● KONKAN RAILWAY CORPORATION LTD.

VS RANI CONSTRUCTION
PVT. LTD.

A. Brief Facts of the Case:

In this case, a clause in the Scheme introduced by the Chief Justice to deal with applications
under Section 11 was called into question. The clause provided that notice should be given
to the other party before the Chief Justice makes the appointment of the arbitrator.

B. Laws Applicable:

1. Article 136 of the Constitution: Article 136 empowers the Supreme Court to grant special
leave to appeal from any judgment, decree, sentence or order in any cause or matter passed
or made by any court or tribunal in the territory of India.

2. Section 11 of The Arbitration and Conciliation Act, 1996: Section 11 of the Arbitration Act,
which provides detailed machinery for appointment of arbitrators through judicial
interference, if they are unable to agree on the said procedure, or constitute the arbitral
tribunal to their mutual satisfaction.

C. Issues of the Case:

1. Whether such an order was a judicial order or an administrative order?

2. Whether the Chief Justice or his nominee, acting under Section 11, has the authority to
decide any contentious issues between the parties to the alleged arbitration agreement?

3. Even if the said order is held to be administrative in nature what is the remedy open to
the person concerned if his request for appointment of an arbitrator is turned down by the
learned Chief Justice or his nominee, for some reason or other?

D. Ratio of the Case:

1. No need of Notice: The Court held that nothing under Section 11 required the Chief
Justice to give a notice or opportunity of hearing to the other party. It does not contemplate
a response from the other party. Therefore, the scheme framed by the Chief Justice being
against the Act was bad in law. The other party needs to be given notice of the request
under Section 11 only to assist the Chief Justice in the appointment of the arbitrator.

2. Function of Chief Justice: When the matter is placed before the Chief Justice or his
designate under Section 11 it was not appropriate for the Chief Justice or his designate to
entertain any contentious issues between the parties and decide the same. The only
function of the Chief Justice or his designate under section 11 is, to fill the gap left by a party
to the arbitration agreement or by the two arbitrators appointed by the parties and
nominate an arbitrator. This is to enable the Arbitral Tribunal to be expeditiously
constituted and arbitration proceedings to commence.

3. Arbitral Tribunal Jurisdiction: The nature and function performed by the Chief Justice or
his designate being essentially to aid the constitution of the arbitral tribunal, it could not be
held to be a judicial function. It was, therefore, held that an order under Section 11 refusing
to appoint an arbitrator was not amenable to the jurisdiction of this Court under Article 136
of the Constitution. Section 11 does not contemplate a decision on any controversy, the
party other than the requesting party may rise. Facts that nomination is to be made after
expiry of 30 days and qualifications of arbitrators along with considerations likely to secure
nomination of independent and impartial arbitrator are to be taken into account, do not
mean that an adjudicatory function is to be carried out.

To put it concisely, for an order properly to be the subject of a petition for special leave to
appeal under Article 136 it must be an adjudicatory order, an order that adjudicates upon
the rival contentions of parties, and it must be passed by an authority constituted by the
State by law for the purpose in discharge of the State’s obligation to secure justice to its
people.

Bhatia International (appellant) and Bulk Trading SA (respondent)

entered into a contract

with an arbitration clause providing for arbitration as per the rules of the International
Chamber of Commerce (ICC). A sole arbitrator was appointed by the ICC on request of the

respondent and the parties agreed for arbitration to be held in Paris. Thereafter, the

respondent filed an application under s.9 of the Act in the District Court, Indore, for
obtaining

an order of injunction restraining the appellant from transferring its business assets and

properties located in India. The appellant opposed the application by contending that Part I

of the Act, which contains s.9, applies only to arbitrations conducted in India. Dismissing this

objection, the lower court admitted the application. Hence, an appeal was made to the

Supreme Court for deciding whether an Indian court can provide interim relief under s.9 in

cases where an international commercial arbitration is held outside India.

CONTENTION OF THE PARTIES:

The respondent argued that a conjoint reading of the provisions of the Act shows that Part I

applies to arbitrations outside India unless the parties exclude its applicability by their

agreement.

In opposition, the appellant presented the following set of arguments:

S.2(2) specifically provides that Part I of the Act applies only to arbitrations held

inside India. For arbitration held outside India, Part II of the Act would apply.

Article 1 (2) of the UNCITRAL Model Law on International Commercial Arbitration

provides that Article 9 (which corresponds to s.9 of the Act) can be used by a party

even when the arbitration is not held in the territory of the State. The Act, which is

based on the UNCITRAL Model Law, omits the aforesaid wording. This implies that

the legislative intent was to render Part I inapplicable to arbitrations outside India.

Though s. 2(4) and s. 2(5)use the words “every arbitration” and “all arbitrations and
to all proceedings relating thereto” respectively, they are qualified by s. 2(2) and would
apply only when such arbitrations are held in India.

Foreign awards are governed by Part II which does not contain any provision similar

to s.9. This deliberate omission signifies that arbitrations outside India are to be

governed by the law of the place of arbitration or the applicable institutional rules.

S.9 provides that the application should be made either before or during the arbitration

or after the making of the award but before its enforcement under s.36. As s.36 deals

with enforcement of domestic awards only, it implies that s.9 was not intended to

apply to arbitrations leading to foreign awards.

S.5 proscribes any judicial intervention in arbitration proceedings except as provided

under the Act. Interim measures by Indian courts would violate this salutary principle

of minimum judicial intervention on which the Act is based.

VERDICT OF THE COURT:

The court accepted the respondent‟s contention that Part I applies to international
commercial

arbitration held outside India. To support its conclusion, it offered the following strands of

reasoning:

(1) Lacuna in respect of non-Convention countries: Part II of the Act does not apply to

awards made in non-Convention countries, i.e., countries which have not signed and

ratified the New York Convention, 1958 and the Geneva Convention, 1927. In the court‟s

opinion, such a lacuna could not have been intended by the legislature. Thus, it concluded

that a territorial limitation cannot be read into Part I.

(2) Proviso to s. 1(2): S. 1(2) states that the Act extends to the whole of India but puts a

proviso that in relation to the state of Jammu & Kashmir (J & K), it applies only in case
of international commercial arbitration. The court reasoned that this proviso does not

stipulate that Part I would apply to J & K only when the international commercial

arbitration is held in J & K, i.e., by implication it will apply in cases where international

commercial arbitration is held outside J & K. Thus, it would be anomalous to hold the

contrary in case of the rest of India.

(3) Inferences from definitions: In the court‟s opinion, the definition of international

commercial arbitration‟ in s. 2(f) makes no distinction between such arbitrations taking

place in India and those taking place outside India. Further, the definition of court does

not provide that Indian courts would not have jurisdiction when international commercial

arbitration takes place outside India. Lastly, the legislature would not have defined a
„domestic award‟ under s. 2(7) unless the intention was to cover awards from non
Convention countries (otherwise such awards would not be domestic awards).

(4) Inferences from s.8 & s.28: S.8 permits a judicial authority to refer the parties to

arbitration when an action in respect of a dispute covered by an arbitration agreement is

brought before it. The Court opined that if Part I was intended to apply only to

arbitrations inside India, the legislature would have used the term court instead of the

term judicial authority. The use of the latter term signifies that the legislature

contemplated that in an international commercial arbitration held outside India, the matter

may be taken before a judicial authority outside India. Thus, the term judicial authority

has been used. Further, s. 28 opens with the words where the place of arbitration is in

India‟. The Court reasoned that the use of these words was not necessary unless the Act

was applicable to arbitrations held outside India.

(5) Language of s. 2(2): The Court opined that s. 2(2) does not specify that Part I is to only
apply where the place of arbitration is in India. This implies that it is only an inclusive and
clarificatory provision.It explained the significance of this omission in the following words:

By omitting to provide that Part I will not apply to international commercial arbitrations
which take place outside India the affect would bethat Part I would also apply to
international commercial arbitrations held out of India. But by not specifically providing that
the provisions of Part I apply to international commercial arbitrations held out of India, the
intention of the Legislature appears to be to ally parties to provide by agreement that Part I
or any provision therein will not apply. Thus in respect of arbitrations which take place
outside India even the non derivable provisions of Part I can be excluded. Such an
agreement may be express or implied.Further, s. 2(4) and s. 2(5) are not subject to s. 2(2).
These sections provide that the Act is applicable to every arbitration and all arbitrations and
proceedings relating thereto respectively. The use of words of such wide import cannot be
restricted by reference to s.2(2) as it would amount to reading in words which are not
present in these sections.

