Judgment delivered by the Supreme Court of India Dyna Technologies Pvt. Ltd vs. Crompton Greaves Ltd.
[Civil Appeal No. 2153 of 2010; 2019 SCC OnLine SC 1656]
In this matter, the principal contract was entered into between DCM
Shriram Aqua Foods Limited and M/s. Crompton Greaves Limited (Respondent) for
an aquaculture unit to be set up by DCM Shriram Aqua. Dyna Technologies Pvt
(Appellant) was successful in getting work order from the Respondent for
construction of ponds, drains, channels and associated works.
The work order awarded by the Respondent to the Appellant contained a
clause providing for termination of the contract by the Respondent without any
liability for compensation for premature termination. The said clause was
exercised by the Respondent, and the contract with the Appellant was
terminated.
The Appellant raised several claims on account of losses suffered due to
idle charges, due to unproductivity of men and machinery which could not work
due to hindrances, loss of profit due to dissolution of contract, and costs and
interest on the above claims.
The claim relating to ‘unproductivity of men and machinery’ came to be
allowed by the Arbitral Tribunal, and subsequently affirmed in the petition
under Section 34 preferred by the Respondent. [The decision of the Tribunal on
the rest of the claims were not subject matter of dispute, either on account of
having been settled between the parties or having been accepted by the parties.]
The Division Bench of the High Court partially allowed the appeal
preferred by the Respondent under Section 37, and set aside the award of
compensation on the aforesaid claim, having concluded that the award did not
disclose sufficient reasons for the decision.
The argument of the Appellant that in the aforesaid view of the matter,
the Court was empowered to exercise Section 34(4) was also rejected by the High
Court. It was of the view that Section 34(4) of the Act was not necessary as
the compensation could not have been claimed on account of the specific
prohibition on claim of compensation in the work order.
The following principles of law were laid down by the Supreme Court, on a
detailed examination of the subject:
I.
The Supreme Court examined the judicial and
legislative history of Section 31(3) of the Act, which called upon the
arbitrator to provide reasons for the award. The Court concluded that the mandate
under section 31(3) of the Act is to have reasoning which is intelligible and
adequate and which can, in appropriate cases, be implied by the Courts from a
fair reading of the award and documents referred. The Court set out three
characteristics of a reasoned award, viz., that a reasoned award ought to be:
proper, intelligible and adequate:
(i)
If the reasoning in the order is improper, it reveals
a flaw in the decision-making process. If the challenge to an award is based on
impropriety or perversity in the reasoning, then it can be challenged strictly
on the grounds provided under section 34 of the Act;
(ii)
If the challenge to an award is based on the ground
that the same is unintelligible, the same would be equivalent of providing no
reasons at all;
(iii)
Whereas concerning the challenge on adequacy of
reasons, the Court while exercising jurisdiction under section 34 of the
Act, has to adjudicate the validity of such an award based on the degree
of particularity of reasoning required having regard to the nature of issues
falling for consideration. The degree of particularity may not be capable of
definition, and thus in a case where there were gaps in the reasoning in an
award, the documents relied upon could be looked at so as not to result in
setting aside of the award in a casual manner
II.
On Section 34(4) of the Act, the Court opined that
the provision could be resorted to in the event of gaps in reasoning in the
award. The Court noted that the legislative intent underlying the provision was
to make the award enforceable. In the facts of the present case, the Court
opined that in view of the finding that there were gaps in the reasoning, the
High Court ought to have considered exercise of the power under Section 34(4).
The Supreme Court, in the facts of the case, concluded that the award was
unintelligible and confusing as the award was muddled with facts, contentions
and reasoning without appropriately considering the complexity of issue
involved. The award was accordingly set aside.
The exercise of power under Section 34(4) was not deemed appropriate
given the fact that the litigation had been pending for 25 years. In the facts,
it was considered appropriate by the Apex Court to direct the Respondents to
pay a sum of Rs.30 Lakhs to the Appellant in full and final settlement.
