Thinking of taking your chances by challenging an award in a foreign seated arbitration in India? Think again. Bombay High Court imposes costs of Rs.5 lacs.
Katra Holdings Limited v. Corsair Investments LLC & Ors. (15 September 2017)
- The Petitioner entered into an agreement (“Escrow Agreement”) with Respondents No. 1 and 2 for deposit into escrow, and subsequent sale, of certain shares of Tamilnad Mercantile Bank. The Escrow Agreement contained clause providing that arbitration shall be conducted according to the Commercial Arbitration Rules of the American Arbitration Association and that the place of arbitration shall be New York. The Escrow Agreement also provided that Indian Law would be the governing law of the contract.
- The Petitioner initiated arbitration against the Respondents. The Arbitration was conducted in New York, and the Arbitral Tribunal passed its award against the Petitioner (“Award”).
- The Petitioner chose to challenge the Award before the Bombay High Court (“Court”) on the grounds of violation of public policy under section 34(2)(ii)(b) of the Arbitration and Conciliation Act, 1996 (“Act”). The Respondents raised a preliminary objection regarding maintainability of the Petition under Section 34 of the Act on the ground that since the juridical seat was outside India, Part-I of the Act was excluded, and therefore the Court did not have the jurisdiction to entertain the petition.
- The Court relied on Yograj Infrastructure Limited v. Ssang Yong Engineering and Construction Company Limited, where the Supreme Court was faced with an exceptionally similar arbitration agreement – relating to Singapore. The Supreme Court found that since proceedings were to be conducted in Singapore, and subject to Singapore International Arbitration Centre (“SIAC”) Rules, the seat of arbitration was undoubtedly Singapore, and consequently, Part-I of the Act would not be applicable.
- The Court in the present case reached the conclusion that New York had been determined as the juridical seat in light of the contractual provisions and the conduct of the parties. Therefore, Part-I of the Act was not applicable, and the Petitioner could only challenge the Award under the Federal Arbitration Act of USA.
- The Court accordingly dismissed the petition on the preliminary issue of jurisdiction. Interestingly, the Court imposed unusually high costs of Rs. 5 lacs upon the Petitioner, without discussing any reasons for the same. One can only hazard a guess that the Court may have done so to discourage filing of frivolous cases which fly in the face of the settled law of the land.
Can the Supreme Court entertain an application for making the award as Rule of the Court, even if it retains seisin over arbitral proceedings? Question referred to a Constitution Bench
The State of Jharkand and Ors. v. M/s Hindustan Construction Co. Ltd. (22 September 2017)
- In January 2013, the Supreme Court (“SC”) referred the dispute between these parties to arbitration, appointing Justice S.B. Sinha (retd.) as the sole arbitrator. Further direction was issued for the award to be filed with the SC. Justice Sinha passed the award on 16 December 2015 (“Award”) and duly filed a copy of the Award with the SC.
- The Appellants herein mounted a challenge to the Award under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”) before the Civil Court. The Respondents, on the other hand, filed an affidavit before the SC seeking for pronouncement of judgement in terms of the award.
- The contentions of the parties were fairly straightforward. The Respondents contended that, since it was the SC which had referred the dispute to arbitration and had asked for the Award to be filed with it, it had retained possession over the arbitral proceedings. Thus, the SC alone had the jurisdiction to pass any judgement upon the Award.
- The Appellants objected on the grounds that if the SC assumed jurisdiction in deciding upon the Award, the Appellants would be deprived of their statutory right to appeal as envisaged under Section 37 of the Act.
- Faced with rival contentions of the parties and differing views taken by three-judge benches of the Apex Court in earlier cases of State of Rajasthan v. Nav Bharat Construction Company and State of West Bengal & Ors. v. Associated Contractors the two-judge bench in the present case referred the question “Whether this Court can entertain an application for making the award as Rule of the Court, even if it retains seisin over arbitral proceedings?” to a larger bench.
- The matter is slated for hearing by a Constitution Bench of five judges. It will be interesting to see which side of the fence the larger bench decides to land on.
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