PRESENT STATUS OF THE CASE (OVERRULED)

The Constitutional Bench of the Supreme Court ("Court") on September 6, 2012 in its
decision in Bharat Aluminum Co. ("Appellant") v Kaiser Aluminum Technical Service, Inc.
("Respondent"), after laudable consideration of jurisprudence laid down by various Indian &
foreign judgments and writings of renowned international commercial arbitration authors,
ruled that findings by the Court in its judgment in Bhatia International v Bulk Trading S.A &
Anr ("Bhatia International") and Venture Global Engineering v Satyam Computer Services Ltd
and Anr("Venture Global") were incorrect. It concluded that Part I of the Arbitration and
Conciliation Act, 19963 ("Act") had no application to arbitrations which were seated outside
India, irrespective of the fact whether parties chose to apply the Act or not. Hence getting
Indian law in line, with the well settled principle recognized internationally that "the seat of
arbitration is intended to be its center of gravity".
But this welcome overruling by the Court of its previous decisions will provide no relief to
the parties who have executed their arbitration agreements prior to the current judgment
as the Court, right at the end of its judgment, directed that the overruling was merely
prospective and the laws laid down therein apply only to arbitration agreements made after
September 6, 2012.

● Bharat Aluminum Company Limited (“BALCO”) V/s. Kaiser Aluminum

Technical Service, Inc. (“Kaiser”)

EXISTING POSITION:

In Bhatia International v Bulk Trading S.A & Anr. (“Bhatia International”) and Venture Global
Engineering v Satyam Computer Services Ltd & Anr (“Venture Global”), the Supreme Court
had held that Part I of the Arbitration and Conciliation Act, 1996 (“Act”) setting out the
procedures, award, interim relief and appeal provisions with respect to an arbitration
award, would apply to all arbitrations held out of India, unless the parties by agreement,
express or implied, exclude all or any of its provisions. The Supreme Court set aside the
doctrine in Balco V. Kaiser.

FACTS

1. An agreement dated 22 April, 1993 (“Agreement”) was executed between BALCO and
Kaiser, under which Kaiser was to supply and install a computer based system at BALCO’s
premises.

2. As per the arbitration clause in the Agreement, any dispute under the Agreement would
be settled in accordance with the English Arbitration Law and the venue of the proceedings
would be London. The Agreement further stated that the governing law with respect to the
Agreement was Indian law; however, arbitration proceedings were to be governed and
conducted in accordance with English Law.
3. Disputes arose and were duly referred to arbitration in England. The arbitral tribunal
passed two awards in England which were sought to be challenged in India u/s. 34 of the Act
in the district court at Bilaspur. Successive orders of the district court and the High Court of
Chhattisgarh rejected the appeals. Therefore, BALCO appealed to the Supreme Court
(“Court”).

4. Another significant issue to be adjudged, in the case of Bharti Shipyard Ltd. v/s Ferrostaal
AG & Anr. (clubbed together with the above petition for hearing), was applicability of
section 9 (interim measures) of the Act. The parties had initially agreed to get their disputes
settled through arbitral process under the Rules of Arbitration of the International Chamber
of Commerce, at Paris, subsequently, mutually agreed on 29 November, 2010 to arbitration
under the Rules of London Maritime Arbitrators Association, in London.

5. During the pendency of arbitration proceedings in London, an injunction application was

made by appellants, Bharti Shipyard Ltd., before the District Judge at Mangalore, against the
encashment of refund bank guarantees issued under the contract (u/s 9 of the Act). The
applications were allowed and were consequently challenged in High Court of Bangalore.
The Bangalore High Court set aside the application so allowed on the grounds that the
appellants had an alternative remedy (u/s 44 of the Act, being interim reliefs for
international arbitration) in the courts of London and further since the substantive law
governing the contract, as well as the arbitration agreement, is English law, the English
courts should be approached. This was also challenged in this petition to the Supreme
Court.

6. The appeal filed by Bharat Aluminum Co. before the Division Bench of the Supreme Court
was placed for hearing before a three Judge Bench, as one of the judges in the Division
Bench found that judgment in Bhatia International and Venture Global was unsound and the
other judge disagreed with that observation.

HELD
The judgment in detail analyses, the provisions of various sections in the Act and
applicability of Part I of the Act to international commercial arbitrations. Some significant
issues dealt with in the judgment are as follows:

1. It was observed that the object of section 2(7) of the Act is to distinguish the domestic
award (Part I of the Act) from the ‘foreign award’ (Part II of the Act); and not to distinguish
the ‘domestic award’ from an ‘international award’ rendered in India. The term ‘domestic
award’ means an award made in India whether in a purely domestic context, (i.e.,
domestically rendered award in a domestic arbitration or in the international arbitration
which awards are liable to be challenged u/s 34 and are enforceable u/s 36 of the Act).

2. It was held that there is a clear distinction between Part I and Part II as being applicable in
completely different fields and with no overlapping provisions.

3. The Court has also drawn a distinction between a ‘seat’ and ‘venue’ which would be quite
crucial in the event, the arbitration agreement designates a foreign country as the ‘seat’/
‘place’ of the arbitration and also select the Act as the curial law/ law governing the
arbitration proceedings. The Court further clarified that the choice of another country as the
seat of arbitration inevitably imports an acceptance that the law of that country relating to
the conduct and supervision of arbitrations will apply to the proceedings. It would,
therefore, follow that if the arbitration agreement is found or held to provide for a seat /
place of arbitration outside India, then even if the contract specifies that the Act shall
govern the arbitration proceedings, Part I of the Act would not be applicable or shall not
enable Indian courts to exercise supervisory jurisdiction over the arbitration or the award. It
would only mean that the parties have contractually imported from the Act, those
provisions which are concerned with the internal conduct of their arbitration and which are
not inconsistent with the mandatory provisions of the English procedural law or curial law.
Therefore, it can be inferred that Part I applies only to arbitrations having their seat / place
in India.

4. The Court dissented with the observations made in Bhatia International case and further
observed on a logical construction of the Act, that the Indian Courts do not have the power
to grant interim measures when the seat of arbitration is outside India. A bare perusal of
Section 9 of the Act would clearly show that it relates to interim measures before or during
arbitral proceedings or at any time after the making of the arbitral award, but before it is
enforced in accordance with Section 36 (enforcement of domestic awards). Therefore, the
arbitral proceedings prior to the award contemplated u/s 36 can only relate to arbitrations
which take place in India.

5. The Court further held that in foreign related international commercial arbitration, no
application for interim relief will be maintainable in India, either by arbitration or by filing a
suit.

IMPLICATIONS

1. This judgment shall be applicable prospectively (i.e. to all the arbitration agreements
executed after September 6, 2012).

2. As a result of this judgment, the seat of arbitration has now gained paramount
importance for determining the applicability of Part I of the Act.

3. The judgment also draws a distinction between the seat of arbitration and the place of
arbitration. It therefore contemplates a situation where even though the parties have
provided for a particular place for arbitration, that some of the proceedings themselves may
be conducted in other territories as may be convenient to all.

4. This judgment also ensures that foreign award (i.e. an award passed outside India) can no
longer be challenged by an Indian entity u/s 34 of the Act and that the party which seeks to
resist the enforcement of the award has to prove one or more grounds set out in section 48
of the Act.

5. No interim relief u/s 9 of the Act or order 39 of the CPC (both pertaining to injunction)
would be available where the seat of arbitration is outside India. As interim orders from
foreign courts and arbitration tribunals are not enforceable in India such a situation would
leave foreign parties remediless.

● Goel Construction Co. Pvt. Ltd. V. The Institute Of Chartered Accountants Of

India (ICAI)
Overview- The petitioner had filed this petition under section 14 of the Arbitration and
Conciliation Act, 1996 for challenging the mandate of the Arbitrator appointed by the
President of the respondent as he had not made the requisite disclosure under Schedule VI
of the Act. Court disposed the petition with a direction to the Arbitrator give the disclosure
within one week of communication of the order.

