Koinos Arbitration Roundup: 15 March 2021 to 30 April 2021.

1. Amazon.Com NV Investment Holdings LLC v. Future Coupons Private Limited, Delhi High Court

In 2019, Amazon.com NV Investment Holdings LLC (“Amazon”/ “Petitioner”) had invested INR 1,431 crore (“Investment Amount”) into Future Coupons Private Limited (“FCPL/ “Respondent No. 1”) based on certain special, material protective/negative rights available to FCPL in Future Retail Limited (“FRL/ Respondent No. 2”) by way of a share subscription agreement (“FCPL SSA”).

FCPL and Amazon agreed that FRL’s retail assets will not be alienated without Amazon’s prior written consent and never to a ‘restricted person’. FRL was to remain the sole vehicle for conduct of FCPL’s retail business. The entire Investment Amount was infused into FRL by FCPL (together the “Respondents”).

In August 2020, FRL approved a transaction with the Mukesh Dhirubhai Ambani Group (“MDA”) without the approval or consent of Amazon (Reliance Transaction). MDA, it was claimed, also fell within the meaning of a ‘restricted person’. Accordingly, Amazon initiated arbitration under the FCPL SSA. The arbitration was seated in Singapore and administered by the SIAC Rules.

Amazon also filed for and obtained an emergency interim award against the Respondents (Emergency Award). Under the Emergency Award, the Respondents were restrained from taking any further steps in the Reliance Transaction.

Amazon also filed a petition under Section 17(2) of the Arbitration and Conciliation Act, 1996 (“the Arbitration Act”) before a Single Judge of the Delhi High Court, seeking inter alia enforcement of the Emergency Award in India. 

Briefly put the High Court was required to answer the following questions:

1. What is the legal status of an emergency arbitrator? Whether an emergency award/order granted by an emergency arbitrator appointed under the SIAC Rules is an order under Section 17(1) of the Arbitration and Conciliation Act 1996 (Arbitration Act) – and therefore an order of an Indian court under 17(2)?

2. Whether the Emergency Award had misapplied the ‘group of companies’ doctrine to extend the arbitration agreement to Respondent No. 2, or whether the doctrine applies only to proceedings under Section 8 of the Arbitration and Conciliation Act as alleged by Respondent No.2?

3. Whether the Emergency Award is null and void?

The Delhi High Court held that the emergency arbitrator is an arbitrator for all intents and purposes. This was clear from a reading of Sections 2(1)(d), 2(6), 2(8), 19(2) of the Arbitration Act; together with the SIAC Rules, which form a part of the arbitration agreement by virtue of Section 2(8) of the Act.

It was further held that India’s current legal framework is sufficient to recognize the validity of emergency arbitration. No amendment is required. The authority and legitimacy of an emergency arbitrator is entirely sourced from party autonomy. Accordingly, an emergency order/award is binding on all parties.

Having analysed the  ‘group of companies’ doctrine, as developed in Chloro Controls India Private Ltd v. Severn Trent Water Purification Inc., Cheran Properties Ltd. v. Kasturi and Sons Ltd. (previously discussed on this blog here), and MTNL v. Canara Bank, the High Court agreed with the emergency arbitrator’s finding that FRL is a proper party to the arbitration proceedings.

Finally, the High Court rejected the argument that the Emergency Award was a nullity; mainly because the Respondents had not pleaded the law on nullity. Their approach too, did not seem to innocent. The court decided that a fair opportunity to be heard had been given to both the parties by the arbitrator who had provided a fairly detailed and reasoned order.

A Division Bench (two-judge) of the High Court has currently stayed this judgement of the single judge.

2. Government of Maharashtra v. M/S Borse Brothers Engineers and Contractors Private Limited, Supreme Court.

The Supreme Court was required to determine the limitation period for filing an appeal under Section 37 of the Arbitration Act.

Previously, in N.V. International v. State of Assam (“N. V. International”), the Supreme Court held that an appeal against a Section 34 order was required to be filed within 120 days.

