Renusagar Power Company Limited v General Electric Company

Supreme Court of India 07 October 1993 Keywords: Breach Of Contract, Natural Justice, Arbitral Award, Arbitral Tribunal, Foreign Judgment, Code of Civil Procedure, Jurisdiction, Companies Act, 1956, Code Of Civil Procedure, 1908, Bank Guarantee, Constitution Of India, 1950, Indian Contract Act, 1872, Arbitration Act, 1940, Indian Limitation Act, 1908, Income-Tax Act, 1961, Functus Officio, Settlement, Foreign Exchange Regulation Act, 1973, Arbitration Clause, Award Interest, Foreign Awards (Recognition And Enforcement) Act, 1961, Arbitration (Protocol And Convention) Act, 1937, Oil and Natural Gas Commission, Absence, Foreign State, Foreign Exchange Regulation Act, 1947, Interest Act, 1978, Private International, Part B States (Laws) Act, 1951, Doctrine Of Public Policy Summary: Foreign Awards (Recognition and Enforcement) Act, 1961, s.7 - Foreign award Enforcement - Enquiry - Scope - Arbitral Tribunal - Presentation of case before - Counsel intimating Tribunal its intention not to participate and as to its becoming functus officio Tribunal rejecting plea and passing award on merits - Held, award cannot be impeached on merits - Award not barred under s.7(1)(a)(ii) merely because party not presented before Arbitral Tribunal - Not necessary for Tribunal to give further notice - 'public policy' refers to the public policy of India.

Sumitomo Heavy Industries Limited v Oil and Natural Gas Commission of India
Supreme Court of India 28 July 2010

Case Digest
Subject: Arbitration & ADR Keywords: Jurisdiction, Indian Contract Act, 1872, Arbitration Act, 1940, Income-Tax Act, 1961, Finance Act, 1987, Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 Summary: Arbitration & ADR - Arbitration Act, 1940 - Arbitral award - Legality - Appellant entered into a contract with first respondent - Appellant appointed a Sub-Contractor in execution of this work by a back to back contract with full knowledge of the respondent - Appellant sought from respondent reimbursement of Income-tax amount which the Sub-Contractor was required to

pay to UOI under newly added cl. 44BB of Income Tax Act, 1961 and which amount was paid by appellant to Sub-Contractor - Respondent declined to reimburse tax amount - Appellant, therefore, invoked Arbitration clause in agreement - Appellant contended that their liability had arisen due to change of law and that under cl. 17.3 of General Conditions of Contract forming part of contract between parties, respondent was required to reimburse this amount since it was in nature of necessary and reasonable extra cost arising out of change of law - Umpire accepted appellant's claim and directed respondent to pay appellant - Arbitration petition filed - Single Judge held that said reimbursement by appellant to sub-contractor was a voluntary act on part of appellant and terms of contract did not require respondent to reimburse said income-tax amount to appellant - Single Judge allowed arbitration petition and set aside award - On appeal, DB held that only possible view of all clauses of contract was that respondent could not be held to be liable to appellant for income-tax liability of sub-contractor and that umpire exceeded his jurisdiction in allowing appellant's claim under cl. 17.3 of General Conditions - Hence, present appeal - Whether as held by DB, umpire failed to apply his mind to material on record and clauses of contract between parties thereby rendering a perverse award? - Held, a finding would be called perverse if it is not only against weight of evidence but altogether against evidence Umpire is legitimately entitled to take view which he holds to be correct one after considering material before him and after interpreting provisions of agreement - If he does so, decision of umpire has to be accepted as final and binding - In present case, findings and award of umpire are rendered after considering material on record and giving due weightage to all terms of contract - Umpire has considered the fact situation and placed a construction on clauses of agreement which according to him was correct - Further, it is an obligation of parties to a contract that they must perform their respective promises, and if a party does not so perform, arbitrator or umpire has to give necessary direction if sought - In that process, they have to give a meaningful interpretation to all relevant clauses of contract to make them effective and not redundant - This is what umpire has done and has given direction to respondent to compensate appellant for amount of necessary and reasonable extra cost caused by change in law - Award of umpire is a well reasoned award and one within his jurisdiction, and which gives a meaningful interpretation to all clauses of contract including cl. 17.3 - HC erred in interfering with award rendered by umpire - Award upheld - Appeal allowed.