Arbitration Clause- That in case of any dispute or difference among the parties officials of
both sides shall try to resolve the same through discussions and conciliation, failing to which
the matter shall be referred to a sole arbitrator to be appointed by the President of the ICAI.
For the same, Arbitration and Conciliation Act, 1996 will be applicable. The award of the
arbitrator shall be final and binding on the parties.

Facts- Disputes arose between the parties, and for the same arbitration clause was invoked
as per which President ICAI appointed the sole arbitrator. The parties appeared before the
arbitrator. Petitioner contended that arbitrator wrongly said that the petitioner had no
objection to the constitution of the tribunal. In fact, on the date for raising objection for the
petitioner had not arisen as the petitioner was expecting a disclosure in terms of the Sixth
Schedule of the Act.

Grounds for objection

Arbitral Tribunal had any kind of relationship either with the Counsels or the parties.

President of the respondent himself being ineligible in terms of the Seventh Schedule of the
Act to act as an Arbitrator, cannot appoint another person to act as an Arbitrator.

Therefore, counsel contended for termination of proceedings.

Analysis- With regard to the non-disclosure, the court observed that the Arbitrator had
disclosed the major requirement under the Schedule and hence, the Arbitrator must be
under the misconception that he was not required to make any disclosure under Schedule
VI. The court disposed the Petition with a direction to the Arbitrator to make the Schedule
VI disclosure within one week of communication of the Order. As far as the challenge to the
power of the President of the Respondent to appoint the Arbitrator was concerned, the
court did not find any merit in the same.
Conclusion- The order clarifies that the requirement of disclosure is mandatory even if the
Arbitrator is not disqualified under Schedules V and VII of the Act. Through this Order, the
court has reiterated the importance of procedural compliance.

● Kerala State Electricity Board & Anr. V Kurien E. Kalathil & Anr (2018) 4 SCC
793

Coram: C.J.I. Ranjan Gogoi, J. R Banumathi

Overview

Supreme Court in this matter had a chance to rule upon whether parties could be referred
to arbitration based on mere oral consent given by the counsels representing parties,
without there being any written instructions to that effect. The matter came before the
Supreme Court by way of an appeal against the order of the Kerala High Court, which had
referred the parties to arbitration merely on the oral consent of the counsels.

Issue

Whether the order of the High Court was correct in referring the parties to arbitration upon
the oral consent of the parties’ counsels, in the absence of any written instructions to that
effect?

Factual Background

The State Electricity Board entered into an agreement in 1981 with the contractor for
construction of a dam in the state of Kerala. In 1983, after the work had commenced, the
Government of Kerala issued a notification through which minimum wages payable to
certain categories of workers were revised upwards with effect from the date of the
notification. The contractor accordingly claimed labour escalation charges along with claims
for additional work carried out by him. So far as the claim on additional work was
concerned, with the consent of the counsel for both parties and without existence of an
arbitration agreement or written instructions provided by the parties, the High Court
referred the parties to arbitration. Pursuant to such reference, an arbitral award came to be
passed in favour of the Contractor. The State Board preferred an appeal against the
decisions of the High Court before this Court. Judgment After pointing out the disputed
claims of additional work (Ex.P59) and on the oral consent of the counsel for the appellant,
the High Court has referred the parties to arbitration appointing Justice K.A. Nayar as the
arbitrator. Arbitrator/ Tribunal is a creature of the contract between the parties. There was
no arbitration agreement between the parties. The question falling for consideration is
whether the High Court was right in referring the parties to arbitration on the oral consent
given by the counsel without written instruction from the party.

Jurisdictional pre-condition for reference to arbitration under Section 7 of the Arbitration

and Conciliation Act is that the parties should seek a reference or submission to arbitration.
So far as reference of a dispute to arbitration under Section 89 CPC, the same can be done
only when parties agree for settlement of their dispute through arbitration in
contradistinction to other methods of alternative dispute resolution mechanism stipulated
in Section 89 CPC. Insofar reference of the parties to arbitration, oral consent given by the
counsel without a written memo of instructions does not fulfill the requirement under
Section 89 CPC. Since referring the parties to arbitration has serious consequences of taking
them away from the stream of civil courts and subject them to the rigour of arbitration
proceedings, in the absence of arbitration agreement, the court can refer them to
arbitration only with written consent of parties either by way of joint memo or joint
application; more so, when government or statutory body like the appellant-Board is
involved.

Emphasizing that under Section 89 CPC, referring the parties to arbitration could be made
only when the parties agree for settlement of the dispute through arbitration by a joint
application or a joint affidavit before the court,

With reference to Byram Pestonji Gariwala case, this Court made it clear that the counsels
should not act on implied authority unless there is exigency of circumstances demanding
immediate adjustment of suit by agreement or compromise and the signature of the party
cannot be obtained without undue delay. In that case it was held:

“37. We may, however, hasten to add that it will be prudent for counsel not to act on
implied authority except when warranted by the exigency of circumstances demanding
immediate adjustment of suit by agreement or compromise and the signature of the party
cannot be obtained without undue delay. In these days of easier and quicker
communication, such contingency may seldom arise. A wise and careful counsel will no
doubt arm himself in advance with the necessary authority expressed in writing to meet all
such contingencies in order that neither his authority nor integrity is ever doubted. This
essential precaution will safeguard the personal reputation of counsel as well as uphold the
prestige and dignity of the legal profession."

In Gurpreet Singh v. Chatur Bhuj Goel (1988) 1 SCC 270 and held that when parties enter
into a compromise, the court must insist upon the parties that the compromise be reduced
into writing.

Referring the parties to arbitration has serious civil consequences. Once the parties are
referred to arbitration, the proceedings will be in accordance with the provisions of
Arbitration and Conciliation Act and the matter will go outside the stream of the civil court.
Under Section 19 of Arbitration and Conciliation Act, the arbitral tribunal shall not be bound
by the Code of Civil Procedure and the Indian Evidence Act. Once the award is passed, the
award shall be set aside only under limited grounds. Hence, referring the parties to
arbitration has serious civil consequences procedurally and substantively. When there was
no arbitration agreement between the parties, without a joint memo or a joint application
of the parties, the High Court ought not to have referred the parties to arbitration.

Contention of the respondent-contractor is that the appellant- Board has not raised the
issue of absence of arbitration agreement before the Tribunal and the jurisdiction of the
Arbitral Tribunal. Since the appellant-Board has challenged the impugned order before this
Court in the matter pending for consideration, the appellant-Board could not have raised
the issue of lack of jurisdiction before the Arbitral Tribunal and the contention of the
respondent-contractor does not merit acceptance.

The Supreme Court exercising its powers under Art 136 re-appreciated all the evidence to
set aside both the judgment of the High Court and the arbitral award passed. Reliance was
placed on section 7 of the Act to emphasize that the condition for claiming reference to
arbitration u/s 7 is that the parties should apply for the reference. Even for a reference of
dispute under Section 89 of the CPC, it can only be done when parties agree for settlement
through arbitration.

Placing reliance on the judgments of the Supreme Court in Afcons Infrastructure Ltd. & Anr.
V. Cherian Varkey Construction Co. (P) Ltd. & Ors and Shailesh Dhairyawan v. Mohan
Balkrishna Lulla it was held that in the absence of an arbitration agreement, the court can
refer parties to arbitration only with written consent of parties either by way of a joint
memo or a joint application.

For reference of parties to arbitration oral consent given by the counsel without a written
memo of instructions doesn’t fulfill the requirement u/s 89 CPC.

● National Highways Authority of India v Sayedabad Tea Company 2019

What was the background?

The Highways Act is a comprehensive code enacted for inter alia acquisition of land and
for determining compensation and disbursement, as determined by the competent
authority under the Highways Act, to par- ties whose land may have been acquired. The
compensation so determined, if unacceptable to any party, may be adjudicated by an
arbitrator appointed by the Central Government under s 3G(5) of the Highways Act
which provides: ‘If the amount determined by the competent authority under sub-
section (1) or sub-section

(2) is not acceptable to either of the parties, the amount shall, on an application by
either of the parties, be determined by the arbitrator to be appointed by the Central
Government.’ It is a settled position that provi- sions of special law prevail over general
law.

