Landmark cases in Arbitration

&
Overview of the Judicial Trends
Group 1
Nitika E001
Rohan Bhatia E011
Saurabh Dubey E021
Shaily Kasaundhan E031
Siddharth Mishra E041
Pankaj Rungta E051
Tanmay Tiwari E061
 Overview of topics
Introduction – Rohan
Case 1 – Tanmay
Case 2 - Nitika
Case 3 – Shaily
Case 4 - Pankaj
Judicial Trends - Saurabh
Challenges & Conclusion – Siddharth
 Arbitration Law
• Arbitration is “a legal technique for the resolution of disputes outside the courts,
wherein the parties to a dispute refer it to one or more persons (the “arbitrators” or
“arbitral tribunal”), by whose decision (the “award”) they agree to be bound.”
• The two parties to the arbitration have control over the selection of the arbitrator, as
compared to a court case where the judge and jury selection is out of the hands of the
two parties.
Advantages
• The speed and informality of the arbitration process is a major reason why many
businesses select arbitration over litigation. Arbitration can be a shorter process, and if
no attorneys are needed, it can be less costly.
• Arbitration hearings are private, and the results are not part of the public
record. Sometimes if the parties want, arbitrators can decide things that judges are not
allowed to decide.
 Arbitration Agreement – an independent agreement
An arbitration clause which forms part of the contract, is treated as an independent agreement and is
severable from the main contract.
An arbitration clause survives the main contract: merely because the contract is ruled to be null and void,
does not entail ipso jure, the invalidity of the arbitration clause.
i. Termination
ii. Repudiation
iii. Cancellation
iv. Rescission
The arbitration clause does not survive:
i. Substituion by a new contract
ii. Discharge of the contract
iii. Illegal, void, fraudulent – voidable contract
 Arbitrability explained
Certain disputes are not capable of resolution through arbitration eg. Disputes arising
out of criminal offences, insolvency and winding up disputes, testamentary matters
(settlement of estate of the deceased)

Generally,
- A right in rem is not arbitrable, i.e. a right available/enforceable against the entire
world (eg. declaration of ownership of a patent), but
- A right in personam is arbitrable, i.e. a right available/enforceable against a specific
person, which binds only the litigants (eg. declaration of validity of a patent license
from A to B)
 Arbitration law in India: A Changing Landscape
The law of arbitration in India has been evolving to complement the needs of India’s
globalizing economy. India intends to elevate arbitration as the preferred mode of dispute
resolution, for both international and domestic businesses operating in India.

Over the past few years, there have been catena of pro arbitration judgments passed by
the various High Courts and the Supreme Court of India, as well as legislative
amendments to the Arbitration and Conciliation Act, 1996 in 2015 and 2019
Arbitration law in India: A Changing Landscape
After two abandoned attempts to amend the law of arbitration in India – in 2001 and in
2002, the Amended Act, 2015 has been a remarkable step towards remedying the
blemishes to the law of arbitration in India.

The Amendment Act, 2015 has introduced Section 29-B which provides for a fast track
procedure for arbitrations. Under this provision, notwithstanding anything contained in
the Act, the parties may opt for fast track arbitral proceedings where a sole arbitrator
must deliver the arbitral award within six months of appointment of the arbitrator. The
procedure adopted is generally restricted to document only proceedings, with oral
hearings requested by the arbitrator only when necessary.
Landmark Case 1: Cheran Properties Ltd. v Kasturi
and Sons Ltd. & Ors. Civil Appeal 10025/2017
In this case of April, 2018, the Supreme Court Bench while deciding the issue \ whether a
non-signatory to an arbitration agreement is bound by the same or not, the Apex Court
has held that that in certain situations, an arbitration agreement between two or more
parties may operate to bind other parties as well.

The Court’s observation was that the fact that the appellant was not a party to the arbitral
proceedings will not conclude the question as to whether the award can be enforced
against it on the ground that it claims under a party.
 Brief facts about the Case
In the case an arbitration agreement was entered into between KC Palanisamy (KCP), KSL
and SPIL and a company by the name of Hindcorp Resorts Pvt. Ltd. (Hindcorp).

