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Power of Courts to Remand the Matters to Arbitral Tribunal

Arbitration

As per the Arbitration and Conciliation Act, 1996, when an application under section 34 of the 1996 Act is moved by the Award Debtor along with the application for remitting the matter to the Arbitrator, the only power invested in the Court is to adjourn the proceedings for the limited purpose mentioned in Section 34(4) of the 1996 Act. As per the Section 34(4), the Court can defer the hearing of the objection filed under Section 34 on a written request made by a party to enable the Arbitral Tribunal to resume the arbitral proceedings so that the grounds for setting aside or in other words, the deficiencies in the arbitral award may be eliminated by the Arbitral Tribunal. The matter cannot be remanded for fresh decision by the Arbitral Tribunal which has become functus officio.

The law has also been laid in clear terms in the matter of McDermott International Inc. v. Burn Standard Co. Ltd. [(2006) 11 SCC 181]. In the matter of Radha Chemicals v Union of India [Civil Appeal No. 10386 of 2018] it was once again laid down that “the court while deciding a Section 34 (Arbitration and Conciliation Act, 1996) petition has no jurisdiction to remand the matter to the Arbitrator for a fresh decision”. The issue has been addressed in the matters of Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. (2018) 11 SCC 328 wherein it was held that objective behind section 34(4) is to make the award enforceable and in Som Datt Builders Limited v. State of Kerala (2009) 10 SCC 259 wherein the Court held that in view of Section 34(4) of the Act, the High Court ought to give the Arbitral Tribunal an opportunity to give reasons, if the same have not been given in the original arbitral award.

Recently, in the matter of Dr. A. Parthasarathy & Ors v. E Springs Avenues Pvt. Ltd &Ors.  [SLP (C) Nos. 1805-1806/2022], the Hon’ble Supreme Court dealt with an impugned order wherein the High Court, in exercise of power under Section 37 of the 1996 Act, had set aside the award passed by the learned Arbitrator and has remanded the matter to the Arbitrator for fresh decision. While deciding the issue, the Hon’ble Supreme Court wholly relied upon its decisions in Kinnari Mullick and Anr. Vs. Ghanshyam Das Damani (2018) 11 SCC 328 and I-Pay Clearing Services Pvt. Ltd. Vs. ICICI Bank Ltd. (2022) SCC OnLine SC 4. The Court held that the High Court under section 37 of the 1996 Act either may refer the parties for fresh arbitration or may consider the appeal on merits on the basis of the material available on record within the scope and ambit of the jurisdiction under Section 37 of the 1996 Act. The Court clarified that the High Court does not have the jurisdiction to remand the matter to the same arbitrator for fresh decision/arbitration. This is otherwise permissible only by the consent of both the parties that the matter be referred to the same arbitrator.

In the Kinnari Mullick the Hon’ble Supreme Court elaborately discussed various aspects of power to remand the matter – when can the matter be remanded, what is the objective of remand and what are the limitations to the power in the light of provision under section 34(4) of the 1996 Act. The central issue involved in the case was whether Section 34(4) of the Arbitration and Conciliation Act, 1996 empowers the Court to relegate the parties back before the Arbitral Tribunal after having set aside the arbitral award in question. Additionally, it was also determined whether the court can exercise the power in absence of any specific application/prayer of the parties in this regard.

In Kinnari Mullick the award was challenged by the appellants and was set aside on the ground that it is devoid of any reasons for its findings. On appeal, the decision of the Single Bench of the Hon’ble High Court was affirmed. The Division Bench additionally suo moto decided to remand the matter back before the Ld. Arbitral Tribunal directing the Ld. Tribunal to provide reasons in support of the findings. The said part of the decision of the Division Bench was challenged before the Supreme Court.

Adverting to Section 34(4) of the 1996 Act, the Court observed that the Court can defer the hearing of the application filed under Section 34 only on a written request made by a party so that the grounds for setting aside or in other words, the deficiencies in the arbitral award may be eliminated by the arbitral tribunal. The Court cannot ive a direction suo moto. The Court added that “The quintessence for exercising power under this provision is that the arbitral award has not been set aside.” In other words, even a party cannot move an application under section 34(4) of the 1996 Act once the award has been set aside by the court. The Court explained that this is because consequent to disposal of the main proceedings under Section 34 of the 1996 Act, the Court would become functus officio.

