Latest judgement of supreme court on arbitration
Introduction
When disputing parties agree that one or more individuals will decide on the issue after obtaining evidence. And hearing arguments is called arbitration (it is a private process).
An arbitrator has the ability to decide on a disagreement, which distinguishes it from mediation.
Similar to a trial, the parties make opening remarks and present evidence to the arbiter during the arbitration.
Arbitration is frequently quicker and less formal than traditional trials. Parties are not compelled to follow state or federal rules of evidence. And the arbitrator is not required to apply the applicable legislation.
A decision is made by the arbitrator after the hearing has taken place. When it comes to some prizes, the decision is simply announced (a “bare-bones” award). While others give reasons (a “reasoned” award).
Types of Arbitration
There are two types of arbitration processes: binding and nonbinding. The arbitrator’s judgement is final, can be enforced by the courts. And can only be appealed on very narrow grounds if arbitration is binding on both parties. In non-binding arbitration, the arbitrator’s decision is advisory and can be appealed.
Arbitration’s Value/ Recent Judgements
The relevance of arbitration in business transactions, particularly international ones (as the most appropriate means to handle international disputes) stems from the fact that these transactions are straightforward, uncomplicated, and formal in nature. In the proceedings, quickness, confidence, adaptability, and confidentiality are required. Commercial goods and services, in order to avoid product counterfeiting. This is their right to keep their property. This demands early attempts at mediation and conciliation to expedite the resolution of such economic conflicts. Ensuring the privacy of the dealings and affections that bring both parties together. And bringing their points of view closer to mutual understanding. Since timing plays an important role in material and capital turnover. In order to prevent escalating the dispute and adversity reconciliation, as well as reducing or maximising the expected loss or gain
Non-signatory directly involved in the contract can compell to arbitrate: Delhi HC.
Shapoorji Pallonji and Co. Pvt. Ltd. vs. Rattan India Power Ltd. and Ors.
The petitioner and respondent were parties to four contracts in which they had disagreements. With the crux of the matter being whether there was a prima facie arbitration agreement between them. The reply argued that because it was not a party to the contract, it could not force to arbitrate. The response further claimed that the notice calling for arbitration was a composite notice covering four different contracts, making it unlawful.
Although it is not a party to the contract, the court decides the party can compell to arbitrate. When the court rendered its decision, it noted that it could use to bind a non-signatory affiliate of a parent company. Or to include a third party in arbitration if there is a direct relationship between the parties who are signatories to the arbitration agreement; a direct similarity in the subject matter; and a composite nature to the transaction between them.
After establishing that the parties enter into an arbitration agreement, the courts must relegate the parties to arbitration to adjudicate the dispute: Delhi HC
Spml Infra Ltd vs Ntpc Limited [1]
In this matter, SPML has filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996. Pleading for the formation of an Arbitral Tribunal to resolve disputes arising between the parties under the Contract Agreement. SPMl argues that it was forced to sign the Settlement Agreement under duress and without free consent. So the settlement contract is null and voids while, on the other hand, NTPC argues that once the petitioner signed the settlement contract earlier contract stands terminated and the petitioner cannot invoke the arbitration clause in it.
When it is evident that the parties have agreed to arbitrate their issues. The question of whether or not that commitment has discharged by a settlement must liberally construe in favour of sending the parties to arbitration, according to the Delhi High Court. The court must relegate the parties to the arbitration forum established by the contract. Unless the contract is devoid of any merit or not made in a bona fide way.
The plea of the unstamped agreement wouldn’t prevent the Court from appointing an arbitrator while exercising jurisdiction under Section 11 of the Act. : Delhi HC
IMZ Corporate (P) Ltd. v. MSD Telematics (P) Ltd., [2]
In order to further their respective business interests and profitability. The parties signed a Memorandum of Understanding on January 1, 2020. Both parties agreed in the MoU not to recruit, contact, or attempt to contact one another’s employees for the purpose of offering employment. Later, disagreements arose as a result of MSD’s failure to perform its duties under Clause 2.4, as previously indicated. As a result, MSD committed a variety of criminal offences that were in direct contravention of the MoU. IMZ sought redress through arbitration after feeling wronged by the aforementioned facts. The Hon’ble High Court contacted by IMZ, After MSD failed to respond to the notice of the Delhi International Arbitration Centre (DIAC). MSD asserted that the disputed MoU is an unstamped document. And as a result, it is not a legally binding contract.
With respect to the arbitration agreement as a separate and distinct agreement from any underlying commercial contract in the case at hand. The Delhi High Court ruled that it would stand even if the substantive contract itself terminates. It doesn’t matter if the contract isn’t admissible in court or can’t enforce. Because of unpaid Stamp Duty if the arbitration agreement is valid, enforceable, or even exists.
International Arbitration award can only set aside on the grounds under Section 34 of Indian Arbitration and Conciliation Act 1996: Delhi HC.
SAIL v. Jaldhi Overseas PTE Ltd., [3]
As a result, the Steel Authority of India (SAIL) filed a challenge under Section 34 of the 1996 Arbitration and Conciliation Act, questioning the Arbitral Tribunal’s award for patent illegality. SAIL argued that the impugned award was flawed because of an inherent contradiction, and as a result, it should throw out for patent infringement.
According to the Delhi High Court, a challenge under Section 34 of the Arbitration and Conciliation Act has a very narrow scope. Given that international commercial arbitration falls under Section 2(1)(f). Only the grounds set out in Section 34(2) can overturn the decision the Hon’ble Court stated. Arbitral awards can only throw out if they violate Indian law’s basic policy. While debating whether the Tribunal can mandate compound interest. The Hon’ble Court noted that it is common knowledge that compound interest provisions in contracts for the loans given by banks. And financial organisations and that these contracts enforce by Courts. Hence, we cannot say that the award of interest on interest is against the public policy of India.
Complex questions involving novation of contract can’t decide under Section 11 of the Arbitration and Conciliation Act by Court: Supreme Court.
Sanjiv Prakash v. Seema Kukreja,[4]
The problem occurred as a result of a Memorandum of Understanding signed by members of the Prakash family (i.e. the Appellant and the Respondents), who collectively held the whole shareholding in ANI Media Private Ltd. The MoU stipulated, among other things, that if any members of the Prakash family wishes to sell or inherit their shares, the Appellant would give them. Disputes would resolve by a single arbitrator under the MoU’s arbitration clause.
Prakash family then entered into a Shareholders Agreement with Thomson Reuters Corporation, under which Prakash family divested its 49 per cent stake in ANI Media Pvt Ltd to Thomson Reuters. There was also an arbitration clause in the Shareholders Agreement. Furthermore, the Agreement superseded any prior agreements between the parties, as stated in the document. According to the Prakash family’s agreement with Thomson Reuters, the Share Purchase Agreement includes a provision for arbitration comparable to that included in the Shareholders’ Agreement.
Family members other than the Appellant chose to take over the Respondents’ shares in the company, which they transferred to other members of the Prakash family. As a result, the Appellant invoked the MoU’s arbitration clause. Claiming entitlement to purchase the shares of the other family members before anybody else.
Decision
The Hon’ble Apex Court considered the limiting scope of Section 11 in this case. And held that the issue of novation of an agreement cannot decide by the Courts in the exercise of the limited prima facie examination as to whether an arbitration agreement is between the parties. Supreme Court in resolving the matter has relied on Vidya Drolia vs Durg Trading Corporation, where it states that at the pre-reference stage, only intervene when it is apparent that the claims are ex facie time-bar and dead, or there is no current dispute. If there are any other disputes, they should hear an arbitral panel. This makes a likewise situation if for a request for novation.