Judgment delivered by the Delhi High Court Power Mech Projects Ltd. vs. SEPCO Electric Power Construction Corporation
[O.M.P. (I) (COMM.) 523/2017, I.As. 11128/2018,
4259, 5185 and 7203/2019; MANU/DE/0553/2020]
This case arose out of an arbitral award dated 17.10.2017 for a sum of
Rs. 142,41,14,499/- in favour of the Petitioner (hereinafter, “PowerMech”) and
against the Respondent (hereinafter, “SEPCO”). SEPCO had challenged the award
by way of an application under Section 34. During the pendency of the same,
PowerMech filed a petition under Section 9(ii)(b) praying for certain interim
directions for securing the awarded amount. It is a matter of record, and of
relevance that no proceedings under Section 36 for enforcement were initiated
by PoweMech. Several orders did come to be passed on the Section 9 application,
whereby a variety of directions were issued to SEPCO to secure the awarded
amount. Notwithstanding the compliances by SEPCO with the aforesaid directions
by deposit of monies and/or execution of bank guarantees from time to time, the
entire awarded amount was not secured by SEPCO.
The limited issue decided vide this order was as to whether the challenge
by SEPCO to the award could be heard on merits without it first securing the
amount awarded in favour of PowerMech, in entirety.
The submission of SEPCO, broadly, was that Section 34 did not contain a
provision in the nature of pre-deposit of the awarded amount for hearing of the
challenge. This not having been intended, the discretion was left to the Court
to determine measures necessary for determining the conditions for staying
operation of the award. PowerMech sought to establish from the facts of the
case, the necessity to secure the awarded amount in entirety. The applicability
of Section 9 being filed post-award, was also emphasized, on behalf of
PowerMech, to contend that the objective of the provision was to ensure that
the successful party was able to realise the fruits of the arbitration proceedings,
viz., a step in aid for enforcement of the award.
It was held by the Court:
(i)
that the requirement for securing the awarded amount
to the extent of 100% could not be said to be mandatory in law and the amount
of deposit required to be made was to be considered in the facts and
circumstances of the case and was upto the discretion of the Court.
(ii)
that in the facts of the case at hand, the
chronology of facts of the case revealed that SEPCO [a Chinese company] did not
have any immovable assets in India. Though it had filed an affidavit to the
effect that it had ongoing projects in India, in the opinion of the Court the
ongoing projects could not be accepted as security to ensure that the Award
would be enforceable. The existence of movable assets was also held to be
insufficient security for the purpose of securing the awarded amount;
(iii)
Furthermore, the attention of the Court was drawn to
the recent orders of Hon’ble Supreme Court in SREI Infrastructure Finance Limited vs. Candor Gurgaon Two Developers
and Projects Pvt. Ltd. being SLP(C) No(s). 20895-20897/2018 where in an
appeal, the Supreme Court had directed 100% deposit of the award amount.
Similarly, in case of Manish vs. Godawari
Marathawada Irrigation Development Corporation, being SPL(C) Nos.
11760-11761/2018, the Bombay High Court had ordered 60% deposit but the
Supreme Court held that there should be a 100% deposit being a money decree.
In view of the above, the Court directed SEPCO to deposit the entirety of
the awarded amount, within four weeks, after adjustment of the amounts
deposited.
Judgment delivered by the Bombay High Court (Nagpur Bench) Omprakash and Ors. vs. Vijay Dwarkada Varma
[Writ Petition No. 4248 of 2019; MANU/MH/0543/2020]
In this case, the question that arose was the appropriate place for
initiation of proceedings under Section 34 of the Act, where the ‘seat’ of
arbitration was not expressly set out.
It was undisputed that the entire arbitration proceedings took place at
Nagpur and that award was pronounced and signed by the arbitrator at Nagpur,
albeit without specifically stating the place of signing of the award as
required under Section 31(4). Aggrieved by the said award, the Petitioners
filed an application under Section 34 of the Act before the Court at Malkapur.
The Respondent raised an objection of jurisdiction, praying for rejection of
the aforesaid application, as being untenable before the Court at Malkapur and
alternatively requested that the Petitioners may be relegated to the proper
Court. The Court below allowed the application and found that the Court at
Malkapur did not have jurisdiction to entertain the application under section
34 of the Act, because the place/seat of arbitration was at Nagpur and the
award was pronounced and signed by the arbitrator at Nagpur. Consequently, the
application under section 34 of the said Act was dismissed for want of
jurisdiction. Aggrieved by the same, the Petitioners filed the writ petition
before the High Court.
The Court by following the law laid down in the Bharat Aluminum Co. v. Kaiser Aluminium Technical Services Inc., (2012)
9 SCC 552 held that it was a facet of public policy that only one Court
should have jurisdiction to set aside an arbitral award.