In the matter of I-Pay Clearing, the appellant, along with the application under section 34, moved an application under section 34(4) seeking directions to adjourn the proceedings for a period of three months and direct the learned Arbitrator to issue appropriate directions with regard to an issue where the Arbitrator had failed to give its findings. The main objection was filed on the ground that the Arbitrator has failed to record detailed reasons for its findings and thus, the same is patently illegal and erroneous. The High Court dismissed the application under section 34(4) of the 1996 Act on the ground that the defect in the arbitral award is not curable. The appellant preferred an appeal before the Hon’ble Supreme Court against the said order of dismissal of application under section 34(4) of the 1996 Act.

The Court explained that there is a difference between a finding and reasons. Findings are the decision on an issue. Reasons are the links between the materials on which certain findings are based and the actual findings. Section 34(4) of the Act, can be resorted to record reasons on the finding already given in the award or to fill up the gaps in the reasoning of the award. However, when prima facie it is case of patent illegality, as was pleaded by the respondent also, the same is required to be considered by the Court itself. Further, the Court has discretion to decide on the question as to whether a good case has been made out for relegating the parties back to the arbitral tribunal under section 34(4) of the 1996 Act i.e. showing that “there is inadequate reasoning or to fill up the gaps in the reasoning, in support of the findings which are already recorded in the award”. It is not obligatory on the Court to remit the matter in all the cases where party makes an application. The Court further clarified that, “If there are no findings on the contentious issues in the award or if any findings are recorded ignoring the material evidence on record, the same are acceptable grounds for setting aside the award itself…. A harmonious reading of Section 31, 34(1), 34(2A) and 34(4) of the Arbitration and Conciliation Act, 1996, make it clear that in appropriate cases, on the request made by a party, Court can give an opportunity to the arbitrator to resume the arbitral proceedings for giving reasons or to fill up the gaps in the reasoning in support of a finding, which is already rendered in the award.” Therefore, we may conclude that the law is more than settled as to the limited purpose for which and in limited circumstances in which a matter may be relegated to the Arbitral Tribunal by the Court exercising its discretionary jurisdiction under section 34(4) of the 1996 Act on application moved by a party in this regard. Needless to say this is different from the power of the Arbitral Tribunal to correct the award under section 33 of the 1996 Act and to make an additional award under section 33(4) of the 1996 Act where the parties can move an application directly before the Arbitral Tribunal and seek an appropriate remedy.

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Can The Parties Restrict The Tribunal’s or Court’s Power To Award Interest and Costs?

Arbitration

An important question came for consideration before Hon’ble High Court in Delhi in Union of India v. Om Vajrakaya Construction Company [O.M.P. (COMM) 299/2021 & I.A. 12966/2021] when a petition under section 34 was filed challenging the arbitral award inter alia on the ground that the Ld. Arbitral Tribunal granted pendent lite or pre-award interest and arbitration cost which was allegedly in contravention of the express terms of the agreement between the parties. The contractual clause provided that where the arbitral award is for the payment of money, no interest shall be payable on whole or any part of the money for any period till the date on which the award is made and that the cost shall be borne by respective parties.

To address the first issue that the award of pendent lite interest runs contrary to the express provision in the contract, the Hon’ble Delhi High Court relied on the judgments of Hon’ble Supreme Court in Union of India v Bright Power Projects India (P) Ltd [2015 9 SCC 695] wherein it was held that award of pre-reference interest would not be permissible when the award of such interest is contracted out by the parties. The view was once again affirmed in  Jaiprakash Associates Limited v. Tehri Hydro Development Corporation (India) Ltd [2019 17 SCC 786]. Therefore, the award to the extent it granted the pre-award interest was set aside.