The National Highways Authority of India (the NHAI) acquired a tea estate in 2007 in the
exercise of its pow- ers under the Highways Act (namely, s 3(D) of the Highways Act read
with notification dated 22 November 2005). Sayedabad Tea Company (the Tea
Company), being dissatisfied with the award of compensation determined by the
competent authority, filed an application for appointment of an arbitrator under s 3G(5)
of the Highways Act. The central government did not respond to the request within 30
days in accordance with the prescribed time-frame. The Tea Company moved an
 application under ACA 1996, s 11 before the High Court of Calcutta (the High Court).
During the pendency of the s 11 application the central government ap- pointed an
arbitrator.

The High Court decision

The High Court held that the central government’s power to appoint an arbitrator stood
forfeited and any ap- pointment during the pendency of proceedings before it was not a
valid appointment. The matter was re- ferred to the Chief Justice for the appointment of
an arbitrator by order dated 6 July 2007 (the Order).

NHAI filed a review of the application against the Order, challenging the maintainability
of the s 11 applica- tion. NHAI submitted that the Highways Act is a special enactment
laying down the procedure for the appointment of an arbitrator where the power to do
so is exclusively vested with the central government. The High Court dismissed the
review petition on the ground of maintainability.

What did the parties contend?

NHAI, relying on a recent two-bench judgment of the Supreme Court of India (the
Supreme Court) in General Manager (Project), National Highways and Infrastructure
Development Corporation Ltd v Prakash Chand Pradhan, Civil Appeal No 5250 of 2018,
submitted that:

• the Highways Act is a special enactment and a code in itself providing inter alia the
procedure of acquisition of land as well as determination of compensation. The application
needed to be moved under the Highways Act for the appointment of an arbitrator

• invoking ACA 1996, s 11 for the appointment of an arbitrator is in abrogation of the

central government’s powers under the Highways Act and such interference is not
permissible

The Tea Company, relying on the literal interpretation of sub-section (6) of section 3G of
the Highways Act, submitted that subject to provisions of the Highways Act, the
provisions of ACA 1996 were applicable to arbi- trations. In view of central government
having failed to appoint the arbitrator within the prescribed time-frame, there was no
 legal impediment in relying on provisions of ACA 1996 (Deep Trading Company v Indian
Oil Corporation 2013 94) SCC 35).

What did the Supreme Court decide?

The Supreme Court noted that in Prakash Chand, while dealing with the scope of sub-
sections (5) and (6) of section 3G of the Highways Act, it was held that the Highways Act
being a special enactment vesting exclu- sive powers with the central government for
appointment, ACA 1996, s 11 was not applicable (usage of the term ‘subject to’ in the
statute gave overriding effect to the Highways Act in relation to disputes for determining
compensation). In the event the central government fails to appoint an an arbitrator
within a reasonable time, parties could avail writ jurisdiction under article 226 of the
Constitution or file suit.

The Supreme Court further added that the Highways Act being enacted under Entry 23
of the Union List of the Seventh Schedule of the Constitution, is a comprehensive code
with exclusive powers to legislate with respect of highways declared as national
highways. The Highways Act being a complete code, provided an in-built mechanism not
only in initiating acquisition but also in determining compensation and the adjudication
of the same by an arbitrator, appointed by central government, failing which by the
court of law.

Re-affirming the settled principles of law that when a special law sets out a self-
contained code, the applica- tion of the general law would stand excluded, the Supreme
Court held that in view of exclusive powers being vested with the central government to
appoint an arbitrator under section 3G(5) of the Highways Act, being a special
enactment, the s 11 application filed before the High Court was not maintainable. The
Supreme Court relied on the ratio in Gujarat Urja Vikash Nigam Ltd v Essar Power
Limited (2008) 4 SCC 755, wherein stat- utory provisions of the Electricity Act 2003
adjudicating the dispute between the licensees and the generating companies were held
to be a special enactment and ACA 1996, s 11 was not made available to the parties.

What are the practical implications of this decision?

 This ruling has once again brought to the fore the discussion on special enactments
overriding the provisions of a general law. While in this case, the court held the
Highways Act to be special legislation and ACA 1996 to be general legislation, a three
judge bench of the court had earlier in the case of Consolidated Engineering Enterprises
v. Principal Secretary, Irrigation Department Civil Appeal No 11866 of 2018, held ACA
1996 to be special legislation while dealing with the question of the applicability of the
Limitation Act 1963 (the Limitation Act) to ACA 1996, inter alia holding that provisions of
ACA 1996 would override the provisions of the Limitation Act.

The Supreme Court in this decision placed reliance upon the two-judge decision in Essar
Power but not on the Consolidated Engineering Enterprises judgment. Such contrasting
approaches may lead to uncertainty on how the ACA 1996 would be viewed i.e. as
special or general legislation.

This ruling is yet another example of the infamous long delays, the judiciary taking 12
years to decide on the issue of appointment of arbitrators by central government or by
the High Court. Interestingly, after having taken more than a decade to resolve the issue
of appointment of an arbitrator, the Supreme Court has im- posed a time limit of no
more than six months, post Tea Company entering an appearance, to complete
proceedings, even though no such time limit exists under the Highways Act.

Notably, the government is one of the biggest litigators and embroiled in numerous
arbitrations. Special laws ousting the applicability of general laws has implications
wherein the government may use its legislative powers to enact special statutes to
circumvent the provisions of ACA 1996 and use it to its own advantage. Considering the
current government’s focus on ease of doing business in India and promoting
arbitration, it is essential that a larger bench of the Supreme Court finally settles the law
and adds clarity on the status of ACA 1996. Further conflicting decisions and ambiguity
would lead to more chaos and uncertainty for the arbitration framework in India.

● Venture Global Engineering V. Satyam Computer Services Ltd.

Brief Background
Venture Global Engineering (“Venture”) and Satyam Computer Services Ltd. (“Satyam”)
entered into a Joint Venture Agreement and a Shareholders Agreement to establish a
company called Satyam Venture Engineering Services (the “Company”). Thereafter the
Company entered into an agreement with TRW Inc. for IT services. Subsequently, a dispute
on the quantum of the retained receipts arose and the dispute were referred to arbitration.
The arbitrator, by an Award dated April 3, 2006, directed Venture to transfer its entire
shareholding in the Company to Satyam. Satyam filed a Petition for the recognition and
enforcement of the said Award before the U.S. District Court in Michigan. Following
Satyam’s Petition, Venture filed a Suit inter alia seeking a declaration to set aside the Award
under Section 34 of the Arbitration and Conciliation Act of 1996 (the “Act”). The Trial Court
dismissed the Suit on the grounds that the Award being a foreign Award could not be
challenged under Section 34 of the Act.

Venture challenged the Trial Court’s Order before the Andhra Pradesh and which challenge
came to be dismissed. Venture preferred a Special Leave Petition wherein the Supreme
Court by its Judgment held that a foreign Award could be challenged under Section 34 of the
Act and remanded the case to the City Civil Court at Hyderabad, directing the parties to
maintain status quo in relation to the transfer of shares. In or around 2008/09 Satyam’s
Chairman confessed to forging its Balance Sheets; PWC, Satyam’s Auditors also declared
that Satyam’s financial statements could no longer be considered reliable or accurate.
Venture filed an interim application before the Trial Court to bring certain facts on record
under the provisions of Order VIII Rule 9 of the Civil Procedure Code of 1908. The Trial Court
allowed Venture’s application which Satyam impugned before the Hon’ble Andhra Pradesh
High Court.

The High Court held in terms of that Section 34(1) and (3) of the Act a party could only set
aside an arbitral Award if an application for the same is made within a period of 3 months
from the date of making the Award However, in the instant case was attempting to bring
forward new grounds to challenge the Award were the expiry of such prescribed period and
proceeded to hold that such an application under Order VIII Rule 9 for bringing additional
facts on record did not lie. Venture once again approached the Supreme Court. The
Supreme Court was to consider whether additional facts that were brought to the notice of
Venture after the delivery of the arbitral Award could at all be used to challenge the Award.
Analysis of the Judgment

Particularly, the additional facts that Venture sought to introduce inter alia included (a)
details of exaggeration of the financial statements and accounts; (b) extracts of
investigations by SEBI and CBI into the “Satyam Scam”; (c) government ordered inspections
of Satyam affairs; (d) confessions of Mr. Raju on the diversion of funds and other such
criminal activities in relation to Satyam’s business. The Supreme Court was pleased to held
that an amendment to bring additional suppressed facts on record would be allowed as long
as the following conditions were must:-:

1. The facts concealed must have a causative link with the passing of the Award.

If the concealed facts, disclosed after the passing of the award, have a causative link with
the facts constituting or inducing the Award, such facts will be considered pertinent in a
setting aside proceeding and the Award may be set aside as affected or induced by fraud.