Scherk v. Alberto-Culver Co. No. 73-781 Argued April 29, 1974 Decided June 17, 1974 417 U.S. 506

Syllabus Respondent, an American manufacturer based in Illinois, in order to expand its overseas operations, purchased from petitioner a German citizen, three enterprises owned by him and organized under the laws of Germany and Liechtenstein, together with all trademark rights of these enterprises. The sales contract, which was negotiated in the United States, England, and Germany, signed in Austria, and closed in Switzerland, contained express warranties by petitioner that the trademarks were unencumbered and a clause providing that "any controversy or claim [that] shall arise out of this agreement or the breach thereof" would be referred to arbitration before the International Chamber of Commerce in Paris, France, and that Illinois laws would govern the agreement and its interpretation and performance. Subsequently, after allegedly discovering that the trademarks were subject to substantial encumbrances, respondent offered to rescind the contract, but when petitioner refused, respondent brought suit in District Court for damages and other relief, contending that petitioner's fraudulent representations concerning the trademark rights violated 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Petitioner moved to dismiss the action or alternatively to stay the action pending arbitration, but the District Court denied the motion to dismiss and, as sought by respondent, preliminarily enjoined petitioner from proceeding with arbitration, holding, in reliance on Wilko v. Swan, 346 U. S. 427, that the arbitration clause was unenforceable. The Court of Appeals affirmed. Held: The arbitration clause is to be respected and enforced by federal courts in accord with the explicit provisions of the United States Arbitration Act that an arbitration agreement, such as is here involved, "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. 1, 2. Wilko v. Swan, supra, distinguished. Pp. 417 U. S. 510-520. (a) Since uncertainty will almost inevitably exist with respect to any contract, such as the one in question here, with substantial Page 417 U. S. 507 contacts in two or more countries, each with its own substantive laws and conflict of laws rules, a contractual provision specifying in advance the forum for litigating disputes and the law to be applied is an almost indispensable precondition to achieving the orderliness and predictability essential to any international business transaction. Such a provision obviates the danger that a contract dispute might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved. Pp. 417 U. S. 515-517. (b) In the context of an international contract, the advantages that a security buyer might possess in having a wide choice of American courts and venue in which to litigate his claims of violations of the securities laws, become chimerical, since an opposing party may by speedy resort to foreign court block or hinder access to the American court of the buyer's choice. Pp. 417 U. S. 517-518.

(c) An agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum selection clause that posits not only the situs of suit, but also the procedure to be used in resolving the dispute, and the invalidation of the arbitration clause in this case would not only allow respondent to repudiate its solemn promise but would, as well, reflect a "parochial concept that all disputes must be resolved under our laws and in our courts." The Bremen v. Zapata OffShore Co., 407 U. S. 1, 407 U. S. 9. P. 417 U. S. 519.

J. S. Ocean Liners Inc., U.S.A. v S. K. Shipping (Singapore) Private Limited, Singapore

Bombay High Court 04 January 2010

Case Digest
Subject: Arbitration & ADR Keywords: Arbitral Tribunal, Jurisdiction, Arbitration And Conciliation Act, 1996, English Arbitration Act, 1996, Singapore International Arbitration Centre (Siac) Arbitration Rules, The English Arbitration Act Summary: Arbitration & ADR - English Arbitration Act, 1996 - Arbitration and Conciliation Act, 1996, ss. 16, 31(4), 34 and 48 - International arbitration - Maintainability of petition challenging foreign award - Petition filed u/s. 34 of Act challenging arbitral award passed in an international arbitration - Both parties are foreigners - Agreement was executed in USA - Agreed venue of arbitration was London (England) - Parties agreed for English law to apply to dispute arising out of agreement - Parties, in view of agreement, proceeded under English law at place of arbitration at London - Award in question is governed by English Arbitration Act - Held, as parties consented and agreed that Court at London had jurisdiction and further that English Arbitration would govern arbitration proceedings and in fact parties have acted accordingly throughout, this amounts to permitted commercial agreement whereby parties have agreed to be governed by English law - Parties have also agreed and consented to exclusion of provisions of Part I of the Arbitration Act which is permissible under law - Present petition challenging foreign award is not maintainable in India - Remedy is under English Arbitration Act - Agreed arbitration clauses should prevail - Petition dismissed.
Part I is more comprehensive and contains extensive provisions based on the Model Law. It provides, inter alia, for arbitrability of disputes, nonintervention by courts, composition of the arbitral tribunal, jurisdiction of the arbitral tribunal, conduct of the arbitration proceedings, recourse against arbitral awards and enforcement.

