37(2)(b) to include in its scope the amended Section 17. Therefore, no appeal lies under Section 37 of the Arbitration Act against an order of enforcement of an Emergency Arbitrator’s order made under Section 17(2) of the Act.
PSA Sical Terminals Pvt. Ltd. vs. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin, 2021 SCC OnLine SC 508
The Supreme Court in a recent case ruled that an arbitral award that effectively rewrote the contract between the parties cannot be enforced as it goes beyond the contract within which the arbitrator is meant to operate.
In this case the parties had entered into an agreement on Built, Operate and Transfer (BOT) basis for 30 years. Dispute arose with respect to proposal for fixation of tariff and revenue sharing model as there were constant changes in law governing the same. Arbitration was invoked by the petitioners, and the arbitrator passed an award substituting the ‘royalty payment module’ given in the contract to the ‘revenue sharing module’. The Award was challenged under Section 34 of the Arbitration Act in the Madras High Court where the Award was set aside. Aggrieved by the same, the Petitioner appealed in the Supreme Court.
The Supreme Court observed that the award would come under the realm of ‘patent illegality’ as a finding not based on evidence at all or an award which ignores essential evidence in reaching at its decision would be perverse. Further, the Court found that the award created a new contract for the parties and observed that rewriting a contract for the parties would be breach of fundamental principles of justice. The role of the arbitrator is to arbitrate within the terms of the contract and has no authority apart from what has been accorded to him under the contract. If the arbitrator goes beyond the contract then he would be acting out of jurisdiction. Jurisdiction of arbitrator is limited to the four corners of the agreement.  
KLA Const Technologies Pvt. Ltd. vs. The Embassy of Islamic Republic of Afghanistan (OMP(ENF)(COMM) 82/2019 & I.A. No. 7023/2019) and Matrix Global Pvt. Ltd. vs. Ministry of Education, Federal Democratic Republic of Ethiopia (O.M.P. (EFA)(COMM) 11/2016 & E.A. 666/2019)
The Hon’ble Delhi High Court in this case ruled that Foreign States cannot use the safeguard of “sovereign immunity” (or other related safeguards given in the CPC, 1908) to avoid before the Indian Courts, the enforcement of awards.
In this case the Petitioners (Indian Companies), had entered into contracts with the Government/ Government bodies of Afghanistan and Ethiopia, respectively. The contracts were for the embassy premises’ rehabilitation and for the distribution and supply of certain books. Disputes arose between the parties, and they were referred to arbitration seated in India, where arbitral awards were passed in favour of the Petitioners. Then, under Section 36 of the Arbitration Act the Petitioners approached the Court for the enforcement of the awards against assets of Ethiopia and Afghanistan in India. The issues before the Court were whether there was requirement under law for obtaining the consent of the Central Government under Section 86(3) of the CPC for implementation of an arbitral award against a Foreign State and whether a Foreign State can claim Sovereign Immunity against enforcement of arbitral award arising out of a commercial transaction.
The Court held that there was no need of prior consent as that is required only in cases of decrees passed in a suit and not in an arbitral award. The arbitration agreement in a commercial contract between a party and a Foreign State indicated an implied waiver by the Foreign State which precluded it from raising a defense against an enforcement action based upon the principle of Sovereign Immunity.
  • A warm welcome to Neha Singh who has joined as an Associate Partner in the Firm’s Corporate Commercial practice in Delhi Read More
  • RICS Webinar on Legal & Regulatory: India’s Real Estate Investment Trusts – The New Kid on the Block Read More
  • ESG: A New Era in M&A Deals Read More
  • Road Ahead For E-Tailers: Proposed Amendments in ‘The Consumer Protection (E-Commerce) Rules, 2020' Read More
  • Interest Free Loans is a Financial Debt: SC Clarifies Read More
  • IBC: MSMEs and the Pre-Pack Insolvency Resolution Process Read More
  • Construction and Project Management Conference 2021 Read More
  • 4th Annual Airport Modernization Summit 2021 Read More
  • Webinar: Enforcement of the UAE Court Judgments in India Read More
  • Global Knowledge Series on Infrastructure and Construction Disputes Read More
  • Winner in Aviation, Energy & Natural Resources and Infrastructure & Project Finance at India Business Law Journal’s 2021 Indian Law Firm Awards.
  • M&A Law Firm of the Year and Insolvency & Bankruptcy Code Law Firm of the Year Awards at The IDEX Legal Awards 2021.
  • Infrastructure & Project Finance Law Firm of the Year Award at Legal Era Indian Legal Awards 2020-21.
  • Ranked in the India Loans League Table Report H1 2021 published by Debtwire (Acuris).
  • Ranked as one of the Top 15 Law Firms in India in Private Equity League Table by Venture Intelligence.
  • Ranked as one of the Top 15 Law Firms in India in M&A and Private Equity League Tables by VCCEdge.
  • Ranked #15 in Top Ranked Law Firms: India by Top Ranked Legal 2020 for Aviation, Banking & Finance, Capital Markets, Competition/ Antitrust, Corporate/ M&A, Dispute Resolution, Labour and Employment, Projects, Restructuring and Insolvency and TMT.
  • Recognised as one of the Largest Law Firms in India in Asian Legal Business' Asia's Top 50 Largest Law Firms list.
  • Recognised as one of the ‘Best Brands’ at the Economic Times - Best Brands Summit 2019.
  • Ranked #14 among top 40 Indian Law Firms by RSG Consulting, 2019.
  • Ranked highly in various practice areas such as Aviation, Projects, Infrastructure, Energy, Construction, Banking & Finance, Corporate and M&A, Dispute Resolution, International Arbitration, Competition/ Antitrust, Restructuring & Insolvency, Capital Markets, Labour & Employment, Private Equity, Real Estate, TMT, etc. by Chambers and Partners, The Legal 500, RSG, Benchmark Litigation, India Business Law Journal, Asian Legal Business, IFLR1000, asialaw, among others.
  • Partners of the Firm are highly ranked by leading global publications including Chambers and Partners, The Legal 500, Benchmark Litigation, India Business Law Journal, Asian Legal Business, IFLR1000, asialaw, among others.

The contents of this newsletter are intended for information purposes only. Parts of this newsletter are based on news reports and have not been independently verified. The newsletter is not in the nature of a legal opinion or advice and should not be treated as such. Link Legal does not warrant the accuracy and completeness of this newsletter, and readers are encouraged to seek professional advice before acting upon any of the information provided therein. In no event will Link Legal be liable for any loss whatsoever arising out of the use of or reliance on the contents of this newsletter. This newsletter is the exclusive copyright of Link Legal and may not be circulated, reproduced or otherwise used by the intended recipient without the prior permission of its originator.
LinkedIn            web