With regards to the issue of awarding the cost when the contract stipulated that the cost shall be borne by respective parties, the Court referred to the relevant provision of the Arbitration and Conciliation Act, 1996 (“1996 Act”). The Arbitral Tribunal had awarded costs of the arbitral proceedings, which included the Arbitral Tribunal’s fees paid by respondent and the counsel fee paid, limited to the Arbitral Tribunal’s fee. The Court observed that the objection against the prayer of cost was not raised by the party earlier and is liable to be rejected on this ground alone. The objection is also without any merits. Referring to Section 31A which contains provisions regarding determination of costs, the Court reiterated that “Unlike the power of the Arbitral Tribunal to award interest under Section 31 (7)(a) of the A&C Act, which is subject to the contract between the parties, there are no such fetters on the discretion of the Arbitral Tribunal to award costs under Section 31A of the A&C Act. The only exception being any agreement between the parties regarding costs which is entered into after the disputes have arisen.”

The Court explained that while the power to award interest under Section 31 (7)(a) of the 1996 Act is subject to the contract between the parties, the Arbitral Tribunal has discretion to award costs under Section 31A(5) of the 1996 Act except in the event of parties entering into an agreement regarding costs after the dispute has arisen. The Court further elaborated that Section 31A of the 1996 Act gives discretion to the Arbitral Tribunal as well as the Court to award cost and such power/discretion has an overriding effect over any contrary provisions in the contract as well as provisions contained in the Code of Civil Procedure, 1908. While applying the principle to the facts of the case, the Court held that although the agreement between the parties provided that parties would bear their own costs, it was not a valid agreement by virtue of Section 31A(5) of the 1996 Act as it was not entered into after the disputes arose.

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Appointment Of Arbitrator By A Party During Pendency Of Section 11(6) Petition

Arbitration

An appeal against the order of the Hon’ble High Court of Orissa, declining to appoint an arbitrator under section 11(6) of the Arbitration and Conciliation Act, 1996,  was filed before the Hon’ble Supreme Court in the matter of Durga Welding Works v. Railway Electrification [(2022) 3 SCC 98].

The parties entered into a contract agreement pursuant to a tender floated by the appellant. The agreement had an arbitration clause. On dispute having arisen between the parties, the appellant served a legal notice dated 03.08.2009 for appointment of arbitrator and settlement of claim. Since the parties failed to appoint an arbitrator, the Appellant filed an application under section 11(6) of the 1996 Act for appointment of an arbitrator. However, just after filing of the arbitration petition, the appellant forgot to take any action in furtherance to the application and no notice was served to the respondents at any stage.

In the meanwhile the respondents responded to the legal notice dated 03.08.2009 and suggested two names of arbitrators as an option in their response dated 28.01.2010. The appellant filed an application seeking to restrain the respondents from proceeding to appoint an arbitrator since the matter was pending in the Court under section 11(6) of the 1996 Act. The said application also remained unattended by the appellant and no further action was taken.

Subsequently, the appellant itself on 28.08.2010 selected two officers from the panel suggested by the respondents and accordingly, the respondents constituted an Arbitration Tribunal vide letter dated 24.09.2010. The appellant thereafter not only appeared before the Arbitral Tribunal but also preferred statement of claim. The respondents submitted their statement of defence. Thereafter, the appellant moved an application before the Tribunal stating that the Arbitral Tribunal was not nominated within the stipulated time and hence, the constitution of the Arbitral Tribunal was not valid and that the Tribunal should not proceed with the arbitration proceedings.

The Appellant, however, till this point of time had not proceeded with the application under section 11(6) of the 1996 Act filed in 2009. On the other hand, the Arbitral Tribunal conducted the arbitral proceedings wherein the Appellant did not participate any further. Consequently, while an award dated 21.06.2013 was passed by the Ld. Arbitral Tribunal ex-parte rejecting the claims of the Appellant, the notices in the application under section 11(6) were only issued in 2016. In the light of the peculiar facts of the case, the Hon’ble High Court dismissed the arbitration petition filed under section 11(6) by an order dated 26.07.2019.