1. The expression ‘the making of the award’ has to be read in conjunction with whether
the Award ‘was induced or affected by fraud’;

After considering the legislative intent of the Act, the Court observed that it could not be the
intention of the Legislature to shut out amendments and determined to construe the
provisions of the Act, in particular Section 34, liberally and not narrowly. While taking into
account Section 34 of the Act, leave to amend grounds may be granted by a Court as long as
an application under Section 34 has been made within the stipulated time and if the peculiar
circumstances of the case and the interests of justice so demand. The Court observed that
while praying for an amendment, substance should be preferred to form and techniques;
however the most relevant consideration should be interests of justice. If a party is entitled
to amend its pleadings, this right cannot be defeated due to a technical mistake.

The Court rejected Satyam’s contention that the expression “making of the award” must be
narrowly confined to mean any fraud committed before the Arbitrator in the course of the
proceedings, anterior to the delivery of the Award and not what transpired subsequently.
The Court instead held that because such facts were suppressed and not in the public
domain, they could not have been included in the original pleadings by Venture, thus such
facts, which would have been relevant to the arbitrator’s final determination, should now
be allowed to be used to set aside the Arbitral Award. The Court therefore observed that
the expression “making of the award” will have to be read in conjunction with whether the
Award “was induced or affected by fraud”.

1. The concealment of relevant and material facts, which should have been disclosed
before the arbitrator, is in itself an act of fraud;

The Court looked at the facts as set forth in the additional pleading to determine if the
Award was induced or affected by fraud. After considering all such facts, the Court found
that they would have been relevant to the deliberation of the Arbitrator prior to delivery of
the Award Therefore, these new materials which if allowed to be incorporated by way of an
amendment, would show that the very basis of the fiduciary duties of Satyam to Venture
were breached and hence went to the way heart of the dispute that was being arbitrated
and should have been permitted by the High Court.

The Court commenced an in-depth discussion on fraud, noting that the term has wide
implication, encompassing different levels of criminal behavior with concealment of
information falling within one of those categories. The Court looked to Kerr on Fraud and
Mistake, 7th Edition which stated, “Fraud, in the contemplation of a civil court of justice,
may be said to include properly all acts, omissions and concealments which involve a breach
of legal or equitable duty, trust or confidence, justly reposed, and are injurious to another,
or by which an undue or unconscientiously advantage is taken of another.” Additionally, the
Court found its support in the Indian Contract Act, Section 17(2) of which described fraud as
active concealment of a fact by one who has knowledge or belief of that fact. Therefore, the
Court looked to the facts and found that the concealment / suppression of such facts about
Satyam’s financial records and books constituted fraud and that the Award was induced and
/ or affected by such fraud.

4. The interests of justice and the concept of an award being contrary to Indian public
policy are important considerations in allowing such new materials;
The Court further considered the principles of justice and public policy in allowing the
additional facts to come on record. The Court held that adopting a construction whereby a
party would not be permitted to rely on facts that would have been central to the Award
which have surfaced subsequently would defeat the principle of due process and would be
contrary to the concept of public policy. The importance of an arbitral award being in
harmony with public policy is so significant that it is referenced in Section 34(2)(b)(ii) and its
relevant Explanation herein:

“34. Application for setting aside arbitral award.-

2)

b. the Court finds that-

1. the subject-matter of the dispute is not capable of settlement by arbitration under

the law for the time being in force, or

2. the arbitral award is in conflict with the public policy of India.

Explanation.- Without prejudice to the generality of sub-clause (ii) it is hereby declared, for
the avoidance of any doubt, that an award is in conflict with the public policy of India if the
making of the award was induced or affected by fraud or corruption or was in violation of
section 75 or section 81.”

The Court acknowledged that the legislative intent thus suggested that any award that is
induced or affected by fraud or corruption would be contrary to the public policy of India. In
the present case, it seemed that the Award was contrary to the interests of justice because
certain vital information was concealed from the Arbitrator and therefore, was not taken
into consideration in the making of the Award. The concept of public policy is incapable of a
precise definition and is a rather vexed notion. The Court, citing the renowned Redfern and
Hunter on International Arbitration, observed that an attempt should be made to arrive at a
somewhat acceptable standard by construing that something is opposed to public policy
where there is an excess of jurisdiction and a lack of due process.

Any award induced or affected by fraud will fall within the grounds of excess of jurisdiction
and a lack of due process and thus be against public policy. Hence, the Award in the present
case was fraudulently derived as the relevant facts which were concealed from the
Arbitrator, ran counter to Indian public policy. The aggrieved party, in this case Venture,
must thereafter be allowed to challenge the Award when such suppressed information
came to his knowledge. Accordingly, in the interest of justice and considering the fairness of
procedure, the Court allowed Venture to bring the new materials on record as those
materials are not irrelevant and they may have a bearing on Venture’s plea for setting aside
the Award.

Conclusion

The Supreme Court has brought to light a more clear definition of fraud and its
interrelatedness with the concept of public policy in the interests of justice where it
concerns additional facts in setting aside an arbitral award. Hereafter, if there are concealed
facts, which come to light after the passing of an arbitral award, it must first be examined if
such facts have a causative link with the facts constituting or inducing the arbitral award and
if they would have been material or central to the passing of an award. Second, it should be
determined if the award was induced by fraud or corruption. If the additional relevant facts
were not in the public domain during the delivery of the award and were intentionally
suppressed, this constitutes an act of fraud. Finally, the Court should look to the Indian
public policy and determine if it would be contrary to the generally accepted standard of
public policy to bar the additional facts from being permitted. Therefore, if the new facts are
relevant and material, the concealment of which constitutes fraud, it opposes general public
policy principles and a party attempting to set aside an arbitral award will be allowed to
introduce the new facts and materials.
 ● Cheran Properties Limited v. Kasturi and Sons Limited

FACTS

An agreement was entered on July 19, 2004 between Sporting Pastime India Limited
(“SPIL”), Kasturi Sons and Limited (“KSL”), KC Palanisamy (“KCP”) and Hindcorp Resorts
Private Limited (“Hindcorp”). Under the agreement, SPIL was to allot 240 lakh equity shares
to KSL against the book debts due by it to KSL. KSL offered to sell 243 lakh equity shares to
KCP. KCP agreed to take over the business, shares and liabilities of SPIL as per the
Shareholders Agreement (“SHA”).

Clause 14 of the SHA provided:

“KSL hereby recognizes the right of KCP and/or his nominees to sell or transfer their holding
in SPIL to any other person of their choice, provided the proposed transferees accept the
terms and conditions mentioned in this agreement for the management of SPIL and related
financial aspects covered by this agreement”.

The SHA also contained a provision for dispute resolution by arbitration.

On 17 August 2004, a letter was sent from KCP, acting as the authorized signatory of Cheran
Properties Limited (“Cheran”), to KSL stating as under (“Letter”):

“Re: SHARE PURCHASE AGREEMENT DT. 19. 7. 04

In pursuance of the above Agreement, you have agreed to sell and our Group Companies, by
themselves and/or by their nominees have agreed to purchase shares in Sporting Pastime
India Limited of a face value of Rs. 2,430 lakhs, for a sum of Rs. 243.00 lakhs.
Accordingly, we send herewith seven Share Transfer Deeds duly executed by us and we
request you to execute the same and lodge them with Sporting Pastime India Limited
together with relevant Share Certificates for registering the transfers in the following
names… [including Cheran Properties Limited]”.

KCP failed to comply with its obligations under the Agreement. KSL and Hindcorp initiated
arbitration proceedings against KCP and SPIL. On December 19, 2009, the arbitral tribunal
made its award directing KCP and SPIL to return the share certificates of SPIL to KSL and
Hindcorp. Contemporaneously, KSL was directed to pay an amount of INR 3,58,11,000
together with interest at 12% p.a. on a sum of INR 2,55,00,000.