Later on disputes arose between the parties resulting in the commencement of arbitral
proceedings.

Under the terms of the award, a direction was issued under which KCP and SPIL were
required to return documents of title and share certificates contemporaneously with KSL
paying an amount of Rs 3,58,11,000 together with interest at 12% p.a. on a sum of Rs
2.55 crores.
 Bench’s Verdict
KCP challenged the award of the arbitral tribunal under Section 34 of the Arbitration and
Conciliation Act, 1996 on the ground that the arbitral award could not be executed
against the appellant which is admittedly not a signatory to the agreement.
The Verdict: The Three-Judge Bench of the Supreme Court headed by Chief Justice Dipak
Misra dismissed the appeal and made the following observations in the case:
1. Whether a non-signatory to arbitration agreement is bound by the same?
The Court opined that in holding a non-signatory bound by an arbitration agreement, the
Court approaches the matter by attributing to the transactions a meaning consistent with
the business sense which was intended to be ascribed to them. Therefore, factors such as
the relationship of a non-signatory to a party which is a signatory to the agreement, the
commonality of subject matter and the composite nature of the transaction weigh in the
balance.
Bench’s Verdict (Contd.)
2. Why does the law postulate that there should be a written agreement to arbitrate?
The Court held that the mandate to have a written agreement is to exclude the jurisdiction
of national courts. Where parties have agreed to resolve their disputes by arbitration, they
seek to substitute a private forum for dispute resolution in place of the adjudicatory
institutions constituted by the state.

The Apex Court in the case has eventually held that the fact that the appellant was not a
party to the arbitral proceedings will not conclude the question as to whether the award
can be enforced against it on the ground that it claims under a party.
Landmark Case 2: BGS SGS SOMA JV v NHPC Ltd
A contract was signed between NHPC and it’s contractor BGS SGS SOMA JV for India’s
hydroelectric project in Assam and Arunachal Pradesh.

The arbitration took place in New Delhi, and the award was passed and signed in New Delhi. There
was a dispute amongst the parties regarding the jurisdiction of the court to hear a petition
challenging the arbitral award. However, NHPC filed the petition to challenge the award before
the court in Faridabad. BGS SGS SOMA sought transfer of the challenged petition to the
appropriate court in New Delhi, which was granted.

Against that order, NHPC filed an appeal before the Punjab & Haryana HC, where the HC held that
the jurisdiction to hear the challenged petition lies with the court in Faridabad since the cause of
action arose in Faridabad and that the courts in New Delhi had no jurisdiction as New Delhi was
the “venue” and not the “seat”.
 Bench’s Verdict
BGS SOMA filed an appeal against this decision before the Supreme Court.

Supreme Court held that the place of arbitration must be treated as it’s
judicial seat unless there are significant contrary indicators.

The decision helps clarify a contentious area of arbitration law by

distinguishing between “place”, “venue”, and “seat”.
Landmark Case 3: Kerala State Electricity Board
and Anr. v Kurien E. Kathilal
In the case, the Appellant State Electricity Board had entered into an agreement with respondent
contractor for construction of a composite dam in connection with Banasura Sagar Scheme.
Later in view of revised minimum wages of labours, the respondent contractor claimed labour
escalation charges.

However, the Government of Kerala referred the matter to the industrial tribunal for adjudication
of the dispute with regard to the said claim of workmen. While the adjudication with reference to
the concerned issue was pending, the Appellant terminated the contract with the contractor.

When the case came before the High Court, the Court with reference to the amount payable for
additional work done by the Respondent contractor with the consent of the counsel for the
parties, referred the matter to arbitration to resolve the dispute relating to items which they
could not amicably resolve.
 Bench’s Verdict
The Supreme Court noted that the 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.

That 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 CPC 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.

That 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.
Landmark Case 4: Ssangyong Engineering and
Construction Co. Ltd. v NHAI
The appellant Ssangyong Engineering and Construction Co. LTd and the
respondent, National Highway Authority of India, entered in to a contract for
construction of a four lane bypass on NH 26. Disputes arose after the NHAI
unilaterally varied the price adjustment terms of the contract.