The Hon’ble Supreme Court while deciding the issue expounded the law on the issue which has been long settled by the courts in the following terms:

“11. The exposition of legal principles is indeed well settled by this Court in Datar Switchgears Ltd. v. Tata Finance Ltd. [Datar Switchgears Ltd. v. Tata Finance Ltd., (2000) 8 SCC 151] followed in Punj Lloyd Ltd. v. Petronet MHB Ltd. [Punj Lloyd Ltd. v. Petronet MHB Ltd., (2006) 2 SCC 638] that once an application under Section 11(6) of the Act has been filed for appointment of an arbitrator before the High Court, the respondents forfeited their right to appoint an arbitrator and the High Court alone holds jurisdiction to appoint an arbitrator in exercise of power under Section 11(6) of the Act.”

In Datar Switchgears Ltd the respondent failed to pay the amount claimed under the legal notice and further did not appoint the arbitrator as stipulated in the arbitration clause conditionally invoked under the legal notice. The respondent, however, filed an application under section 9 of the 1996 Act for seeking interim reliefs. The 1st respondent thereafter also appointed the 2nd respondent as an arbitrator in November 1999 by invoking arbitration clause. Subsequently, the appellant filed an arbitration application before Hon’ble Bombay High Court praying for appointment of another arbitrator. 1st respondent opposed this application. The petition was rejected by the Court as not maintainable as the arbitrator had already been appointed by the first respondent. The Court held that “An application under sub-section (6) of Section 11 can be filed when there is a failure of the procedure for appointment of an arbitrator.” As per the arbitration clause there was no failure of the respondent as the arbitration clause gave unfettered right to the respondent to appoint an arbitrator and there was no necessity of putting the appellant to notice or taking its consent. The Court framed the issue whether for purposes of Section 11(6) the party to whom a demand for appointment is made, forfeits his right to do so if he does not appoint an arbitrator within the reasonable time or time stipulated.

In the said matter the Court held that “So far as cases falling under Section 11(6) are concerned — such as the one before us — no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited.” Since in that case the respondent made the appointment before the appellant filed the application under Section 11(6), though it was beyond 30 days from the date of demand, the appointment of the arbitrator by the respondent was held as valid. The Court further relied on the settled law that ‘court cannot interpose and interdict the appointment of an arbitrator’ generally, whom the parties have chosen under the terms of the contract and that due importance has to be given to such procedure as agreed by the parties.

In  Punj Lloyd Ltd.   the respondent had not made appointment as per the arbitration clause within the time stipulated in the notice invoking arbitration till the date of filing of the application under section 11(6) of the 1996 Act by the appellant and therefore, the application for the appointment of arbitrator was allowed by the Hon’ble Supreme Court while applying the principles laid down in Datar Switchgears Ltd.

The Court, after referring to the settled law laid down by the Supreme Court, took the view that although the appointment of an arbitrator was undisputedly made by the respondents after the appellant filed arbitration petition under Section 11(6) of the 1996 Act, however, the matter in hand had peculiar facts and circumstances that the on one hand Appellant slept over its arbitration application filed in 2009 and notices were issued only in 2016  and on the other hand appellant did not participate in the arbitral proceedings before the Tribunal constituted with the consent of  the appellant, and therefore, the High Court did not commit any error in declining to exercise its jurisdiction under Section 11(6) of the Act for appointment of an arbitrator and dismissing the arbitration petition. The Court held that although there is a settled law that after the application has been filed for appointment of an arbitrator under Section 11(6) of the Act, the respondents are deemed to have forfeited their right to appoint an arbitrator under the arbitration clause, however, the law would not be applicable to the facts of the present matter.