KCP challenged this award under Section 34 of the A&C Act. The challenge was dismissed by
the High Court of Madras and subsequently by the Supreme Court. The award attained
finality.

Since the award attained finality, KSL initiated proceedings against Cheran (on the basis that
Cheran is a nominee of KCP) to execute the award which directed transmission of shares.
KSL approached the NCLT to seek rectification of the register of SPIL under Section 111 of
the Companies Act, 1956 to effectuate the transmission of shares. The NCLT held that that
Cheran is a nominee of KCP and holds shares on its behalf. As such, NCLT had jurisdiction to
entertain the proceedings against Cheran for rectification of the register in order to
effectuate the transmission of shares from Cheran to KSL. This position was upheld by the
NCLAT and the Madras High Court on appeal. The present decision of the Supreme Court
was rendered in an appeal filed by Cheran (“Appellant” / “Cheran”) against the decision of
the High Court of Madras.

ISSUES BEFORE THE SUPREME COURT

Whether an arbitral award is binding on a third party (i.e. Cheran) who is not a signatory to
the arbitration agreement?

Whether an arbitral award relating to transmission of shares can be enforced by the NCLT
through the remedy of rectification of register of members under Section 111 of the
Companies Act, 1956?

CONTENTION OF THE PARTIES

Appellant’s Contentions

The appellant, Cheran, contended that it is not a signatory to the SHA, and hence, not a
party to the arbitration agreement under the SHA. Therefore, an arbitral award issued under
the terms of the SHA did not bind it.

An arbitral award must be enforced as a decree of a civil court and therefore, it could not
have been enforced by pursuing proceedings before the NCLT.

Respondent’s Contentions

The SHA clearly provides that the nominees of KCP would have to accept the terms and
conditions to the SHA. As such, the SHA and the arbitration agreement were binding on
Cheran.

It was necessary to approach the NCLT as it is the only forum to effectuate matters relating
to the transfer of shares.

JUDGMENT

An Arbitral Award is Binding on the Persons Claiming Under It The Supreme Court explained
that Section 35 of the A&C Act2 states that an arbitral award is “binding on the parties and
persons claiming under them”. The expression “persons claiming under them” is a legislative
recognition of the doctrine that besides the parties, an arbitral award binds every person
whose capacity or position is derived from and is the same as a party to the proceedings.
This expression was held to widen the net to include those who claim under the award,
irrespective of whether such person was a party to the arbitration agreement or the arbitral
proceedings. Hence, the pertinent question remained as to when can a party, a non-
signatory to an arbitration agreement, be considered to claim under a party.

The Court placed heavy reliance on the case of Chloro Controls3 to expound on the
principles and categories of relationships which would qualify a non-signatory to be a
person claiming under a party. The first category involved relationships entailing third-party
beneficiaries, guarantors, assignment and other transfer mechanisms of contractual rights.
The legal basis to connect these relationships is implied consent and good faith. The second
category involves agent and principal, apparent authority, piercing of veil, joint venture
relations, succession and estoppel; the legal basis being force of the applicable law. The
third category involves group of companies. The legal basis to connect an arbitration
agreement entered by a company within a group of companies with its non-signatory
affiliates is mutual intention i.e. if the circumstances demonstrate that the mutual intention
of the parties was to bind both the signatory as well as the non-signatory parties.

Relying on these principles, the Supreme Court conducted a scrutiny of the facts to
determine whether Cheran would qualify as a party under KCP, so as to bind Cheran with
the SHA entered into between KCP and KSL.

The Court considered that the parent agreement i.e. the SHA dated July 19, 2004 envisaged
the allotment of equity shares of KSL to KCP with the intent that KCP would take over the
business, assets and liabilities of SPIL. While KCP was entitled to transfer his shareholding,
this was expressly subject to the condition of the acceptance by the transferee of the terms
and conditions of the agreement. As such, Cheran being KCP’s transferee had accepted the
terms of the SHA. Further, KCP’s letter dated 17 August 2004 to KSL contained a specific
reference to the SHA. It was in pursuance of that agreement that KCP indicated, as
authorized signatory of the appellant, that his group of companies had agreed to purchase
the shares in SPIL. Quoting its holding in Chloro Controls, the Supreme Court held that the
facts in this case display a mutual intention of the parties to be bound by the arbitral award.
NCLT can effectuate transmission of shares

The Court dealt with the issue of execution of an arbitral award through the NCLT. The
arbitral award envisaged that KSL was entitled to the return of documents of title and the
certificates pertaining to the shares of SPIL, contemporaneously with the payment or
tendering of a sum of INR 3.58 crores together with interest. Thus, KSL was entitled to the
share certificates in terms of the arbitral award. That necessarily meant transfer of the share
certificates.

The Court resorted to Section 35 of the A&C Act on finality of arbitral awards. It held that
the central facet of Section 35 is that an arbitral award shall be final and binding on the
parties and persons claiming under them. The mere fact that Cheran was not a party to the
arbitral proceedings did not conclude the question as to whether the award can be enforced
against it. Hence, the arbitral award could be executed against Cheran on the ground that it
claimed under a party i.e. KCP.

The arbitral award has the character of a decree of a civil court under Section 36 and is
capable of being enforced as if it were a decree. To effectuate the transfer of shares
awarded in the arbitration proceedings, recourse to the remedy of the rectification of the
register under Section 111 was appropriate and necessary. Thus, armed with that decree,
KSL was entitled to seek rectification before the NCLT by invoking the provisions of Section
111 of the Companies Act, 1956.

Therefore, the remedy to approach the NCLT to effectuate the transfer of shares through
rectification in register was held to be competent.

ANALYSIS

The judgment of the Supreme Court is exemplary of its approach to facilitate expedient
execution of arbitral awards by identifying and tapping powers of competent fora, other
than solely civil courts, to execute awarded remedies. In the instant case, the Court
identified and recognized the power of NCLT to execute an award that directed transmission
of shares. It is pertinent to note that this power would only be confined to specific instances
under the Companies Act that make it quintessential to approach the NCLT for execution.

Through this judgment, the Court has ruled out a potential added layer of execution of
arbitral award as a decree of the court i.e., by way of first approaching the court that has
jurisdiction over the arbitral proceedings, followed by the court within whose territory the
assets are located or the appropriate remedy (as in the instance case) can be sought.

The Court has thus adopted a dynamic view by ruling that the NCLT can enforce arbitral
awards, relating to transmission of shares. However, it remains to be seen as to how courts
will address situations where an arbitral award grants remedies that can be executed by
several different competent fora. Nevertheless, this is a welcome change, following another
recent decision4 of the Supreme Court which affirmed that execution proceedings can be
initiated anywhere in the country without having to obtain a transfer decree from the court
which had jurisdiction over the arbitral proceedings. The enforcement-friendly approach of
the Supreme Court will certainly increase the ease of execution of arbitral awards in India
and foster an environment of speedy execution

Hindustan Construction Company Limited & Anr v Union of India

FACTUAL BACKGROUND

The Petitioner, Hindustan Construction Company Limited (HCC), is an infrastructure

company involved in the business of large scale infrastructure projects undertook these
projects as a contractor for various government bodies and government companies like the
NHAI, NHPC, NTPC, IRCON International and various public works department.

Due to the nature of these projects and the cost overruns involved, HCC eventually had
disputes with these government bodies and government companies. In the arbitral
proceedings that ensued, several awards were passed in favour of HCC. These awards were
challenged pursuant to the provisions of Section 34 of the Arbitration Act. Invariably, due to
the newly inserted Section 87, by such challenges to the arbitral awards, the award debtors
(i.e. the government companies and government bodies) were successful in getting
automatic stays on the execution proceedings. HCC’s primary contention was that this
would further delay the process of enforcement of an arbitral award and create new hurdles
for companies like HCC who are bona fide award creditors.

Additionally, this meant a double whammy for HCC. On one hand, filing of challenge to the
arbitral award would be construed a disputed debt for the purposes of IBC and if any
petitions were filed by HCC as an operational creditor, the same would be rejected as not
maintainable, and on the other hand, various operational creditors that had supplied labour
and machinery for such projects, were issuing demand notices to HCC.