The majority award favoured the NHAI and rejected the complaints of
Ssangyong Engineering, whereas the minority award was in favour of
Ssangyong Engineering.
 Bench’s Verdict
In a first, The Supreme Court used its inherent power under Article 142 of the
Constitution to convert the minority award into the binding award to avoid a
re-hearing and save time & costs for the parties.

They ruled that the arbitral tribunal’s conduct amounted to a breach of

fundamental principles of justice since Ssangyong Engineering had been
deprived of its basic right to present its case on the applicability and
interpretation of the MGI Guidelines which had been relied upon by the
arbitral tribunal in making its award, and the award itself amounted to
rewriting of the contract between the two parties.
 Overview of Judicial Trends w.r.t Arbitration Law
As the number of Arbitration Cases keep in increasing in India, we have to look into the
continuing pro-arbitration trend and its consequences.

Mahatma Gandhi once said, “I realized that the true function of a lawyer was to unite
parties. A large part of my time during the 20 years of my practice as a lawyer was
occupied in bringing about private compromises of hundreds of cases. I lost nothing
thereby – not even money, certainly not my soul.”

To add insult to injury to the litigation system, Abraham Lincoln also encouraged people
to “persuade your neighbors to compromise whenever you can . . . the nominal winner is
often a real loser in fees, in expenses, and waste of time.” It is no surprise than many of
the world’s leading countries share similar philosophies.
 Overview of Judicial Trends w.r.t Arbitration Law
As one of the world’s largest economies and populations, India’s attractiveness to
arbitration is apparent. India has improved it’s standings amongst the best places to
start a business and is a favorable location for foreign direct investments.

However, the courts are overloaded, and many judicial positions remain unfilled, and this
problem does not see signs of improvement. This judicial backlog and the fact that
businesses prefer inexpensive, efficient, and less-adversarial proceedings make
arbitration an appealing choice to parties involved in commercial disputes in India.
 Recent trends favouring Arbitral independence
in India
The legislative and judicial history in India show that, in order to make an efficient
arbitration system, the government and the courts, as well as lawyers and corporate
entities, need to work together. Like the United States, where the courts have interpreted
and essentially changed the Federal Arbitration Act, courts in India have analyzed the
1996 Act, and the government itself has approved key amendments.

While arbitration in India is still burdened with problems, recent Indian law has shown a
pro-arbitration stance.
 Recent trends (Contd.)
Since 2012, with the decision in Bharat Aluminum Co. v. Kaiser Aluminum Technical Services, Inc.
(“BALCO”), India has experienced a positive revolution in the area of international commercial
arbitration. Before BALCO, the law in India was governed by the controversial case of Bhatia
International v. Bulk Trading S.A., which held that Part I of the 1996 Act was to be applied even
when arbitration was seated outside of India.

The impact of the Bhatia decision was an increase in court intervention, as Indian courts had
jurisdiction to challenge an award made in India even when the contract called for the law of
another country.

Recognizing the problems created by court intervention, the Indian Supreme Court overruled
Bhatia in its BALCO decision a decade later. The Court in BALCO also restricted the court’s power
further by holding that the Indian Parliament has the sole power to fill in the gaps of the 1996 Act.
Because of the BALCO decision, businesses will not fear court intervention in India arbitration,
and they now have no need to cater their arbitration clauses specifically for India.
 Recent trends (Contd.)
After BALCO, more cases have come out of the Indian high courts that show how the judiciary is
recognizing arbitral independence. In Avitel Post Studioz & Ors v. HSBC PI Holdings, HSBC
learned of the possible illegitimacy of Avitel’s business and sought interim injunctive relief to
compel payment under a Singapore arbitration proceeding

Another case upholding an arbitration agreement is World Sports Group v. MSM Satellite. The
Supreme Court of India delivered a standard to be applied when compelling arbitration and held
that courts are required to compel the parties to arbitration pursuant to their agreement unless
the agreement is “null and void, inoperative, or incapable of being performed.” Similar to HSBC,
an agreement does not become inoperative just because the dispute deals with fraud.

