Welcome to the March edition of our Arbitration newsletter, where we delve into six significant judgements that touch upon the interpretation of the relevant provisions of the Arbitration and Conciliation Act, 1996 Act vis-a-vis its interplay with other statutes.

Arif Azim Co. Ltd. v. Aptech Ltd., 2024 SCC OnLine SC 215, (Supreme Court of India)

The Supreme Court of India has held that the period of limitation, three years, for filing an application under Section 11 of the Arbitration Act, would be governed by the Limitation Act, 1963 (‘Limitation Act’)

A three-judge bench of the Supreme Court in the present case dealt with a key issue- Whether the Limitation Act, is applicable to an application for appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’)? If yes, whether the present petition is barred by limitation?'

The bench observed that Section 11(6) of the Arbitration Act, which provides for appointment of arbitrators, does not indicate time-limit for filing an application under the said section. However, Section 43 of the Arbitration Act, provides that the Limitation Act, would apply to arbitrations as it applies to proceedings in Court. Since none of the Articles in the Schedule to the Limitation Act, provide a time period for filing an application under Section 11(6) of the Arbitration Act, it would be covered by Article 137 of the Limitation Act which is the residual provision.

The bench further clarified that the limitation for filing an application under Section 11 of the Arbitration Act, would arise upon failure to appoint an arbitrator within 30 days from the issuance of the notice invoking arbitration.

Thus, the bench held that the period of limitation for filing an application under Section 11 of the Arbitration Act, would be governed by Article 137 of the Limitation Act. The bench further recommended the parliament to bring an amendment to the Arbitration Act, prescribing a specific period of limitation within which a party may move the court for making an application under Section 11 of the Arbitration Act, for appointment of arbitrators as three-year limitation period for a Section 11 application is fairly long and thus, not in line with the timeliness nature of the Arbitration Act.

Gayatri Balasamy v. M/s ISG Novasoft Technologies Limited, Special Leave Appeal (C) Nos. 15336-15337 of 2021 (Supreme Court of India)

A three-judge bench of the Supreme Court has referred to the larger bench the question of ‘Whether or not the Courts in exercise of power under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996 are empowered to modify an arbitral award is a question which frequently arises in proceedings not only before this Court but also before the High Courts and the District Courts.’

In the present case, the Appellant filed a Special Leave Petition being aggrieved by the order of the Division Bench of High Court of Madras which had modified the arbitral award passed by the Single Judge, High Court of Madras. The Division Bench of High Court of Madras, noted that no arithmetic calculation was being done by the Single Judge to grant an additional amount to the Appellant and therefore modified the arbitral award by reducing the amount to Rs. 50,000/- from Rs. 1,68,00,000/-.

Therefore, the three judge-bench has referred the following questions to be dealt with by the larger bench i) Whether the powers of the Court under section 34 and 37 of the Arbitration and Conciliation Act, 1996, will include the power to modify an arbitral award; ii) If the power to modify the award is available, whether such power can be exercised only where the award is severable and a part thereof can be modified; iii) Whether the power to set aside an award under section 34 of the Act, being a larger power, will include the power to modify an arbitral award and if so, to what extent; iv) Whether the power to modify an award can be read into the power to set aside an award under section 34 of the Act; v) Whether through various judgment of this Court, the courts have either modified or accepted modification of the arbitral awards under consideration?

In K.S. Jain Builders v. Indian Railway Welfare Organization, 2024 SCC OnLine Del 507 (High Court of Delhi)

The High Court of Delhi reaffirmed that a party is estopped from challenging an award under a particular head after accepting amount under the same head and that the threshold for any interference with an award is high under the Arbitration Act. 

The dispute, in the present case, arose from an arbitral award dated 07.07.2022 (‘Award’). Even though, the Petitioner/K.S. Jain Builders was a successful party in the arbitration, it sought partial annulment of the award to the extent that the arbitrators finding on claim no. 4 and 5 which pertained to loss of profits, that were partially allowed in a contract award favouring the Petitioner.

The High Court of Delhi observed that accepting benefits under an arbitral award estops parties from challenging it later i.e., the plea to annul the disallowed portion of claim no. 5 is not viable as the Petitioner already received the awarded amount on 18.08.2022. This acceptance establishes an estoppel, preventing the Petitioner from challenging the award, which had already been upheld in the case of Sporty Solutionz Pvt. Ltd v. Badminton Association of India and Another wherein, the petitioner without any reservations accepted the awarded amount and thus was estopped from challenging the award.

The judgment also emphasized the limited grounds for setting aside an award under Section 34 of the Arbitration Act, when the Arbitral Tribunal's view is plausible. This decision underscores the importance of respecting arbitral awards, ensuring their finality, and promoting the efficiency of the arbitration process.

Gajendra Mishra v. Pokhrama Foundation and Another, 2024 SCC OnLine Del 267 (High Court of Delhi)

The High Court of Delhi held that a party cannot exhort on the fulfilment of pre-arbitral steps after it has terminated the contract.

The dispute arose between the parties in context of certain bills raised by the Petitioner for the work carried out in terms of the agreement. The agreement was terminated by the Respondent vide a letter dated 13.11.2022. As per Clause 52 of the agreement, a multi-tier dispute resolution clause was stipulated which provided that any dispute would be first attempted to be resolved amicably through mutual talks and upon the failure thereof, the decision on the dispute shall be taken by the project manager. It further provided that any party aggrieved by the decision of the project manager could invoke arbitration.

The Petitioner aggrieved by the rejection of its claim and the termination of the agreement, invoked the arbitration clause, and approached the High Court of Delhi for the appointment of an arbitrator. The Respondent’s main contention was that the Petitioner has not followed the required procedure, in terms of the Clause 52 of the agreement.