MITSUBISHI MOTORS CORP. V. SOLER CHRYSLER-PLYMOUTH, INC. MONROE LEIGH Federal Arbitration Act -- Convention on the Recognition and Enforcement of Foreign Arbitral Awards -- arbitrability of antitrust claims arising from an international transaction 105 S.Ct. 3346. U.S. Supreme Court, July 2, 1985. Petitioner, Mitsubishi Motors Corp., a Japanese automobile manufacturer, brought suit against respondent, Soler Chrysler-Plymouth, Inc., a Puerto Rican automobile dealer, seeking an order compelling arbitration of certain disputes arising out of a sales agreement between the companies. Respondent answered, asserting various counterclaims against petitioner, including antitrust claims under the Sherman Act (15 U.S.C. 1-7 (1982)). The U.S. District Court for the District of Puerto Rico ordered arbitration of most of the issues between the parties pursuant to an arbitration clause contained in the sales agreement. The clause provided: All disputes, controversies or differences which may arise between [ Mitsubishi] and [ Soler] out of or in relation to Articles I-B through V of this Agreement or for the breach thereof, shall be finally settled by arbitration in Japan in accordance with the rules and regulations of the Japan Commercial Arbitration Association. 1 The district court, relying on Scherk v. Alberto-Culver Co., 2 held that the international character of the transaction required enforcement of the arbitration agreement even as to the antitrust claims. On appeal, the U.S. Court of Appeals for the First Circuit affirmed in part, but found that respondent's antitrust claims were not appropriate for arbitration. 3 The court of appeals embraced the doctrine enunciated in American Safety Equipment Corp. v. J. P. McGuire & Co., 4 precluding "domestic" arbitration of antitrust claims, and found that neither the Scherk decision nor the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 5 (the Convention) altered the operation of that doctrine in connection with international transactions. The Supreme Court granted certiorari on the issue of whether a U.S. court should enforce an arbitration agreement with respect to antitrust claims arising from an international commercial transaction, and held (per Blackmun, J.): that "concerns of international comity,

respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require [enforcement of] the parties' agreement, even assuming that a contrary result would be forthcoming in a domestic context."6 The Court then considered whether the arbitration agreement itself or any other legal constraints precluded arbitration of the antitrust claims. With little discussion, the Court agreed with the lower courts' conclusions that the arbitration provision was valid and encompassed respondent's antitrust claims. The Court noted, however, an apparent diversity of opinion with regard to the general policy regarding arbitration of antitrust claims. On the one hand, cases such as The Bremen v. Zapata Off-Shore Co.7 and Scherk suggested that the need for orderliness and predictability in international transactions requires enforcement of an international arbitration agreement, even if the issues covered by the agreement would not be arbitrable in a purely domestic transaction. According to the Court, Bremen and Scherk "es tablish[ed] a strong presumption in favor of enforcement of freely negotiated contractual choice-of-forum provisions."8

Samuel GLAZER, Plaintiff-Appellee, v. LEHMAN BROTHERS, INC., Defendant, OPINION The Defendants-Appellants appeal the District Court's The District Court held denial of their motion to compel arbitration. that the arbitration provisions contained in five agreements between the Plaintiff-Appellee and the Defendants-Appellants were not enforceable because four of those provisions were fraudulently induced, based on oral representations made by a broker who worked for Appellants, and because a fifth agreement was superseded by subsequent criminal conduct We AFFIRM, in part, REVERSE, in part, and the other four agreements. and REMAND for further proceedings consistent with this opinion. OVERVIEW This appeal asks this Court to again review the Supreme Court's decision in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), and to construe the breadth of Specifically, this appeal the Supreme Court's holding therein. requires the Court to examine two areas of law, the severability of arbitration provisions under Prima Paint and the application of the Although parol evidence rule under Ohio law, as applied to the former. the primary issue presented by the parties concerns the application of the parol evidence rule under Ohio law, the severability issue must first be addressed.