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Group Of Companies Doctrine Can Be Applied To Bind Non Signatory To An Arbitration Agreement

Arbitration, Uncategorized

In a recent judgment in Oil and Natural Gas Corporation Ltd. Versus M/s Discovery Enterprises Pvt. Ltd. & Anr. decided on 27.04.2022 by a three Judges Bench of the Hon’ble Supreme Court, once again the dispute regarding the applicability of the ‘group of companies’ doctrine has been discussed and decided by the Court. The issue arise out of the interim order allowing the application to delete the group entity Jindal Drilling and Industries Limited (JDIL) from the array of parties. A contract for operating a floating, production, storage and offloading vessel was awarded by ONGC to Discovery Enterprises Private Limited (DEPL), a company belonging to the D P Jindal Group. As per the contract, a vessel was to be imported. The vessel was accordingly imported and ONGC paid the customs duty on the understanding that the vessel would be re-exported after completion of work under duty drawback and DEPL shall complete the necessary formalities in this regard. The vessel left Indian territorial waters and did not return. According to ONGC, DEPL failed to complete the formalities for duty drawback and did not compensate ONGC for customs duty and other expenses (Disputed Amount).

Arbitration was invoked by ONGC wherein DEPL and JDIL were made respondent parties. An application under Section 16 of the Arbitration and Conciliation Act, 1996 was filed by JDIL seeking its deletion from the arbitral proceedings on the ground that it is not a party to the arbitration agreement. It was contended by ONGC that DEPL and JDIL belonged to the DP Jindal Group of Companies and since they constitute a single economic entity and the corporate veil should be lifted to compel the non-signatory, JDIL, to arbitrate. The contention of ONGC was based on the fact that JDIL has a vital business interest in DEPL, JDIL is the ultimate beneficiary of the business of DEPL, DEPL has close corporate unity with Jindal Group and the shareholders are almost common, DEPL has throughout represented that they are group company of Jindal amongst the fact that the letter head also depicted the same and that there existed a corporate and functional unity between them.

The Arbitral Tribunal passed an interim award and held that JDIL was not a party to the arbitration agreement and hence the Arbitral Tribunal lacked the jurisdiction to arbitrate on the claims against it. The name of JDIL was therefore deleted from the array of parties.  The Arbitral Tribunal relied on the judgment of Hon’ble Supreme Court in Indowind Energy Ltd. v. Wescare (I) Ltd. & Anr. [(2010) 5 SCC 306]. For the same reason that the Tribunal does not have the jurisdiction, an application filed by ONGC for discovery and inspection was also not allowed. The appeal against the interim award was dismissed by the Hon’ble Bombay High Court on the ground that ONGC failed to show that the companies had common shareholders and common board of directors. Even if this was the case, they do not become the single entity in the light of the judgment in Indowind Energy even if the son and daughter-in-law of the managing director of JDIL are directors in DEPL. The fact remained that JDIL was not the signatory to the contract.

The judgment was challenged under Article 136 of the Constitution.

In the mean while the final award was also delivered allowing the claims of ONGC. ONGC in turn withheld payment due to JDIL in another dispute arising out of 4 agreements between ONGC and JDIL as an adjustment against the dues owed to ONGC by DEPL in the first arbitration. The dispute culminated in an arbitral award in favour of JDIL. This award was challenged under section 34 which was dismissed. The appeal against the order was also dismissed and finally the jurisdiction of the Hon’ble Supreme Court under Article 136 was invoked. This case, on the request of ONGC, was transfered before the Bench looking into the validity of the interim award passed in the first arbitration deleting JDIL from the array of parties.

The Hon’ble Supreme Court started its analysis by looking into the definition of arbitration agreement provided under section 7 of the Arbitration and Conciliation Act, 1996.  Further, expression “party” is defined in Section 2(h) to mean a party to an arbitration agreement. The Court observed that the judgment in Indowind Energy deals with interpretation of the term “parties” vis-à-vis an arbitration agreement in the context of an application for the appointment of an arbitrator under Section 11(6) of the 1996 Act. The Court in the matter had concluded that Indowind in no communication had ever acknowledged or confirmed that it was a party to the arbitration agreement. It was held that “Each company is a separate and distinct legal entity and the mere fact that the two Companies have common shareholders or common Board of Directors, will not make the two Companies a single entity. Nor will the existence of common shareholders or Directors lead to an inference that one company will be bound by the acts of the other.” It was further observed that “The very fact that the parties carefully avoided making Indowind a party and the fact that the Director of Subuthi though a Director of Indowind, was careful not to sign the agreement as on behalf of Indowind, shows that the parties did not intend that Indowind should be a party to the agreement.”