In the present case, however, the Supreme Court overruled its findings in NV International. This was mainly because N. V. International did not factor provisions of the Commercial Courts Act 20015 (Commercial Courts Act). As such, it was held to be per incuriam. The Supreme Court noted in the present case that the 120-day period derived from Section 34(3) cannot apply when the limitation period for filing of appeals under the Commercial Courts Act is 60 days. In the absence of a provision curtailing the condonation of delay beyond the period provided in section 13 of the Commercial Courts Act, any such “bodily lifting” of the last part of section 34(3) into section 37 of the Arbitration Act would be unwarranted.

The court was also required to decide if Section 5 of the Limitation Act 1963 applies to appeals which are governed by a uniform 60-day period of limitation. In this context, it was found that “sufficient cause” – within the meaning of Section 5 and for condonation of delay – is not elastic enough to cover long delays beyond the period provided by the appeal provision itself. Such delays, it was held, should be condoned by way of exception and not rule.

3. Rapid Metro Rail Gurgaon v. Haryana Mass Rapid Transport Corporation, Supreme Court

In 2009, the Haryana Shehri Vikas Pradhikaran, (“HSVP”)hadentered into concession agreements (which contained arbitration clauses) with Rapid MetroRail Gurgaon Limited (“RMGL”)and Rapid MetroRail Gurgaon South Limited (“RMGSL”)for the execution of certain projects.

However, a dispute arose between these entities; and RMGL and RMGSL issued termination notices due to non-payment of debt due to them. The Respondents challenged the termination notices under Article 226 before the Punjab and Haryana High Court instead of choosing to arbitrate as per the concession agreements,  and sought the continuation of the operation of the rapid metro lines at Gurgaon.

The Supreme Court noted in its order that the High Court was concerned over a fundamental issue of public interest, which was the hardship that would be caused to commuters who use the rapid metro as a vehicle for mass transport in Gurgaon. The High Court’s exercise of its writ jurisdiction under Article 226 in the present case was justified since non-interference would have had disastrous consequences for the general public. However, ordinarily the High Court in its jurisdiction under Article 226 should decline to entertain a dispute which is arbitrable. Moreover, parties must avail of remedies that are available under the Arbitration Act for seeking interim directions either under Section 9 before the Court vested with jurisdiction or under Section 17 before the Arbitral Tribunal itself.

4. Bharat Sanchar Nigam Limited v. M/s Nortel Networks India Private Limited, Supreme Court

The period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act would be governed by Article 137 of the Limitation Act, and will begin to run from the date when there is failure to appoint the arbitrator. Only in rare and exceptional cases where the claims are ex facie time barred, and it is manifest that there is no subsisting dispute, that the Court may refuse to make the reference.

This judgement has been further covered on the blog here.

5. Secunderabad Cantonment Board v. M/S B. Ramachandraiah and Sons, Supreme Court

Under works contracts entered into between the parties in 2000 and 2001, the Respondent made certain claims for re-imbursement. The respondent sent various notices over a period of many years to the appellants, apprising them of the claim and requesting the appointment of an arbitrator. Eventually, in 2013, the respondent successfully filed a Section 11 application before the Telangana High Court (Section 11 Order/Order).

In appeal, the Supreme Court had to determine whether the Section 11 application was time-barred. The Court discussed and relied on several of its previous decisions, including Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel Networks India Pvt. Ltd (“BSNL”) which is discussed here on the blog; Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., and Vidya Drolia v. Durga Trading Corp., (“Vidya Drolia”). It was confirmed that a mere failure to pay may not give rise to a cause of action. However, once the applicant has asserted its claim and the respondent fails to respond to such claim, it was held that a cause of action will be deemed to have accrued; and the period of limitation will commence.

Relying on Mayawati Trading Company Private Limited v. Pradyut Dev Burman and Vidya Drolia, the Court also held that a Section 11 application can be rejected “only” when it is “manifest” that the claims are ex facie time barred and dead or there is no subsisting dispute. Section 11 proceedings are not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the arbitral tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism.