Green Tree vs Bazzle

The Bazzle respondents and the Lackey and Buggs respondents separately entered into contracts with petitioner Green Tree Financial Corp. that were governed by South Carolina law and included an arbitration clause governed by the Federal Arbitration Act. Each set of respondents filed a state-court action, complaining that Green Tree's failure to provide them with a form that would have told them of their right to name their own lawyers and insurance agents violated South Carolina law, and seeking damages. The Bazzles moved for class certification, and Green Tree sought to stay the court proceedings and compel arbitration. Mter the court certified a class and compelled arbitration, Green Tree selected, with the Bazzles' consent, an arbitrator who later awarded the class damages and attorney's fees. The trial court confirmed the award, and Green Tree appealed, claiming, among other things, that class arbitration was legally impermissible. Lackey and the Buggses also sought class certification and Green Tree moved to compel arbitration. The trial court denied Green Tree's motion, finding the agreement unenforceable, but the state appeals court reversed. The parties then chose an arbitrator, the same arbitrator who was later chosen to arbitrate the Bazzles' dispute. The arbitrator certified a class and awarded it damages and attorney's fees. The trial court confirmed the award, and Green Tree appealed. The State Supreme Court withdrew both cases from the appeals court, assumed jurisdiction, and consolidated the proceedings. That court held that the contracts were silent in respect to class arbitration, that they consequently authorized class arbitration, and that arbitration had properly taken that form. Held: The judgment is vacated, and the case is remanded. 351 S. C. 244, 569 S. E. 2d 349, vacated and remanded. JUSTICE BREYER, joined by JUSTICE SCALIA, JUSTICE SOUTER, and JUSTICE GINSBURG, concluded that an arbitrator must determine whether the contracts forbid class arbitration. Pp. 450-454. (a) Green Tree argues that the contracts are not silent-that they forbid arbitration. If the contracts are not silent, then the state court's

445 holding is flawed on its own terms; that court neither said nor implied that it would have authorized class arbitration had the parties' arbitration agreement forbidden it.

Whether Green Tree is right about the contracts presents a disputed issue of contract interpretation. The contracts say that disputes "shall be resolved ... by one arbitrator selected by us [Green Tree] with consent of you [Green Tree's customer]." The class arbitrator was "selected by" Green Tree "with consent of" Green Tree's customers, the named plaintiffs. And insofar as the other class members agreed to proceed in class arbitration, they consented as well. Green Tree did not independently select thisarbitrator to arbitrate its dispute with the other class members, but whether the contracts contain such a requirement is not decided by the literal contract terms. Whether "selected by [Green Tree]" means "selected by [Green Tree] to arbitrate this dispute and no other (even identical) dispute with another customer" is the question at issue: Do the contracts forbid class arbitration? Given the broad authority they elsewhere bestow upon the arbitrator, the answer is not completely obvious. The parties agreed to submit to the arbitrator "[alll disputes, claims, or controversies arising from or relating to this contract or the relationships which result from this contract." And the dispute about what the arbitration contracts mean is a dispute "relating to this contract" and the resulting "relationships." Hence the parties seem to have agreed that an arbitrator, not a judge, would answer the relevant question, and any doubt about the "'scope of arbitrable issues'" should be resolved" 'in favor of arbitration.''' Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U. S. 614, 626. The question here does not fall into the limited circumstances where courts assume that the parties intended courts, not arbitrators, to decide a particular arbitration-related matter, as it concerns neither the arbitration clause's validity nor its applicability to the underlying dispute. The relevant question here is what kind of arbitration proceeding the parties agreed to, which does not concern a state statute or judicial procedures, cf. Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, but rather contract interpretation and arbitration procedures. Arbitrators are well situated to answer that question. Pp. 450-453. (b) With respect to the question whether the contracts forbid class arbitration, the parties have not yet obtained the arbitration decision that their contracts foresee. Regarding Bazzle plaintiffs, the State Supreme Court wrote that the trial court issued an order granting class certification and the arbitrator subsequently administered class arbitration proceedings without the trial court's further involvement. As for Lackeyplaintiffs, the arbitrator decided to certify the class after the trial court had determined that the identical contract in the Bazzle

Stolt-Nielsen S.A., et al. v. AnimalFeeds International Corp. (08-1198)

