Arbitration – Case Study & Important Judgments
Arbitration is the procedure to resolve disputes between the parties outside the courts with the intervention of an arbitrator who is generally a third party. There should be a consensus between the parties to enter into arbitration. The arbitration proceeding is generally governed byThe Arbitration and Conciliation Act, 1996.
The present article deals with an in-depth analysis of some important judgments that shaped the ambit of the Arbitration and Conciliation Act, 1996.
Tulsi Narayan v. The M.P. Road Development Authority, Bhopal and Ors.
Facts:
In the present case, the appellant was a proprietorship firm. According to the agreement between the appellant and the first respondent, which was a state party, the appellant was required to construct and maintain two roads. Accordingly, the date of completion was 12 months, peaking on 21st October 2009.
However, the respondent invoked clause 52 of the agreement and terminated the sane, citing reasons for the slow progress of work by the appellant. In addition, the respondent invoked clause 44.1 and clause 53.1 of the agreement and sent a notice to the appellant to ascertain the liquidated damages. As a result, The appellant challenged this notice before Madhya Pradesh High Court. The court disposed of it disposed at the option to the appellant to challenge it before an arbitral tribunal. The appellant undertook before the MP arbitral tribunal under sec. 7 of Adhiniyam, 1983. While pending the same, the respondent sent notice to the appellant for specific packages to recover the damages mentioned above.
Again the appellant challenged this action stating the sub judice nature of the damages. The question of damages was pending before the tribunal, and hence the respondent does not have any legal right to ask for damages till it is pending.
Issue:
Whether a party to an agreement may be an arbiter in his own cause?
Provisions:
- Agreement clauses 44.1 r/w 53.1 When contractors frustrate the contract and liquidated damages are required to be paid, the parties are bound to follow the procedure mentioned under clause 24 of the agreement.
- S. 24 of the agreement:
It offers a procedure of dispute resolution via arbitration through arbitration tribunal.
Judgment:
If the respondent quantifies the liquidated damages as in the present case, the right to assess the damages will come only on the breach of the contract. The respondent will get a subsidiary, not a primary request. The action of respondents to quantify the damages would not be justified. Because the dispute over the question of the breach is pending before the court. The court followed the ratio laid in Virendra Sharma V. State of MP and Ors. The damages are payable only after the adjudication of the dispute of breach. As no person can judge his cause, no party can be just in its cause. Hence it was not justified for the respondents to quantify the damages until the matter was pending.
M/s Icomm Tele Ltc. V. Punjab State Water Supply &Sewage Board
Facts:
The state board invited the tender for tasks like expanding water supply, sewerage schemes, pumping stations, etc. Eventually, the tender was awarded to M/s Icomm Tele. Both the state board and the company(contractor) entered into a formal contract. The contract stated that on arising any dispute and invoking the arbitration clause by a party, the Party would have to deposit 10% of the claim amount.
When the contractor finally invoked the arbitration clause, the contractor sought a waiver of the pre-deposit amount. Consequently, the court refused it. The contractor approached Punjab and Haryana High Court, challenging the requirement of pre-deposit. The court found the demand unreasonable and refused to strike it down. As a result, the contractor moved to the Supreme Court of India, contending that such a requirement is an infringement of article 14 of the constitution.
Issue:
Is such pre-deposit requirement in arbitration unconstitutional under article 14 of the constitution?
Provisions:
Arbitration clause: The Party invoking the arbitration clause needs to deposit 10% of the prayed sum in advance. Suppose the claimant gets the arbitration award in his favor. Then the amount will be reimbursed in the ratio to the prayed amount. The remainder shall be awarded to the other Party along with the prayed sum.
Article 14 of the constitution of India, 1950:Every person is equal before the law and is equally protected before the law.
Judgment:
The court held that the pre-deposit requirements could not be invalid per se. There is an equal chance given to both parties to invoke the arbitration clause. Therefore it cannot be termed as discriminatory. Also, the sum will be reimbursed to the claimant in ratio to the total sum prayed after the issue of award. The Supreme court, through its judgments, always opted for a promising arbitration approach. The court promotes arbitration by not interfering in the arbitration process. However, in this case, the court opted for a new system that is interfering. This judgment paved the way to more such future decisions that will make the arbitration guided with the spirit of just, moral, constitutional, and good conscience.
Brahmani River Pellets Ltd. V. Kamachi Industries Ltd.
Facts:
Brahmani River Pellets and Kamachi Industries entered into a formal agreement. According to Section 11(6 ) agreement, they would sell iron pellets with their loading port in Odisha and destination port in Chennai. When a dispute arose, the Kamachi Industries moved to Madras High Court u/s 11(6). According to the venue for arbitration was Bhubaneshwar. Brahmani Pellets challenged the jurisdiction of the Madras High Court to decide upon the case. The respondent contended that since the seat for arbitration is decided as Bhubaneshwar in the agreement, only Orissa High Court has the jurisdiction to decide upon the case. The petitioners contended that there is no clause barring the jurisdiction of other courts. Both the courts could have jurisdiction. Subsequently, Brahmani River Pellets appealed before the Supreme Court of India.
Issue:
Whether the presence of a clause stating the venue of arbitration bars the jurisdiction of other courts?
Provisions:
Section 11(6): Section 11 talks about the appointment of an arbitrator. Section 11(6) states that if any complexities arise during the appointment, the parties may approach the chief justice or any official so instructed.
The clause under the agreement: The arbitration will follow the procedure under Arbitration and Conciliation Act, 1996, and the venue would be Bhubaneshwar.
Judgement:
The court observed that both the parties agreed to choose Bhubaneshwar as the venue of arbitration. Therefore there is the clear intent of barring the jurisdiction of other courts. Since the performance of a contract, sale, and payment is to be done in Bhubaneshwar, there are enough reasons to make the venue of arbitration as Bhubaneshwar. In similar cases, the court did not opine to equate the seat with the venue. But here, in the present case, the court considered other factors as well.
M/s Makro V. M/s The New India Assurance Co. Ltd.
Facts:
The petition was filed under section 11(6) for the appointment of the arbitrator. The arbitration clause read as follows:
If any dispute arises about the quantum to be paid, it will be referred to a sole arbitrator appointed with the agreement of both parties. If both the parties do not agree within 30 days of invoking the arbitration, it must be referred to a panel of 3 arbitrators. The arbitration will follow the procedure under Arbitration and Conciliation Act, 1996.
Issue:
Whether full and final settlement of claim bars right to arbitration proceedings?
Provisions:
Section 11(6): Section 11 talks about the appointment of an arbitrator. Section 11(6) states that if any complexities arise during the appointment, the parties may approach the chief justice or any official so instructed.
Judgment:
The respondents contended that since the petitioners had received full claim during the final settlement, there is no need to opt for arbitration proceedings. They argued that there is no dispute surviving after the final payment. The court held that the appointment of arbitrator is not an administrative function but a judicial function. It requires judicial intervention. The court opined that the court must intervene within a reasonable time limit, not making these processes unreasonably prolonged in M/s Mayavati Trading Pvt. Ltd. Vs. Pradyut Deb Burman, the court held that the final settlement of claim would not be considered while dealing with section 11(6). While dealing with section 11(6), the court observed that nothing other than the arbitration clause must be considered.