Therefore, the court held that even if the limitation period in respect of filing the Section 11 application could be said to have begun latest from 2010 onwards when the respondent had issued a reply notice rejecting the appellants’ demands, a period of three years having elapsed in 2013, the claim was time-barred. The court allowed the appeal and set the impugned judgement of the High Court aside.

6. Indus Bitoech Private Limited v. Kotak India Venture (Offshore) Fund, Supreme Court

In any proceeding which is pending before the Adjudicating Authority under Section 7 of the Code, if such petition is admitted upon the Adjudicating Authority with regard to the default and the debt being due from the corporate debtor, any application under Section 8 of the Act, 1996 made thereafter will not be maintainable since post admission, third party right is created in all the creditors of the corporate debtors. Such a proceeding is a proceeding in rem i.e. with erga omnes effect.

This judgement has been covered further on the blog here.

7. PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited, Supreme Court.

Two Indian parties had entered into a settlement agreement. They had agreed, among other things, that any dispute between them will be resolved by ICC arbitration seated in Zurich. When disputes arose, the respondent commenced arbitration. The sole arbitrator found in favour of the respondent. The respondent also initiated enforcement proceedings before the Gujarat High Court, which were allowed.  

In appeal, the Supreme Court was required to determine inter alia if two Indian parties could agree to a foreign seat of arbitration. Based on the settlement agreement, it was found that the parties indeed intended to choose Zurich as the arbitral seat. Relying on its landmark decision in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (“BALCO”),  the Court affirmed that Part I and Part II of the Act are mutually exclusive. Accordingly, the Supreme Court rejected the appellant’s attempt to import the definition of “international commercial arbitration” under Section 2(__) (which is in Part I) in Section 44 (which is in Part II). Therefore, there was no bar under Section 44 to both parties to the dispute being Indian entities.

The court also relied on its previous decision in Atlas Export Industries v. Kotak and Co. (“Atlas”), where a foreign-seated award was rendered in a dispute between two Indian parties. It was found that such an award could not be said to be opposed to “public policy” under Section 23 and/or 28 of the Indian Contract Act 1872. In fact, such a scenario would be covered by exception 1 to Section 28.

The Supreme Court remarked that parties have entered into the agreement with a foreign seat willingly, with their eyes open.

The Court also disregarded its oft-cited decision in TDM Infrastructure Pvt. Ltd., v. UE Development India Ltd (“TDM”). This is because TDM was rendered under Section 11 and could not be considered to be binding precedent. The Court also overruled the Bombay High Court’s decision in M/s. Addhar Mercantile Pvt. Ltd. v. Shree Jagadamba Agrico Exports (“Addhar”). The High Court in Addhar had incorrectly relied upon TDM to state that the intention of the legislature would be clear that Indian nationals should not be permitted to derogate from Indian law and that this would be a part of the public policy of the country.

The Court favourably cited the rulings in Delhi High Court judgement in GMR Energy Limited v. Doosan Power Systems India, (“GMR”) and the Madhya Pradesh High Court judgement in Sasan Power Limited v. North American Coal Corporation (“Sasan I”)  which have correctly distinguished TDM for the reason mentioned above.

Importantly, in justifying its decision it reasoned in the following manner:

In agreeing to a neutral forum outside India, parties agree that instead of one bite at the cherry under section 34 of the Arbitration Act, where an arbitration between two Indian nationals is conducted in India [with the grounds for setting aside the award being available under section 34(2A)], what is instead put in place by the parties is two bites at the cherry, namely, the recourse to a court or tribunal in a country outside India for setting aside the arbitral award passed in that country on grounds available in that country (which may be wider than the grounds available under section 34 of the Arbitration Act), and then resisting enforcement under the grounds mentioned in section 48 of the Arbitration Act. The balancing act between freedom of contract and clear and undeniable harm to the public must be resolved in favour of freedom of contract as there is no clear and undeniable harm caused to the public in permitting two Indian nationals to avail of a challenge procedure of a foreign county when, after a foreign award passes muster under that procedure, its enforcement can be resisted in India on the grounds.”