The parties in this case are parties to an international maritime contract that contains an arbitration clause. The contracts are silent as to whether arbitration is permissible on behalf of a class, and the parties submitted that issue to arbitration. A panel of arbitrators decided that the arbitration clause allowed for class arbitration. The District Court vacated the award on the ground that it was made in "manifest disregard" of the law. The 2nd Circuit reversed. The US Supreme Court held (5-3) that imposing class arbitration on parties who have not agreed to authorize class arbitration is inconsistent with the Federal Arbitration Act (FAA). (1) The arbitrators exceeded their powers by imposing their own policy choice instead of identifying and applying a rule of decision derived from the FAA or from maritime or New York law. (2) Imposing class arbitration in this case is inconsistent with the FAA. The Court restated the principles that arbitration "is a matter of consent, not coercion," that "private agreements to arbitrate are enforced according to their terms," and that parties are "generally free to structure their arbitration agreements as they see fit." Based on these principles, "parties may specify WITH WHOM they chose to arbitrate." [Emphasis in original] Because the parties stipulated that there was no agreement on class arbitration, the parties cannot be compelled to submit to class arbitration. The DISSENT argued that the arbitrators' "partial award" was not ripe for judicial review. On the merits, the dissent would have upheld the arbitrators due to the strict limitation the FAA places on judicial review of arbitral awards.

Buckeye Check Cashing v. Cardegna (Docket No. 04-1264) Arbitrator, not court, must decide whether contract containing arbitration agreement was illegal.

The US Supreme Court held it is for an arbitrator - not a state court - to decide whether or not a contract containing an arbitration clause is illegal. This is a strong re-statement (extension?) of the rule laid down in Prima Paint Corp v. Flood & Conklin, 388 US 395 (1967), in which the US Supreme Court said that it was up to the arbitrator - not the court - to decide whether the underlying contract was subject to a defense of fraud in the inducement.

Buckeye Check Cashing, Inc. v. Cardegna (US Supreme Court 02/21/2006) involved a claim that the entire contract was illegal and therefore void under Florida's usury laws. The Court concluded (7-1) that it did not matter whether the issue was stated in terms of "void" or "voidable," or whether the matter arose in federal court or state court. It's for the arbitrator to decide. Cardegna claimed that Buckeye made illegal usurious loans disguised as check cashing transactions in violation of Florida law. The agreement Cardegna signed contained an arbitration clause, so Buckeye filed a motion to compel arbitration. Buckeye relied on Prima Paint Corp v. Flood & Conklin, 388 US 395 (1967). The Florida Supreme Court distinguished Prima Paint, saying that case dealt with whether the contract was voidable. In Cardegna's case the issue was whether the contract was void under Florida law. Therefore, said the Florida court, since a void contract would mean the arbitration clause could not be enforced, the issue was to be decided by a court. The US Supreme Court's reasoning:

Regardless of whether it is brought in federal or state court, a challenge to the validity of a contract as a whole, and not specifically to the arbitration clause within it, must go to the arbitrator, not the court. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, and Southland Corp. v. Keating, 465 U. S. 1, answer the question presented here by establishing three propositions. First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Prima Paint. Second, unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance. Prima Paint. Third, this arbitration law applies in state as well as federal courts. Southland. The crux of Cardegna's claim is that the Agreement as a whole (including its arbitration provision) is rendered invalid by the usurious finance charge. Because this challenges the Agreement, and not specifically its arbitration provisions, the latter are enforceable apart from the remainder of the contract, and the challenge should be considered by an arbitrator, not a court. The Florida Supreme Court erred in declining to apply Prima Paint's severability rule, and Cardegna's assertion that that rule does not apply in state court runs contrary to Prima Paint and Southland.

Justice Thomas DISSENTED, arguing that the Federal Arbitration Act does not apply in state courts.

Shin Satellite Public Co. Ltd. V. Jain Studios

In the case of Shin Satellite Public Co. Ltd. V. Jain Studios Ltd., 2006(2) SCC 628 where the Supreme Court was dealing with an agreement between the parties for availing broadcasting services in favour of the petitioner therein by the respondent. Because of the dispute between the parties, arbitration clause was invoked to which defence was taken by the respondent that the claim of the petitioner was not maintainable in as much as clause 20 of the agreement was against the public policy and was not enforceable. The Supreme Court in the light of para 430 of Halsbury Law of England, 4th Edition, Volume 9, page 297 finally held as under: 430. Severance of illegal and void provisions A contract will rarely be totally illegal or void and certain parts of it may be entirely lawful in themselves. The question therefore arises whether the illegal or void parts may be separated or `severed from the contract and the rest of the contract enforced without them. Nearly all the cases arise in the context of restrain of trade, but the following principles are applicable to contracts in general. First, as a general rule, severance is probably not possible where the objectionable parts of the contract involve illegality and not mere void promises. In one type of case, however, the courts have adopted what amounts almost to a principle of severance by holding that if a statute allows works to be done up to a financial limit without a licence but requires a licence above that limit, then, where works are done under a contract which does not specify an amount but which in the event exceeds the financial limit permitted without licence, the cost of the works up to that limit is recoverable. Secondly, where severance is allowed, it must be possible simply to strike out the offending parts but the court will not rewrite or rearrange the contract. Thirdly, even if the promises can be struck out as aforementioned, the court will not do this if to do so would alter entirely the scope and intention of the agreement. Fourthly, the contract, shorn of the offending parts, must retain the characteristics of a valid contract, so that if severance will remove the whole or main consideration given by one party the contract becomes unenforceable. Otherwise, the offending promise simply drops out and the other parts of the contract are enforceable.