The Court also analysed the judgments in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. & Ors (2013) 1 SCC 641, Cheran Properties Ltd. v. Kasturi & Sons Ltd. & Ors (2018) 16 SCC 413 and MTNL v. Canara Bank & Ors. 16 (2020) 12 SCC 767. In Chloro Controls India it was held that “an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates”. It was further held that in exceptional cases “a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, “intention of the parties” is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties.” Direct relationship to the party signatory to the arbitration agreement; direct commonality of the subject matter; and whether the agreement is of a composite transaction where the performance of a mother agreement may not be feasible without the execution or performance of a subsidiary or ancillary agreement were stated to be relevant questions to be applied in the facts and circumstances of the case while determining the applicability o fthe doctrine of group companies.

The principle was subsequently applied to Ameet Lalchand Shah & Ors. v. Rishabh Enterprises & Anr (2018) 15 SCC 678 where in it was held that “a non-signatory would be bound by the arbitration clause in the mother agreement, since it is a party to an inter-connected agreement, executed to achieve a common commercial goal.” In Cheran Properties group of companies doctrine was applied against a non-signatory to the arbitration agreement in the case of the enforcement of a domestic arbitration award. It was held that “the group of companies doctrine has been applied to pierce the corporate veil to locate the “true” party in interest, and more significantly, to target the creditworthy member of a group of companies.” A word of caution was however added that since the doctrine stares at the face of established principle companies being separate legal entity, the doctrine may be applied after construction of the arbitration agreement and analysis of the circumstances relating to the entry into and performance of the underlying contract. So where there is a conscious intention of the parties to subject themselves to separate arbitration agreements under their individual contracts, the doctrine shall not apply (Duro Felguera v. Gangavaram Port Limited (2017) 9 SCC 729). Similarly, a mere existence of an indemnity by the foreign company, in the absence of any other factors, would not signify its intention to be bound by the arbitration agreement (Reckitt Benckiser (India) P Ltd. v. Reynders Label Printing (2019) 7 SCC 62). In MTNL the Hon’ble Court had on the same lines observed that the doctrine is applicable where conduct of the parties evidences that there is clear intention of the parties to bind a non-signatory. The Courts generally satisfy themselves that non-signatory company was a necessary party to the contract. The instances of conduct may be when non-signatory entity on the group has been engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, the non-signatory will also be bound and benefitted by the relevant contracts.

The Court appreciated the work of Gary B. Born, according to whom a group of companies doctrine has also been invoked in cases where there is a tight group structure with strong organisational and financial links, so as to constitute a single economic unit, or a single economic reality or when that party is an ‘alter ego’ of an entity which is signatory.  As per John Fellas, the principle of binding a non-signatory can also be looked from the angle of the doctrine of estoppel where the non-signatory group entity which has been reaping the benefits of the contract shall be directly estopped from taking inconsistent position and disavowing the obligations under the contract.

On analysing various judgments and views of the scholars, the Court propounded that the factors of mutual intent of the parties, relationship of a non-signatory to a party which is a signatory, commonality of the subject matter, composite nature of the transaction and performance of the contract shall determine whether a company within a group of companies which is not a signatory to arbitration agreement would be bound by the arbitration agreement.

On facts, the Court observed that the Arbitral Tribunal erred in not deciding the application for inspection and discovery and deferring it instead despite the fact that inspection and discovery was relevant for the determination of applicability of doctrine of group companies. In addition to the submissions of ONGC before the Tribunal, it was also stated in the course of the evidence by ONGC’s witness that almost all the senior officers of JDIL, including its Managing Director, actively participated in matters relating to the hiring of the vessel, its deployment, performance and related issues. ONGC’s assertions were based on the fact that even in the initial meeting between ONGC and DEPL, General Manager of JDIL attended on behalf of the DEPL. The Court regretted to state that the Ld. Tribunal did not even consider whether the group of companies doctrine would be applicable and precluded itself from deciding as to whether the application for discovery and inspection should be allowed which in turn “goes to the root of the process in as much as it disabled ONGC from pursuing its fundamental claim based on the application of the group of companies doctrine.”  The Court further observed that if the Arbitral Tribunal accepts a plea that it lacks jurisdiction, the order of the Tribunal is amenable to a challenge in appeal under Section 37(2)(a) and therefore it cannot be conclusive as it is subject to an appellate remedy.