The Petitioner’s case was premised on the following grounds:
(i)
In the facts, the seat of arbitration not having
been specified by the parties, or by the Court while appointing an arbitrator
under Section 11, the arbitrator was expected to determine the place of
arbitration while relying on Section 20(2). This was also not done. Such being
the case, by application of the definition of ‘Court’ under Section 2(e) to the
facts of the case, the appropriate Court was Malkapur, and therefore the
application ought to have been entertained by the said Court;
(ii)
Reliance was placed on the decision of the Supreme
Court in Videocon Industries Ltd. v. Union of India [2011(6)SCC 161] to
contend that mere holding of the proceedings at Nagpur could not amount to
designation of Nagpur as the ‘seat’ of arbitration.
(iii)
Reliance was placed on the Supreme Court
Constitution Bench decision in Bharat Aluminium Company Ltd. v. Kaiser
Aluminium Technical Services Inc. [2012(9)SCC 522] for the proposition that
in such facts, the Court at Nagpur as well as the Court at Malkapur would have
jurisdiction to entertain the application under Section 34. The decision in Union
of India v. Hardy Exploration & Production India Inc. [2019(13)SCC 472]
was also relied upon for the said proposition.
Per Contra, the Respondent relied on the Supreme Court decision
in BGS SGS SOMA JV v. NHPC Ltd. [MANU/SC175/2019] to argue that the
Court at Nagpur alone had jurisdiction to entertain the application, Nagpur
undeniably being the seat and the place of the arbitration.
BGS SGS SOMA (supra) was sought to be distinguished by the
Petitioner on the facts of the case (in that, in that case the parties had
mentioned two places as the places of arbitration, and in the present case
there was no mention whatsoever) and also by stating that in the absence of a
determination by the arbitrator under Section 20(2) in this case, it could not
be said that Nagpur was the place of arbitration merely because the award was
signed there.
After a detailed examination of the applicable provisions of the Act and
the aforementioned decisions of the Supreme Court, it was held that:
(i)
The fact that the parties had not specified Nagpur
to be the place of arbitration could not lead to the conclusion that it was not
the place of arbitration, if it could be so ascertained to be the place from
the conduct of the parties, as in the present case. The issue of
‘determination’ of the place of arbitration by the arbitrator would arise only
in a case where there existed a dispute as such, which was not the case here;
(ii)
Since the entirety of the arbitration proceedings
took place at Nagpur without any objection as to the place of arbitration by
either side, it could be said that Nagpur was chosen as the place of
arbitration in terms of Section 20(1);
(iii)
The decision in BALCO, explained further in BGS
SGS clearly applied to the facts of the case, and jurisdiction exclusively
vested in the Courts in Nagpur to test the award under Section 34, in view of
the fact that the place of arbitration was Nagpur;
(iv)
The decision of the Malkapur Court having been
affirmed, the High Court held that the appropriate course open to it was to
return the application for presentation to the proper Court (viz., Nagpur),
instead of dismissal of the application, as was done.
Judgment delivered by the Calcutta High Court Sirpur Paper Mills Ltd. vs. I.K. Merchants Pvt. Ltd.
[A.P. No. 550 of 2008; MANU/WB/0040/2020]
An issue arising out of the interplay of the Insolvency & Bankruptcy
Code, 2016 (“IBC”) and the Act arose for consideration of the Court in the
following facts:
An arbitration was between the petitioner and respondent culminated in an
award in 2008 in favour of the respondent. The application for setting aside the
award was filed in 2008 itself by the petitioner. Some operational creditors of
the petitioner initiated proceedings under Section 9 of the IBC against the
petitioner in 2017, resulting in a moratorium which remained operative till
19.7.2018 (on which the resolution plan for the petitioner seems to have been
approved). When on 11.12.2019 the application under Section 34 was taken up for
hearing, the petitioner contended that the application could not be proceeded
with since the petitioner had undergone CIRP and since the respondent had not
filed a claim in the said CIRP in terms of the award in its favour. The
respondent on the other hand relied on the Supreme Court decisions in K.Kishan vs. Vijay Nirman Company Private
Limited (2018) 17 SCC 622 and Mobilox
Innovations Pvt. Ltd. Vs. Kirusa Software Put. Ltd.(2018) 1 SCC 353 to claim that in view of these decisions,
the respondent could not have filed a claim in the CIRP on the basis of the
award.
The question which arose was whether the present application under
Section 34 of the Act should be kept in abeyance by reason of the provision of
the IBC being invoked by operational creditors against the petitioner.