Welligton vs Kirit Mehta

Recently in the case of Wellington Associates Ltd v. Kirit Mehta[29] acting as a designate of the Chief Justice of India in an International Commercial Arbitration Jagannadha Rao J had assumed full judicial powers. In this case he held that the jurisdiction of the CJI or his designate to decided question is not

excluded by Section 16 of the Act. Further he held that arbitration clause was an enabling provision only having no mandatory sense and thus no reference could be made to an Arbitral tribunal. He stated that even if the Chief Justice of India or his designate is to be treated as an administrative authority, the position is that when the said authority is approached seeking appointment of an arbitrator or an arbitral tribunal and a question is raised that there is to start with, no arbitration clause the CJI or his designate would have to decide the question. What must be noted here is that Jagannadha Rao J was the same judge who had deemed it appropriate to refer the matter to a larger bench in the earlier case of ICICI Ltd.[30]

M/s. J.G. Engineers Pvt. Ltd. Vs. Union of India & another
The Arbitration and Conciliation Act, 1996 - Section 34
Setting aside arbitral award - Respondents awarded work of "extension of terminal building" at Guwahati airport to appellant - Terminated contract on ground of non-completion even after 35 months - Arbitrator awarded a sum of Rs.1,04,58,298/- with interest and costs in favour of appellant - Rejected counter claims of respondents - Challenged - District court dismissed the petition filed by respondents under section 34 - Affirmed - Award passed by Arbitrator - High Court reversed said orders - Appeal - Evidence on record showed - Appellant was not responsible for delay - Respondents were responsible for delay Once it is held - Contractor was not responsible for delay - Provisions which make the decision of Superintending Engineer or Engineer-in-Charge final and conclusive - Irrelevant - Arbitrator have jurisdiction - Awards on items 2, 4, 6, 7, 8 and 9 - Upheld by civil court - High Court in appeal did not find any infirmity - Judgment of High Court setting aside award - Cannot be sustained - Thus set aside Findings of arbitrator - Contractor was not responsible for delay - Termination of contract is illegal are not open to challenge - Arbitral award upheld - Impugned order of High Court set aside - District Court restored - appeal allowed.

soleimanyCivil courts can question the legality of a Beth Din decision in the event of the award or the way in which it was procured being contrary to public policy. In the case of Soleimany vs Soleimany a financial dispute between two Iranian Jewish merchants, a father and son, who were exporting Persian carpets in contravention of Iranian Revenue laws and export controls the London Beth Din recognised that the original contract was illegal, but since this illegality was regarded as irrelevant under the applicable Jewish law an appropriate award was made. The UK Court of Appeal, however, ruled that the underlying contract was illegal as it contravened the law of Iran and that the award of the Beth Din was therefore contrary to public policy and could not be enforced.

Venture Global Engineering v Satyam Computer Services & Another: Excerpts and some observations