While applying the law to the two appeals arising out of two different transactions, the Court observed that the issue of jurisdiction arose only in the first set of proceedings between ONGC, DPEL and JDIL. DEPL was not a party to the second proceeding. However, the evidence in one proceedings was used in the subsequent proceedings. In the subsequent proceeding between ONGC and JDIL, ONGC did not plead any defence on merits but asserted a right to adjust the amounts which were due to JDIL against the claims which ONGC had against DEPL under a distinct contract which was in dispute in the first proceeding. In this light the Court observed that there was significant amount of overlapping in the two arbitrations which was further confirmed by the fact that the grounds on which ONGC opposed JDIL’s application under Section 16 in the first arbitral proceeding overlapped with the basis on which ONGC sought adjustment of the claims due to JDIL in the second arbitral proceeding and Arbitral Award in the second proceeding relied on the findings contained in the interim award of the first Arbitral Tribunal.

The Court further took note of the deposition of the ONGC’s witness. It was deposed that first meeting was attended by the General Manager of JDIL, the expression of interest was signed by Manager (Commercial and Development), JDIL, bid was submitted by DEPL with a resume that stated it to be the part of the DP Jindal Group of Companies, DEPL and JDIL shared a common addresses and telephone numbers, DEPL was created by the Jindal Group with the definite purpose of rendering a particular service to the oil and gas sector, DEPL has indicated on the website that it works under the “fraternal hood of the said group, DEPL is promoted and managed by the son and daughter in law of the Managing Director of JDIL, bid was submitted by employee of JDIL, the Managing Director of JDIL had negotiated with the owners of the vessel for hiring on behalf DEPL etc. The Court found the deposition relevant and stated that there was merit in the submission which was been urged on behalf of the ONGC that the application for discovery and inspection had to be decided before the plea of jurisdiction was adjudicated upon. The Court went on to observe that the primary basis for the determination by the Tribunal of an absence of jurisdiction was that the arbitration agreement was between ONGC and DEPL whereas the legal foundation of the group of companies doctrine was not evaluated, on facts or law.

The Court accordingly held that “the first Arbitral Tribunal has made a fundamental error of law in not deciding the application by ONGC on discovery and inspection of documents before it ruled on jurisdiction. In doing so, the first Arbitral Tribunal’s interim award dated 27 October 2010 goes against the principles of natural justice. The failure to consider the application for discovery and inspection of documents results in a situation where vital evidence that could have assisted the Tribunal in its determination of the challenge under Section 16 was shut out. As a matter of fact, it emerged from the record that no evidence was adduced by JDIL in support of its plea of the absence of jurisdiction under Section 16. JDIL having taken the plea of absence of jurisdiction was required to establish the grounds on which it set about to establish its plea.”

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Sufficiency Of Stamp Duty On Agreement Cannot Be Adjudicated By Court at Pre-<br>reference Stage Under Section 11 Of Arbitration and Conciliation Act, 1996

Arbitration

In the matter of Parsvnath Developers Ltd v. Future Retail Limited (ARB.P. 14/2020) before Hon’ble Delhi High Court [decided on 12.04.2022], the petitioner moved an application under section 11(6) of the Arbitration and Conciliation Act, 1996 (“1996 Act”) for appointment of the presiding arbitrator in a dispute that erupted between the parties in relation to the Sub-License Agreement. Under the said agreement, the petitioner had sub-licensed certain area of the Parsvnath Mall to the Respondent for running a departmental store under the name of ‘Big Bazaar’.