The High Court of Delhi held the Respondent has not resorted to approaching the Project Manager before terminating the contract and that the Respondent has himself given a go-by, as his signatures are there on the termination notice. Hence, once the agreement has been terminated, no resolution or settlement or conciliation through Project Manager would be possible as designated authority would cease to exist upon the termination of the agreement.

National Skill Development Corporation v. Best First Step Education Private Limited & Ors., 2024 SCC OnLine Del 1479 (High Court of Delhi)

The High Court of Delhi held that, an application seeking extension of the mandate of the arbitral tribunal under Section 29A of the Arbitration Act is not maintainable after the mandate has expired once the arbitral tribunal has passed an arbitral award.

In the present case, the petition was filed prior to the award, although after the mandate of the learned Arbitrator had already expired. The High Court of Delhi considered the question that whether the extension of the arbitrator's mandate post the delivery of the arbitration award, particularly in the context of petitions under Section 29A of the Arbitration Act is maintainable or not.

The High Court of Delhi held that a petition under Section 29A of the Arbitration Act, is maintainable if filed before the award is delivered, even if it's after the expiration of the arbitrator's mandate. However, such a petition becomes non-maintainable if filed after the award is delivered and proceedings for setting aside have commenced.

Neeraj Potato Presarvation & Food Products (P) Ltd. v. U.P. Micro Small & Medium Enterprises Facilitation Council, 2024 SCC OnLine All 427

The High Court of Allahabad held that disputes relating to those services of a Micro and Small Enterprise that are not registered under the Micro, Small, and Medium Enterprises Development Act, 2006 (‘MSMED Act’) would not fall within the jurisdiction of the Facilitation Council.

The petitioner company is in the business of running cold storage. The farmers used to grow crops and use the Petitioner’s facility for storage of their crops and in return the Petitioner charged rent for keeping the crops in cold storage facility. The farmers needed financial assistance to sow their next crop thus, took a loan from the Petitioner company. However, the farmers failed to pay back the loan to the Petitioner. The petitioner, claiming itself to be a MSME registered under the MSMED Act, had filed a claim petition before the Council for the recovery of the principal amount along with interest at the rate of 18% per annum, as provided under the MSMED Act.

The Petitioner challenged the decision of the Council before the High Court of Allahabad, which observed that according to its Udyog Aadhar Registration Certificate, the Petitioner was only running warehousing and storage facilities and that there was no document to prove the loan provided by the Petitioner to the farmers. It was further held that under the MSMED Act, the Council does not have any power to deal with the recovery of loan/financial services.

The question before of consideration before the High Court of Allahabad was first, Whether the loan/ financial services will be covered under the Cold Storage Services? and second, Whether the petitioner has been registered for any financial services under the MSMED Act?

The High Court of Allahabad held that for the purposes of MSMED Act and to provide financial services under Section 22 of the U.P. Regulation of Cold Storage Act, 1976 (‘Cold Storage Act’), the Petitioner ought to have the registration under the MSMED Act, for ‘financial activity’. It was further held that cold storage service and credit facilities by pledging the produce stored in the cold storage are two different services, which are not linked with each other. Thus, the loan granted by the Petitioner will not be covered under cold storage service and would not be covered by the jurisdiction of the Facilitation Council established under the MSMED Act. 

Expert Committee submits Final Report on Arbitration Law functioning and reforms to Law Ministry

An expert committee was set up by the central government on 12.06.2023, on reforms in the Arbitration and Conciliation Act, 1996, which submitted its final report to the government on 15.02.2024. The committee was led by the former Law Secretary, Dr. T.K. Viswanathan, to examine the working of arbitration law in the country and to recommend reforms. Some of the key recommendations in the report are:

1. Amendment to Section 6 of the Arbitration Act to include Techno Legal Utilities as a suitable institution to provide administrative assistance i.e., secure online platforms for efficient document sharing, technological support for transcription, recordings and virtual hearings and cybersecurity measures.
2. Endeavour shall be made for timely disposal of an application under Section 8 of the Arbitration Act within a period of sixty days from the date of the application.
3. Replacement of word ‘place’ with ‘seat’ or ‘venue’ under the Act.
4. To insert a new section for validation of insufficiently stamped or not duly stamped arbitration agreement, so that an arbitration agreement not duly stamped or insufficiently stamped shall be admitted in evidence and shall be acted upon by any Court, an arbitral tribunal, or any other judicial authority for the purposes of the Arbitration Act and the arbitral tribunal shall direct a party to pay the requisite stamp duty at an appropriate stage.
5. To insert new sub section (2A) in Section 11, that the procedure for appointment of arbitrators shall offer equal right to parties to choose the arbitrators or presiding arbitrator, and no party shall have the exclusive right to appoint a sole arbitrator or a presiding arbitrator.
6. To insert a new sub-section (2B) in Section 11, to the effect that the procedure for appointment of arbitrators shall offer equal right to parties to choose from a panel of arbitrators or presiding arbitrators, and no party shall have the exclusive right to insist that the other party appoint arbitrators from a panel offered by it for the appointment of an arbitrator or presiding arbitrator.
7. To insert a new Eight Schedule containing a Model Code of Procedure.
8. To insert new sub section (1A) in Section 37 to provide that notwithstanding anything contained in any other law, an appeal under sub-section (1) shall be made within 60 days from the date of receipt of the order appealed against, but not thereafter.
9. It proposes a framework on the cost of arbitration and the fees charged by arbitrators.

Contributors to the newsletter:

• Abhishek Sharma, Partner
• Shravan Yammanur, Partner
• Ragini Sharma, Associate