In light of this, HCC sought to challenge the constitutional validity of Section 87 of the
Arbitration Act, deletion of Section 26 of the 2015 Amendment Act and certain provisions of
the IBC.

ARGUMENTS OF THE PARTIES

By HCC:

HCC argued that the Arbitration Act is based upon the UNCITRAL Model Law on
International Commercial Arbitration. Article 36(2) of UNCITRAL Model Law provided that in
case applications are filed for setting aside or suspending an award, the other party may be
required to provide security. However, Section 36 of the Arbitration Act has been construed
as granting an ‘automatic stay’ when an application to set aside an arbitral award is filed and
this was incorrect.
It was also submitted by HCC that despite the BCCI decision, Section 87 was introduced. The
BCCI decision was brought to the notice of the Ministry of Law and Justice, but the
legislature solely relied on the Justice Srikrishna Committee Report and went ahead and
enacted Section 87. As a result, the basis of the BCCI decision was sought to be removed
without even a mention of the same, thereby making enactment of Section 87
unconstitutional.

HCC also argued that Section 87 destroyed a level playing field in relation to enforcement of
arbitral awards by re-imposing an arbitrary cut-off date qua application of the amended
Section 36. It was further submitted that introduction of Section 87 was also against the
principle of cutting down judicial delays and minimum court intervention in arbitral process,
as espoused by Section 5 of the Arbitration Act.

With regard to challenges faced by it due to IBC, HCC submitted that exclusion of
government bodies from the ambit of IBC was arbitrary, discriminatory and violative of
Articles 14 and 19(1)(g) of the Constitution of India. Accordingly, either the definition of
‘corporate person’ as contained in section 3(7) of the Insolvency Code should be read down
without the words “with limited liability” in the third part of the definition, or section 3(23)
(g) which defines ‘person’ should be read into section 3(7) so as to create a level playing
field and include government bodies.

It was submitted by HCC that the IBC mechanism was absent for forcing debtors of a
corporate debtor to make payments, to avoid insolvency of such corporate debtors and
therefore the Court should accordingly fill the gaps to save IBC by using the doctrine of
‘cassus omissus’. HCC also argued that the IBC should provide for a set-off mechanism to
deal with a situation where the corporate debtor has debtors of its own.

By Union of India:
Union of India submitted that the interpretation given to Section 26 of the Arbitration Act in
the BCCI decision was only declaratory in nature and did not set aside either an executive
action or a statutory provision. Accordingly, if the Parliament finds that a view expressed by
Supreme Court does not reflect the Parliament’s original intent, then the parliament can
rectify the same and clarify its original intent through an amendment.

This is in fact what has been done by deleting Section 26 and inserting Section 87.

As regards the constitutional challenge to the provisions of IBC was concerned, it was
submitted that a writ petition under Article 32 of the Constitution of India cannot be
converted into recovery proceedings. The IBC is not a statute for recovery of debts, but is a
statute for reorganization of corporate persons and resolution of stressed assets of
corporate persons. Whilst government companies fall within the ambit of IBC, government
bodies like NHAI are outside the realm of IBC because these bodies function as an extended
limb of the government and carry out sovereign functions.

JUDGMENT

Constitutional challenge to Section 87:

The Supreme Court held that insertion of Section 87 and deletion of Section 26 of the
Arbitration Act was unconstitutional on the ground of manifest arbitrariness.

It was of the view that Section 87 was introduced pursuant to the Justice Srikrishna
Committee Report. The Supreme Court knew of the Srikrishna Committee Report when
deciding the BCCI case. The inconsistencies or uncertainties that existed with regard to
commencement and applicability of the 2015 Amendment Act, were all put to rest by the
BCCI judgment. The introduction of Section 87 was wholly without justification and was
contrary to the objectives of the 2015 Amendment Act. In the BCCI decision, the Supreme
Court had emphasized that provisions such as Section 87 would turn the clock backwards
and put all important amendments as introduced by the 2015 Amendment Act on the
backburner.

The Supreme Court opined that the 2015 Amendment Act corrected the mischief of
misconstruction of Section 36 after a period of more than 19 years.

The Supreme Court also held that its earlier decisions in National Aluminium Company Ltd v
Pressteel & Fabrications (P) Ltd & Anr (2004 1 SCC 540 andFiza Developers and Inter-trade
Pvt Ltd v AMCI (India) Pvt Ltd and Anr (2009) 17 SCC 796, where it was held that an arbitral
award when challenged, becomes inexecutable and an unconditional automatic stay comes
into play because of the language of Section 36, were plainly incorrect.

Constitutional challenge to certain provisions of IBC:

The Supreme Court held that government bodies such as NHAI were essentially an extended
limb of the government and performed governmental functions, which makes them
unamenable to the provisions of the IBC. Therefore, the Supreme Court rejected HCC’s
argument to either read Section 3(23)(g) in Section 3(7) or read down the definition of
‘corporate person’ in section 3(7) of the Insolvency Code so as to include government
bodies even if they are not limited liability corporations.

The Supreme Court also refused to exercise the doctrine of cassus omissus, so as to provide
an IBC mechanism for forcing debtors of a corporate debtor to make payments, to avoid
insolvency of such corporate debtors. The Court was of the view that being an economic
legislation, IBC has a higher threshold of challenge and gives the Parliament a free play in
the joints.

CONCLUSION

This judgment reinstates the position of law as it stood after the Supreme Court’s decision in
BCCI and saves the amendments such as those to Section 36 from being put on a back
burner.

Resultantly, where fresh court proceedings such as challenge to an arbitral award are
concerned (i.e. court proceedings initiated after 23 October 2015), then irrespective of
commencement of arbitral proceedings (i.e. whether prior to or after the commencement of
the 2015 Arbitration Act) the 2015 Amendment Act will apply.This would effectively mean
that even if parties challenge an arbitral award today, which was passed in an arbitration
which commenced prior to 2015 Amendment Act, the provisions of 2015 Amendment Act
will apply. Consequently, there will be no automatic stay merely on filing of a court
proceeding challenging the arbitral award. Pertinently, the Supreme Court has clarified that
even the unamended Section 36 (i.e. as originally incorporated in the Arbitration Act) never
meant that mere challenge to the arbitral award would kickstart an automatic stay and
render the award inexecutable.

Cumulatively, unless the award debtor is successful in getting a stay on the arbitral award,
the award can be enforced immediately. Further, before granting a stay on enforcement of
an arbitral award, the Courts may impose certain conditions in order to ensure the bona
fides of the party seeking to challenge the award.

● HRD VS GAIL

FACTS
GAIL (India) Limited (GAIL) entered into a contract with HRD Corporation (Marcus Oil and
Chemical Division) (HRD) on 1 April 1999 (the Agreement) for supply of wax generated at
GAIL’s plant for a period of 20 years. A similar dispute arose between the parties on various
occasions and consequently HRD invoked the arbitration clause in the Agreement at various
times. In total, four separate arbitrations took place.
The present case before the Supreme Court concerned the Fourth Arbitration. Justice
Lahoti’s (Chair) appointment was challenged on the following grounds:
Items 201 (3.1.1 of the Orange List of IBA Guidelines) and 22 2 (3.1.3 of the Orange List of the
IBA Guidelines) of the Fifth Schedule to the Act were applicable thereby giving rise to
justifiable doubts as to his independence and impartiality;
Items 13 (corresponds with 1.1 of non-waivable Red List of IBA Guidelines), 8 4 (2.3.7 of
waivable Red List of IBA Guidelines), and 15 5 (2.1.1 of waivable Red List of IBA Guidelines) of
the Seventh Schedule to the Act were applicable thereby making him ineligible to act as
arbitrator.
If Appointment of Justice Doabia is bad then the appointment of Justice Lahoti is also bad as
an ineligible arbitrator (Justice Doabia) cannot appoint another arbitrator.
Justice Doabia’s appointment was challenged on the ground: *Int. A.L.R. N-2
that items 16,157,168 (corresponds with 2.1.2 of waivable Red List of IBA Guidelines) of the
Seventh Schedule were applicable thereby making him ineligible to act as arbitrator.