Both HSBC and World Sports Group show Indian higher courts upholding arbitration agreements
and expanding the scope of the arbitrator’s powers to rule on issues of fraud.
 Recent trends (Contd.)
The Indian Supreme Court furthered the pro-arbitration stance again in Reliance Industries v.
Union of India by limiting the court’s jurisdiction. In Reliance, the parties’ contracts themselves
were governed by Indian law, but the arbitration agreement within the contract was to be governed
by the laws of England, with London as the seat of arbitration.

The Union of India argued that the laws of India, and therefore Part I of the 1996 Act, should
govern because the contracts were signed in India and the dispute occurred in India. Reliance, on
the other hand, argued that, by choosing London as the seat of arbitration and English law to
govern the arbitration clauses, both parties expressed intent to ignore Part I of the 1996 Act.

The Supreme Court of India found in favor of Reliance and upheld the arbitration agreement as it
stood.
 Challenges Ahead
Despite the improvements discussed above, the arbitration system in India still faces its fair share
of problems to overcome. Foreign-seated arbitration has been a controversial issue in India and
the courts seem to be scattered when making their decisions. While Reliance, discussed above,
started to pave the way for a pro-arbitration stance in international arbitration, decisions
following that case, with the exception of BALCO, have not always been as forward-thinking.

After Reliance, the Delhi High Court took on the issue of whether Indian parties can choose
foreign-seated arbitration again in Delhi Airport Metro Express v. CAF India. In that case, the
plaintiff, an Indian party, first entered into a contract with another Indian party, and then entered
a contract with a Spanish party.

The arbitration clause in the contracts provided for Indian law to be applied to the contract, the
arbitration to be seated in London, and Paris law to govern the arbitration. Because the
arbitration agreement was not entirely between the two Indian parties, the court overlooked the
issue of whether two Indian parties can enter an arbitration agreement with the seat outside of
India.
 Challenges (Contd.)
2019 Amendments in Arbitration and Conciliation Act, 1996
- Establishment of Arbitration Council of India:
ACI to be an independent body for framing policies for grading arbitral institutions and making
policies for establishment, operation, and maintenance of uniform professional standards.
Takeaway: Composition of ACI is such that it essentially becomes a body controlled by the
government. This makes the process vulnerable to bureaucratic re-tapism, lack of transparency,
and lack of objectivity.
- Appointment of arbitrators:
The SC or HC can designate arbitral institution to appoint arbitrators under Section 11 provided
such arbitral institution has been graded by Arbitration Council of India (ACI)
Takeaway: The provision is inspired by Singapore’s arbitration statute where the SIAC has been
made the appointing authority. Attempts to have specialist institutions appoint arbitrators and
unclutter the Court docket. However there is no clarity on how and how many institutions will be
graded by ACI – quality controls may be diluted.
 Challenges (Contd.)
- Accreditation of arbitrators:
Insertion of Eight Schedule which provides for minimum qualifications for persons to be
appointed as arbitrators.
Takeaway: The minimum qualifications/criterias for appointment of arbitrators is highly
restrictive. Eg. Only an advocate within the meaning of Advocates Act,1961 can be an
arbitrator. This automatically rules out foreign legal professionsals from acting as
arbitrators.
 Conclusion
From one piece of legislation to another, India was able to transform its arbitration
regime in a way where courts would, and did, undoubtedly follow. In a process of filling in
gaps, the 1996 Act was able to improve the ineffective 1940 Act, and while the 1996 Act
has weaknesses of its own, recent trends, such as decreasing court intervention and
upholding arbitration agreements, aim to improve those hindrances as well.

India has come a long way from the arbitration pitfalls that plagued the country in the
1940s. With new legislation and judicial decisions, India as a seat for arbitration has
become more appealing. While the courts in India do, in fact, favor arbitration, the
jurisdiction itself still has some improvements to make to get on board with the best
methods of international arbitration that are practiced in today’s global hubs.
References:
• https://www.vakilno1.com/legal-news/recent-cases-arbitration-law-in-
india.html
• https://elibrary.law.psu.edu/cgi/viewcontent.cgi?article=1018&context
=arbitrationlawreview
• https://pdfs.semanticscholar.org/2aff/9eb89373d6d1d6dfbb47899b26
be813e3011.pdf
THANK YOU