We had argued in one of our earlier posts, that the judgment of the AP High Court in Venture Global Engineering v. Satyam Computer Services and another was unfounded in law. We reported recently that the said judgment has been reversed by the Supreme Court in appeal. Here we reproduce the relevant portions of the judgment of the Supreme Court and make some observations on the judgment. Facts and procedural history of the case: The procedural history of this case up to the controversial decision in Venture Global v. Satyam Computer Services Ltd, [(2008) 4 SCC 190] is fairly well known. In short, after failing to get the award in favour of Satyam set aside before courts in Michigan and Illinois courts and after the enforcement of the award was granted in the United States, Venture filed a sought setting aside of the award in India. Though the civil court and Andhra Pradesh High court ruled that a foreign award could not be set aside under Section 34 of the Arbitration and Conciliation Act, 1996, Supreme Court in Venture Global v. Satyam Computer Services Ltd, [(2008) 4 SCC 190] held that a foreign award could be set aside under Section 34 and remanded the application under Section 34 to be decided by the Civil Court. While the matter was pending before the Civil Court, Mr. Ramalinga Raju confessed to acts of fraud in relation to the books of Satyam and subsequently Satyam was taken over by Tech Mahindra and renamed Mahindra Satyam. An application was moved by Venture seeking amendment of the application to place on record matters relating to the fraud. This application was allowed by the Civil Court. Decision of the High Court:

In a Civil Revision, the Andhra Pradesh High Court struck down this decision and held (i) that the fraud had no nexus with the foreign award, (ii) a court while deciding on an application to set aside an award cannot consider material that was not available to the arbitral tribunal, (iii) despite Order VI of the CPC being applicable, no application under Section 34 for setting aside an award could be amended after the time period to file such an application has elapsed; (iv) an application under Order VIII, Rule 9 of the CPC to bring additional pleadings cannot be entertained as Order VIII stands excluded by Rule 12(1) of Andhra Pradesh Arbitration Rules, 2000. Contentions of the Parties before the Supreme Court: The Appellant was represented by Mr. KK Venugopal and Mr. Harish Salve appeared for the Respondent. Salve did not seek to defend the judgment on the technical ground of limitation. Instead he argued that the requested amendment, if allowed, would not have any bearing on the outcome of the proceedings. According to him fraud could be brought within the ambit of "public policy" under Section 34 only if it was committed during the course of the arbitral proceedings. In making this submission, he relied on

the phrase "the making of the award was induced of affected by fraud" appearing in the text of the Explanation to Section 34(2)(b)(ii). Demanding a narrow construction of this phrase, he argued that the fraud, in this case, would not fall under the definition of public policy as it was committed before the commencement of arbitration. Venugopal argued that the fraud, in the present case, falls squarely within the ambit of public policy as the shareholders agreement in which the arbitration clause was contained was entered into suppressing material facts. Decision of the Supreme Court: On the issue of whether there was a limitation on amending the grounds in an application under Section 34, the Supreme Court placed reliance on State Maharashtra Vs. M/s Hindustan Construction Company Ltd. (AIR 2010 SC 1299) (a guest post by Mr. Badrinath Srinivasan on this case can be found here) which recently held that where application under Section 34 has been made within the prescribed time, leave to amend grounds, in such an application, if the peculiar circumstances of the case and the interest of justice so warrant, can be granted. The Court held: We are of the opinion that in dealing with a prayer for amendment, Courts normally prefer substance to form and techniques and the interest of justice is one of most relevant considerations. Therefore, if a party is entitled to amend its pleadings, having regard to the justice of the case, the right of the party to amend cannot be defeated just because a wrong Section or a wrong provision has been quoted in the amendment petition. The approach of the High Court in this case, in rejecting the appellants prayer for amendment, inter alia, on the ground that a wrong provision has been quoted in the amendment petition, is obviously a very hyper technical one". On the the question of whether fraud, in this case, fell within the ambit of "public policy" the court observed: "[T]his Court is unable to accept the contention of the learned counsel for the respondent that the expression fraud in the making of the award has to be narrowly construed. This Court cannot do so primarily because fraud being of infinite variety may take many forms, and secondly, the expression the making of the award will have to be read in conjunction with whether the award was induced or affected by fraud. On such conjoint reading, this Court is unable to accept the contentions of the learned counsel for the respondents that facts which surfaced subsequent to the making of the award, but have a nexus with the facts constituting the award, are not relevant to demonstrate that there has been fraud in the making of the award. Concealment of relevant and material facts, which should have been disclosed before the arbitrator, is an act of fraud. If the argument advanced by the learned counsel for the respondents is accepted, then a party, who has suffered an award against another party who has concealed facts and obtained an award, cannot rely on facts which have surfaced subsequently even if those facts have a bearing on the facts constituting the award. Concealed facts in the very nature of things surface subsequently. Such a construction would defeat the principle of due process and would be opposed to the concept of public policy incorporated in the explanation."