HELD
The Supreme Court highlighted the difference in the role of the Fifth Schedule and Seventh
Schedule to the Act. The Supreme Court referred to the 246th Report of the Law
Commission of India (the Report). As per the report, the Fifth Schedule is intended to
contain a broader list for disclosures (i.e. circumstances provided under the Red and Orange
list) to be made by the arbitrator at the time of appointment. On the other hand, the
Seventh Schedule incorporates a smaller sub-set covering egregious situations (i.e.
circumstances provided under the Red list) which automatically render the arbitrator
ineligible for appointment.
It observed that where a challenge is based on the circumstances identified under the Fifth
schedule, the issue i.e. whether there are justifiable doubts as to the arbitrator’s
independence and impartiality, should be separately determined given the facts of the case.
On the other hand, the occurrence of circumstance provided under the Seventh Schedule
itself renders a person ineligible to be appointed as the arbitrator. It further held that while
a challenge based on the grounds mentioned in Seventh Schedule can be made directly to
the court, the appointment of an arbitrator based on circumstances under the Fifth
Schedule can be questioned only post the award, i.e. at the setting aside stage. Accordingly,
the Supreme Court held that any challenge on the basis of Fifth Schedule against
appointment of the two arbitrators could not be considered at the given stage (i.e. pre-
award).
Importantly, the Court held that since the Fifth and Seventh Schedules owe their origins to
the IBA Guidelines, they should be construed considering general principles contained
therein, i.e. (i) every arbitrator shall be impartial/independent at the time of his/her
appointment; (ii) doubts with respect to the appointment are justifiable only if a third party
would reach a conclusion that an arbitrator is likely to be influenced by factors other than
the merits of the case. Accordingly, it requires a fair construction of words used in the
schedules neither tending to enlarge or restrict them unduly. It was against this backdrop
that the court considered the matters listed in the Seventh Schedule and the underlying
facts.
Justice Lahoti had earlier issued a legal opinion to GAIL in another dispute and he was also
an arbitrator in another matter involving GAIL. This was the basis of HRD’s challenge to his
appointment. However, the Court dismissed the challenge and held that:
Item 19: It deals with business relationships and not professional relationship. Also, it
involves a degree of regularity or continuity in relationship. Giving one-off legal opinion as a
retired judge is not tantamount to a business relationship between the parties such as to fall
within the circumstance under Item 1.
Item 810: No regular advice was provided and thus the situation is not as provided under
item 8.
Item 1511: Item 15 is not applicable as the legal opinion was not in relation to the dispute in
the arbitration.
HRD’s challenge to the appointment of Justice Doabia was primarily on the ground that he
had previously rendered an award in the third arbitration. Therefore, he is hit by item 16 of
the Seventh Schedule which entails that *Int. A.L.R. N-3 arbitrator should not have previous
involvement in the case. The Court held that: (i) the arbitrator’s previous involvement in the
case meant involvement in some other capacity and not as an arbitrator; (ii) previous
involvement must be in the very dispute in arbitration where he is appointed as an
arbitrator and not a different dispute/arbitration; and (iii) any other interpretation would
render Item 24 of the Fifth Schedule largely ineffective. Accordingly, as
Justice Doabia was acting in capacity of an arbitrator and that the involvement in Third
Arbitration would constitute involvement in a different case, the facts would not fall within
the circumstance provided under Item 16 of the Seventh Schedule.

● Sai Babu v. M/s Clariya Steels Pvt. Ltd1(May 1, 2019)

BACKGROUND

Recently, the issue which arose for determination before Supreme Court was whether an
arbitral tribunal can recall its order terminating the arbitration proceedings under section
32(2)(c)2 of the Arbitration and Conciliation Act, 1996 (“the Act”).
FACTS

In the matter of an arbitration between Sai Babu (“Sai”) and M/s Clariya Steels Pvt. Ltd.
(“Clariya”), the Ld. Sole Arbitrator (“Ld. Arbitrator”) terminated the arbitration proceedings
under section 32 (2)(c) of the Act vide an order dated May 4, 2017 (“Termination Order”).
An Application dated May 5, 2017 was filed before the Ld. Arbitrator for recall of the
Termination Order (“Application for Recall”). The Ld. Arbitrator found merit in the
Application for Recall and recalled the Termination Order by its order dated May 18, 2017
(“Recall Order”).
Aggrieved by the Recall Order, Sai filed a writ petition under Articles 226 and 227 of the
Constitution of India (“Writ Petition”) before the Karnataka High Court (“High Court”) and
prayed for setting aside of the Recall Order. By its order dated June 14, 2017 (“HC Order”),
the High Court upheld the Recall Order and rejected the Writ Petition.

Aggrieved by the HC Order, Sai filed a special leave petition before the Supreme Court. The
question before the Supreme Court was regarding the validity of the Recall Order.

OBSERVATIONS OF THE COURT

The Supreme Court perused its observations in SREI Infrastructure3, wherein it had
determined whether the arbitral tribunal has jurisdiction to consider an application for
recall of its order terminating the arbitration proceedings under section 25 (a)4 of the Act
upon sufficient cause been shown by the claimant in the arbitration. In SREI Infrastructure5,
the Supreme Court juxtaposed section 25 (a) of the Act with section 32 of the Act, and inter
alia observed as follows:

 The conjunctive usage of the phrase “where without showing sufficient cause” and
“the claimant fails to communicate his statement of claim” in section 25(a) of the Act
indicates that the tribunal is duty bound to inform the claimant that he has failed to
communicate his statement of claim and to call upon the claimant to show cause why the
arbitral proceedings should not be terminated; and such an opportunity to show “sufficient
cause” under section 25(a) of the Act can only be given after the claimant has failed to file
the statement of claim;
 The eventuality envisaged in section 32 of the Act shall only arise when the claim has
not terminated under section 25 (a) of the Act and proceeds further;
 The usage of the words “unnecessary” or “impossible” as used in section 32(2) (c) of
the Act envisages situations other than where proceedings have been terminated due to
default of the claimant (as provided under section 25 (a) of the Act i.e. failure to
communicate statement of claim); and

2 “32. Termination of proceedings.-(1) The arbitral proceedings shall be terminated by the

final arbitral award or by an order of the arbitral tribunal under sub-section (2).
(2) The arbitral tribunal shall issue an order for the termination of the arbitral
proceedings where—
(a) the claimant withdraws his claim, unless the respondent objects to the order and the
arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of
the dispute;
(b) the parties agree on the termination of the proceedings; or
(c) the arbitral tribunal finds that the continuation of the proceedings has for any other
reason become unnecessary or impossible.
(3) Subject to Section 33 and sub-section (4) of Section 34, the mandate of the
arbitral tribunal shall terminate with the termination of the arbitral proceedings.”
3 SREI Infrastructure v. Tuff Drilling Private Limited, (2018) 11 SCC 470
4 “25. Default of a party.—Unless, otherwise agreed by the parties, where, without showing
sufficient cause,—
(a) the claimant fails to communicate his statement of claim in accordance with sub-
section (1) of Section 23, the arbitral tribunal shall terminate the proceedings;
(b) the respondent fails to communicate his statement of defence in accordance with
sub-section (1) of Section 23, the arbitral tribunal shall continue the proceedings without
treating that failure in itself as an admission of the allegations by the claimant 1[and shall
have the discretion to treat the right of the respondent to file such statement of defence as
having been forfeited];
(c) a party fails to appear at an oral hearing or to produce documentary evidence, the
arbitral tribunal may continue the proceedings and make the arbitral award on the evidence
before it.”
5 SREI Infrastructure v. Tuff Drilling Private Limited, (2018) 11 SCC 470

 While the legislature has used the terms “mandate of the Arbitral Tribunal shall
terminate” in section 32(3) of the Act, it has omitted the same in section 25 of the Act.
Therefore, the implied objective of the said omission would be that if the claimant shows
“sufficient cause” under section 25 (a) of the Act, the proceedings can be recommenced.

Noting and relying upon the above distinction drawn in SREI Infrastructure6 between the
mandate of the arbitrator terminating under section 32 of the Act and the proceedings
coming to an end under section 25 of the Act, the Supreme Court concluded that “this court
has clearly held that no recall application would, therefore, lie in cases covered by section
32 (3)”.