The dispute arose on account of the introduction of service tax on the service of renting/licensing of immovable properties for commercial use with effect from 01.06.2007 under the Finance Act, 2007 enacted by the Government of India.  As per the Petitioner, the Respondent was liable to bear the additional burden of service tax. However, the Respondent failed to reimburse the service tax paid by the Petitioner. It was contended by the Respondent that it was liable to pay any service tax since there was no stipulation contained in the Sub-License Agreement for payment of service tax. Between the period of period 01.06.2007 to 31.12.2017, the amount payable added up to Rs. 4,27,93,994/- towards service tax and GST.

When the parties approached the Hon’ble High Court, the moot question for determination was since the main Agreement is not sufficiently stamped whether the petition for appointment of an arbitrator is required to be rejected?

The Hon’ble Court referred to the judgments in N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Limited & Ors (2021) 4 SCC 379 and Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Limited (2019) 9 SCC 209 wherein the Hon’ble Supreme Court held that non-payment or deficiency of stamp duty did not invalidate the main contract.  By virtue of doctrine of severability, the arbitration agreement or arbitration clause in a main contract is an independent agreement. It does not require mandatory registration. Therefore, invalidation of main contract on account of non-stamping, insufficient stamping or non-registration does not necessarily affect the arbitration agreement adversely.

The Court also referred to the law laid down in the matter of Vidya Drolia and Ors. v. Durga Trading Corporation (2021) 2 SCC 1 wherein a thumb rule of non-interference was laid down by the Hon’ble Supreme Court at the stage of reference unless it is found that the disputes ex facie are not arbitrable or the principal agreement is plainly invalid and unenforceable. It was held that the Courts would abstain from carrying out any adjudicatory exercise in respect of any contentious issue at a pre-reference stage.

The Court went on to further affirm the settled position by virtue of Section 6A of the  Arbitration and Conciliation Act, 1996 which lays down plainly that the scope of examination under Section 11 of the Arbitration and Conciliation Act, 1996 is confined to the existence of an Arbitration Agreement. The Court in this regard referred to the judgment in Duro Felguera, S.A. v. Gangavaram Port Limited (2017) 9 SCC 729. The Court also went on to analyse Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman (2019) 8 SCC 714 and Bharat Sanchar Nigam Limited and Ors. v.Nortel Networks India Pvt. Ltd. (2021) 5 SCC 738.It was held in the matter of Bharat Sanchar Nigam Limited  that “It is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is non-arbitrable, that the court may decline to make the reference. However, if there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal.” Similarly in the matter of NCC Limited v. Indian Oil Corporation Limited (2019) SCC OnLine Del 6964, it was held that “Thus, unless it is in a manner of speech, a chalk and cheese situation or a black and white situation without shades of grey, the concerned Court hearing Section 11 petition should follow the more conservative course of allowing parties to have their say before the Arbitral Tribunal”.

The Court therefore concluded that although there was an existing dispute as to whether the contract was sufficiently stamped or not and the same was contentious issue in the light of the arguments forwarded by the petitioner that Agreement was in the nature of leave and license and did not create any interest in respect of the premises in question, in favour of the respondent. In the light of same position of law, the Court further stated that the question of limitation, which is a mixed question of law and facts, is also required to be examined, not at the pre-reference stage by the Court but subsequently by the Arbitral Tribunal. The Court referred to the judgment in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd (2020) 2 SCC 455. In the said judgment the Hon’ble Apex Court made the following observation:

In view of the provisions of Section 16, and the legislative policy to restrict judicial intervention at the pre-reference stage, the issue of limitation would require to be decided by the arbitrator. Sub-section (1) of Section 16 provides that the Arbitral Tribunal may rule on its own jurisdiction, “including any objections” with respect to the existence or validity of the arbitration agreement. Section 16 is as an inclusive provision, which would comprehend all preliminary issues touching upon the jurisdiction of the Arbitral Tribunal. The issue of limitation is a jurisdictional issue, which would be required to be decided by the arbitrator under Section 16, and not the High Court at the pre-reference stage under Section 11 of the Act. Once the existence of the arbitration agreement is not disputed, all issues, including jurisdictional objections are to be decided by the arbitrator.

In the light of the discussion the Hon’ble Court appointed an arbitrator for the adjudication of the disputes between the parties.

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