Finally, the Court laid down the following position in relation to amendment of pleadings in a proceeding under Section 34 upon the discovery of fraud: "[]This Court also holds that the facts concealed must have a causative link. And if the concealed facts, disclosed after the passing of the award, have a causative link with the facts constituting or inducing the award, such facts are relevant in a setting aside proceeding and award may be set aside as affected or induced by fraud. [...] The question in this case, is therefore one of relevance of the materials which the appellant wants to bring on record by way of amendment in its plea for setting aside the award." Conclusion By laying down justness of the plea, relevance and causative link as the the parameters to judge an application for amendment, the position taken by the Supreme Court is identical to that advocated by us and several commentators, especially Badri, in our post following the HC judgment.

vervaekeThe issue was whether a Belgian decree pronouncing void a marriage celebrated in England should be recognised here. The parties had entered into the marriage with no intention of ever living together. Relying on its notion of public policy, the Belgian Court treated that as a sham and so declared it void. The opposite view was taken here. English public policy required that the marriage be held valid here and the court so declared. An attempt was then made to obtain recognition of the Belgian nullity decree. The court considered the effect of the illegality of a marriage when seeking to enforce here a decree of divorce. Held: The rule in Sottomayor v De Barros (No. 2) applied to determine the validity of a marriage where consent was in issue.

ONGC v Saw Pipes This case arose out of a challenge to an arbitral award rendered with regard to a dispute relating to supply of equipment for off shore oil exploration by the respondent. The case was heard by M.B Shah and Arun Kumar JJ. The judgment was written by Shah J. FACTS Oil and Natural Gas Commission had placed an order on Saw Pipes for supply of equipment for off shore exploration, to be procured from approved European manufacturers. The delivery was delayed due to general strike of steel mill workers in Europe. Timely delivery was the essence of the contract. ONGC granted extension of time, but it invoked the clause for recovery of

Liquidated Damages by withholding the amount from the payment to the supplier. ONGC deducted from the payment $3,04,970.20 and Rs 15,75,557 towards customs duty, sales tax and freight charges. Saw pipes disputed the deduction and matter was referred to arbitration. While the arbitral tribunal rejected Saw Pipes defence of force majure, it required ONGC to lead evidence to establish the loss suffered by breach and proceed to hold, in absence of evidence of financial losses, that the deduction of Liquidated damages was wrongful. The award was challenged by ONGC; inter alia as being opposed to public policy ONGCs case was that the arbitral tribunal failed to decide the dispute by not applying the prevailing substantive law, ignoring the terms of the contract and customary practices of usage of trade in such transactions. ONGC challenged the award as being patently illegal. The single judge and division bench of Bombay High Court dismissed the challenge. The Supreme Court set aside an arbitration award directing ONGC to refund $3,04,970.20 and Rs 15.76 Lakhs towards liquidated damages retained by it while making payment to the company. Issues Raised 1) Whether ONGC had the right to Liquidated Damages. 2) Whether Patent illegality could be used as a ground to assail the award under section 34. Decision Of The Supreme Court The Honble Court first extensively discussed the courts jurisdiction to set aside an award under Section 34 of the Arbitration and Concilliation Act 1996 and the various grounds on which interference was permissible. Passing over to the question of damages, the Honble Court opined that when the words of the contracts are clear, there is nothing that the court can do about it. If the parties had agreed upon a sum as being pre- estimated genuine liquidated damages there was no reason for the tribunal to ask the purchaser to prove his loss. It further opined that when the court concludes that stipulation for damages is by way of penalty, it can grant reasonable compensation upon proof of damage. However, where an agreement has been executed by experts in the field, the court should be slow to construe a clause providing for liquidated damages as penalty. At paragraph 49, citing Maula Bux v Union of India (the court concludes that this is especially true where the court is unable o assess compensation or such assessment is fraught with difficulties. In such cases the burden of proof would be on party who contends that the stipulation amount is not reasonable. There was no such contention raised in the instant case. As regards forfeiture, after considering its decision in Union of India v Rampur Distellery the court states the forfeiture clause can be construed either as liquidated damages or as a penalty, depending on the reasonableness of the amount to be forfeited. Therefore, as regards Liquidated Damages and penalties, the primary conclusion of the court appears to be that Liquidated Damages should be regarded as reasonable compensation, while penalties should not. Further, it also appears to have concluded in case of penalty damages will have to be proved. The Honble Court reaffirms that no compensation at all be awarded if the court concludes that no loss is likely to occur because of the breach.