8. Sanjiv Prakash v. Seema Kukreja and Ors, Supreme Court

Disputes arose between the family members when certain shares in a company were transferred allegedly in violation of the Appellant’s pre-emptive rights to purchase shares as per the MOU entered into between various parties. Arbitration was initiated and a sole arbitrator was appointed. The respondents contended that the MOU had been superseded and novated by a subsequent Shareholders’ Agreement between the parties. Therefore, they denied the existence of any arbitration clause between the parties.

The Court delved into the interpretation of Section 11(6A) of the Arbitration Act, which had deliberately narrowed the scope judicial intervention at the stage of arbitrator appointment. The court was permitted to examine only the existence of an arbitration agreement – nothing more, nothing less.

It was also settled in the recent Supreme Court decision of Pravin Electricals Pvt Ltd. Galaxy Infra and Engineering Pvt. Ltd., that matters which, on prima facie review appear to beinconclusive, or on consideration inadequate as it requires detailed examination, should be left for final determination by the Arbitral Tribunal selected by the parties. Without the slightest doubt, the rule is to refer the disputes to arbitration. Otherwise, as it was held in BSNL v Nortel, it would encroach upon what is essentially a matter to be determined by the tribunal.

The Supreme Court opined that the question of whether the MOU has been novated required a detailed consideration of the clauses of the agreements. As such, the Section 11 Application was allowed, leaving all other questions to be determined by the arbitrator.

9. Bay Capital Advisors Private Limited v. IL&FS Financial Services Limited and Ors., Bombay High Court.

The petitioner filed a Section 9 petition pending arbitration to restrain IL&FS from acting on its event of default notice to the Petitioner for payment default.

The Court did not adjudicate on the merits of the EOD notice, and instead preliminarily considered an order passed by the NCLAT which granted stay inter alia of “the institution or continuation of suits or any other proceedings by any party or person or bank or company etc against IL&FS and its 348 group companies in any court of law, tribunal, arbitration panel or arbitration authority.” The NCLAT Order was predominantly one made to cater to a larger public interest and economy of the nation. Respondent No. 1 relied on the NCLAT order to argue that the Section 9 petition was not maintainable.

The High Court held that when the NCLAT used the words ‘any court of law’ it could not have conceivably meant the High Court even on its Original Side, given that it is a Chartered High Court. The words ‘court of law’ cannot be ‘read down’, because other than the NCLT, there is no other judicial authority over which the NCLAT exercises such superintending power.

It was held that “the NCLAT does not have the authority to stay the hands of this Court in hearing a petition under Section 9 or any other petition that properly comes before this Court under the Arbitration and Conciliation Act 1996.”

10. Pradeep Transcore Private Limited v. TBEA Energy India Private Limited, Gujarat High Court

A petition under Section 11 of the Arbitration Act was filed by the Petitioners to appoint a sole arbitrator under an MOU entered into between the parties. The Respondent objected stating that the MOU was superseded by a subsequent agreement between the parties. The Respondent appointed a sole arbitrator by invoking the dispute resolution provision in the subsequent agreement.

The Petitioner did not agree to this and filed this section 11 application. Meanwhile, the sole arbitrator appointed by the Respondent adjourned the arbitration proceedings after taking into consideration the Petitioner’s section 11 application.

The Court cited several important precedents to hold that the sole arbitrator appointed by the respondent had commenced the proceedings by fixing the preliminary hearing, though the same had been adjourned. Thus, the procedure contained in the said arbitration clause for the appointment of arbitrator had been followed and the sole arbitrator had already been appointed, which meant that the only course open to the petitioner was to challenge the appointment of the arbitrator under Section 13 of the said Act. The present petition under Section 11 of the Arbitration Act would not be maintainable. Additionally, after the 2015 amendment to the Arbitration Act, as per the legislative mandate of Section 11(6) the court is now required only to examine the existence of the arbitration agreement, and all other preliminary or threshold issues are left to be decided by the arbitrator under its kompetenz-kompetenz jurisdiction.

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