The Court held that the import of the decisions in K. Kishan and Mobilox was that operational
creditors ought not to be permitted to initiate CIRP in case there was a
pre-existing dispute. In the present facts, the award existed 9 years prior to
the initiation of the CIRP, and also was subject matter of challenge under
Section 34 of the Act. In view of the law as aforesaid, the respondent
award-holder could not have filed a claim before the NCLT/IRP since the Section
34 proceedings had not been decided in favour of the said respondent in 2017
and hence there was no final or adjudicated claim as on that date.
Further, once the stage under section 14 of the IBC, namely, moratorium
with regard to continuation of pending proceedings against the Corporate Debtor
has been declared to be over, no further embargo remains for continuing to hear
suits and other proceedings to which the Corporate Debtor is a party. In any
event, Section 14(a) contemplates suits or continuation of pending proceedings
"against" the Corporate Debtor.
In this case, the petitioner being the Corporate Debtor/Award Debtor
cannot be permitted to take shield under the provisions of the IBC for
relegating the claim of the respondent award-holder to for an indefinite period
of time on the ground of the respondent not having gone before the NCLT.
The application under Section 34 was therefore fixed for hearing.
Judgment delivered by the Punjab and Haryana High Court Rajender Sharma vs. Tanmay Developers Pvt. Ltd.
[CR-4079-2019 (O&M); MANU/PH/1975/2019]
The respondent filed its objections to the award by way of an application
under Section 34 of the Act. The petitioner (claimant) filed their reply to the
above application praying for dismissal of the said application. The respondent
moved an application for granting permission to file rejoinder to the reply
filed by the petitioner. The application for filing the rejoinder was allowed
and the parties were directed to furnish proper affidavits in support of the
pleadings.
Hence, the present revision was filed by the petitioner before the High
Court for setting aside the order by which an application seeking permission to
file rejoinder moved on behalf of the respondent was allowed as well as the
order, directing the parties to furnish proper affidavit in support of the
pleadings.
The Court placed reliance on the judgment of the Supreme Court in Emkay Global Financial Services Limited vs.
Girdhar Sondhi [(2018) 9 SCC 49] wherein
it was held that applications under Section 34 of the Act ought to be decided
ordinarily on the basis of the record of the Arbitrator. In the event that
there were matters which were relevant to the determination of an issue under
Section 34(2)(a) which did not form part of the record, the same could be
brought to the notice of the Court hearing the application under Section 34.
Cross examination was ordinarily to be avoided, unless absolutely necessary.
Applying the above position of law, it was held that the direction in
question, viz., to file their affidavit in support of the pleadings was
absolutely not necessary as it was not the case of the respondent that they
were praying for setting aside of the Award on the basis of material, which was
not there in the record.
Further, it was observed that the filing of an affidavit along with
pleading will apply to a suit and not to an application under Section 34 of the
Act.
On the issue of the filing of the rejoinder, it was held that
notwithstanding the absence of a requirement to do so, the filing of a reply to
the Section 34 application was permitted by the Court below and therefore the
filing of a rejoinder could not be objected to.
Judgment delivered by the Rajasthan High Court State of Rajasthan vs. M.M.C. Projects (India) Pvt. Ltd. and Anr.
[S.B. Civil Misc. Appeal No. 2229/2016; 2019 SCC
OnLine Raj 4897]
The appeal before the High Court arose from an order passed by the
District Judge, whereby, the application preferred by the appellant under Section
5 of the Limitation Act along with the application under Section 34 of
the Act for setting aside the arbitral award was rejected, as being
time barred.
The Court observed that Section 34(3) provided that an application for
setting aside of the arbitral award may not be made after three months have
elapsed from the date on which the party making that application had received
the arbitral award or, if a request had been made under Section 33, from the
date on which that request had been disposed of by the arbitral Tribunal. The
proviso to Section34(3) of the Act empowers the Court if it is satisfied that
the applicant was prevented by sufficient cause from making the application
within the said period of three months to further extend the period and filing
of the application for setting aside of the arbitral award by 30 days but not
thereafter.
By relying on the judgment of Simplex
Infrastructure Limited vs. Union of India (2019) 2 SCC 455, it was held
that Section 5 of the Limitation Act is not applicable to an application
challenging an arbitration award under section34 of the Act and the present
application, filed by the Appellant was beyond the mandatory limitation period
provided under section34(3) of the Act and hence, the same could not have
been entertained by taking recourse of the provisions of the Limitation Act.
