Koinos Arbitration Roundup: 1 May 2021 TO 31 May 2021.

Presenting the 3rd edition of Arbitration Roundup – a series of monthly updates on India’s arbitration landscape.

  • Court cannot interfere with an arbitral award merely because it disagrees with the arbitral tribunal’s inference drawn from the evidence presented by the parties’: The Delhi High Court in Megha Enterprises v. Haldiram Snacks.[1]

Facts

The Petitioner, Megha Entreprises is a partnership firm engaged in trading crude palm oil. It entered into an agreement with Coral Products for sale and purchase of crude palm oil. An aggregate sum of Rs.19,03,77,000/- became due and payable by Megha to Coral. Coral merged with the Respondent, Haldiram Snacks. The assets of Coral stood vested with Haldiram, including the amount receivable from Megha.

Haldiram contended that Megha took delivery of the crude palm oil on the basis of the documents executed by Coral and claimed the amount from Megha. However, Megha denied its liability to pay the amount. Arbitral tribunal passed the award in favour of the Respondent. The Petitioner challenged the arbitral award under S.34 of the A&C Act claiming that the arbitral tribunal had erred in considering the facts which the parties presented.

Court’s observation

The Delhi High Court observed that Courts do not sit in appeal over an arbitral award by reassessing the evidence. An award can be challenged only under the grounds mentioned in S.34(2) of the A&C Act. The evaluation of evidence by the arbitral tribunal may be erroneous and Court may take a different view, however that is not the scope of examination under S.34(2). Hence, it was held that the Court cannot interfere with the arbitral award merely on the ground that it does not concur with the inference drawn by the arbitral tribunal from the evidence led by the parties

Facts

In 2008, the award debtor had moved the Court under S.34 of the A&C Act, seeking to set aside the arbitral award pronounced on July 7, 2008. The award debtor (Petitioner) now sought to withdraw its application under S.34 stating that S.34 proceeding was infructuous. Relying on Essar Steel Ltd. v. Satish Kumar Gupta, the Petitioner contended that since the award-holder (Respondent) failed to lodge a claim against it during the Corporate Insolvency Resolution Process (‘CIRP’) under the IBC, all existing claims get extinguished on approval of the resolution plan for award-debtor’s revival.   

The Respondent contended that the Petitioner had used same arguments at two other occasions when it sought to withdraw its application of setting aside the award, hence res judicata would apply.

Court’s observation

On the contention of res judicata, the Court observed that the principle is read down in cases where the orders can be varied or altered because of certain new factual situations. Relying on Supreme Court’s judgment of Essar Steels and Ghanshyam Mishra, the Court observed that the Law of the Land recognizes that once the resolution plan is approved under S.31 of the IBC, it is binding and the resolution applicant who takes over the business of the corporate debtor must start running the business “fresh slate“. Since there was a prominent change in law between petitioner’s earlier applications and the present case, res judicata did not apply.

Finally, the court relied on BCCI v. Kochi Cricket Pvt. Ltd. to hold that the automatic stay on the enforcement of the arbitral award due to Petitioner’s application under S.34 did not preclude the Respondent award-holder from enforcing its claim during the CIRP. Since the Respondent failed to take active steps under the IBC, any new claim after the approval of the Resolution plan will be extinguished under S.31 of the IBC.

Facts

The Respondent No.1, CG Power and Industrial Solutions Limited entered into a Framework Agreement with UPPTCL for construction of Substations at Unnao, Uttar Pradesh. The Agreement contained an arbitration clause for resolving all disputes and differences between the parties. The Allahabad High Court allowed the Respondent’s petition to remit labour cess under the Cess Act and Building and Other Construction Workers Act which regulate the employment and service conditions of construction workers. The Petitioner filed an SLP before the Supreme Court under Article 136 against the judgment of the High Court.

Court’s observation

With respect to the arbitration clause in the agreement, the Court observed that the Petitioner had not opposed the writ petition on the ground of existence of an arbitration clause. In any case, the High Court may entertain a writ petition, notwithstanding the availability of an alternative remedy, particularly where:

  1. the writ petition seeks enforcement of a fundamental right
  2. there is failure of principles of natural justice
  3. the impugned orders or proceedings are wholly without jurisdiction or
  4. the vires of an Act is under challenge

Further, the Court stated that relief under Article 226 may be granted in a case arising out of contract even if the contract contains an arbitration clause.

  • Merely showing that there is another reasonable interpretation of the materials on the record is insufficient to allow for the interference by the Court in an arbitral award: Supreme Court in NTPC v. M/s Deconar Services Pvt. Ltd. reiterated the Delhi High Court observation in Meghan Enterprises.

Facts

The Appellant, NTPC had issued two tenders for the construction of certain quarters in which the Respondent had participated. After negotiations between the parties, the Appellant decided to award both the contracts to the Respondent based on its offer of 16% rebate on the prices for completing the first project, in the event he was awarded both the contracts. Appellant’s delay in handing over the sites to the Respondent led to a consequent delay in the completion of the construction of quarters. Meanwhile, disputes arose between the parties regarding the final payment due to the Respondent. Accordingly, the Respondent sought arbitration under the dispute resolution clause and an arbitrator was appointed.

The Arbitrator decided the dispute in favour of the Respondent. The Appellant objected to the award before the Delhi High Court under Sections 30 and 33 of the A&C Act and finally filed an SLP in the Supreme Court. The Appellant based one of its contentions on an alternate interpretation of ‘rebate’, stating that the same was granted merely for the awarding of both the contracts to the Respondent.

Court’s observation

While the Court agreed with the Appellant that such an interpretation was possible, the Court opined that it was not sufficient to interfere with the arbitral award. Relying on Kwality Manufacturing Corporation v. Central Warehousing Corporation, the Court emphasized that ‘it does not sit as an Appellate Court over the decision of an arbitrator’. As long as the arbitrator had taken a possible view of the matter, Courts cannot substitute their views for that of the arbitrator.

  • India and Cairn Energy Conundrum: Analysing the obstacles with enforcement of the award.  

The Dispute

The arbitral tribunal formed in the dispute held that India had failed to uphold its obligations under the 1994 Bilateral Investment Treaty between Republic of India and United Kingdom. Consequently, the Tribunal ordered India to pay to Cairn Rs. 9,000 crore in damages for the ‘total harm’ suffered by Cairn as a result of India’s breaches. Cairn initiated proceedings in the Courts of UK, US, France, Singapore, Netherlands and Quebec for enforcing award against India. These are the countries where India has its assets.

Recently, in an attempt to preserve key Indian assets from Cairn’s enforcement proceedings, the Indian Finance Ministry issued a guidline to state-run banks to withdraw funds from their nostro accounts. A nostro account is an account held by a bank in an overseas bank in the currency of that jurisdiction, for ease of carrying out foreign exchange transactions and international trade.

Remedies available to Cairn

Cairn can move to the courts in the relevant jurisdictions to have the overseas Indian bank accounts frozen. If foreign courts believe there is a serious risk that India would remove the money or engage in any activity involving these accounts before the award is enforced, they can issue an immediate injunction prohibiting India from withdrawing the cash or engaging in any activity involving these accounts. In response, India can possibly defend such actions on the basis that no case is made out for enforcement of the award under public policy of the jurisdiction. Asset-tracing plays a critical role in locating eligible assets and securing their seizure for the enforcement of awards in foreign jurisdictions. Obtaining court orders compelling India to disclose assets held in foreign jurisdictions could be a crucial remedy.

Furthermore, a party seeking an injunction must demonstrate to the court that there is a prima facie case to grant the injunction in the applicant’s favour, that the balance of convenience favours the applicant seeking relief and that irreparable loss or injury will result if relief is not granted.

  • Devas Antrix Dispute: Getting an award enforceable against a State in Investor-State Disputes is just a battle half won.

The dispute

In January, 2005, Antrix, a wing of the ISRO agreed to build and operate two satellites which Devas intended to use for commercial purposes, however six years later Antrix cancelled the deal on grounds of sovereign capacity. To this, Devas instituted arbitral proceedings before the ICC. In addition to the initial ICC tribunal award concluding that Antrix wrongfully scrapped the deal and subsequently awarded Devas US$ 563 million plus interest, the Permanent Court of Arbitration at the Hague ruled against India itself for breaching its obligations under the Mauritius-India Bilateral Investment Treaty.

Obstacles with enforcement 

Despite getting awards in its favour, Enforcement of these awards still eludes Devas. In January 2021, Antrix applied to the NCLT for removing Devas’ board and appointing a “provisional liquidator” to take over the company’s management. On March 23, investors of Devas obtained a temporary restraining order from a US Court enjoining Devas (still under the control of the liquidator) from settling the dispute over payment of the ICC award. On March 29, however, the Court denied grant of temporary injunction in favour of Devas. This back-and-forth battle of enforcement shows that getting an award in one’s favour is just the half battle won. India’s resilience towards enforcement in this case is in line with Investor-state claims by Vodafone and Cairn Energy. In 2020, India lost an arbitration to Vodafone which was followed by retroactive imposition of taxes. India deemed it to be breach of its obligations under the relevant Bilateral Investment Treaty. Further, Cairn Energy also obtained an award worth US$ 1.2 billion against India over the retrospective levy of taxes. India’s resilience can cause detrimental to investor confidence and subsequently future FDI.


[1] MANU DE 0791 2021.

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