How Not So Carefully Drafted One-Side Clause Can Backfire! Delhi HC Makes 2015 Amendments To Arbitration Act Applicable To Proceedings Initiated Under The 1996 Act

Yesterday on 11th April 2017, Justice S. Muralidhar in Ratna Infrastructure Projects Pvt. Ltd. v. Meja Urja Nigam Private Limited, Arb. Pet 537/2016 made observations on the applicability of the 2015 amendments over the arbitration proceedings commenced under the Arbitration and Conciliation Act, 1996 (“Act”) i.e. before 23 October 2015. The Court interpreted the words “unless the parties otherwise agree” as used in the Section 26 of the Amendment Act in light of the standard agreement terms and held that the amendment act shall be applicable to the arbitral proceedings initiated before 23 October 2015, since the parties had agreed to statutory modification in their agreement and hence the 2015 amendments shall come within the ambit of the clause. Court held that it is not necessary for the parties to expressly enter into a separate agreement to make the 2015 amendments applicable to the arbitration proceedings.

Introduction

Since the enactment of the Arbitration & Conciliation Act (Amendment) Act, 2015, Courts in India are having a tough time interpreting the provisions of the amendments. Even the parties whose arbitration proceedings commenced prior to the cut-off date i.e. 23 October 2015 are too having a tough time deciding which of the amendments are in their favour and which are not. It is correct to suggest that no two opposite parties in the arbitration have jointly benefited from the amendments. This is evident from the nature of disputes which have reached the court. For instance, in Ardee InfrastrucurePvt. Ltd v. Anuradha Bhatia &Ors. (Ardee infra), if we only see the issue from the party to the arbitration perspective, it was that it did not wish to pay the deposit as now mandated under section 36(3) of the amended Act.Thereafter, the matter was heard by the division bench of the Delhi High Court and the Court upon investigating recognized certain vested rights of the parties which cannot be taken away by the amendments and held the expression “to the arbitral proceedings” cannot be strictly interpreted.

In another case of Ratna Infrastructure Projects Pvt. Ltd. v. MejaUrja Nigam Private Limited (“Ratna Infra”) where one can easily observe that the main grievance of the party was not willing to appoint an independent arbitrator and stick to the agreed terms of the contract mandating employee to the arbitrator. Unlike in Adree Infra wherein the Court recognised the right to challenge the award is vested right and held that old act shall apply, the Delhi High Court in Ratna infrarejected the contention of the Respondent stating that parties did not specifically agreed to applicability of the 2015 amendments. Respondent’s attempt to keep the appointment of its own employee as arbitrator was shot down by Justice S. Muralidhar who picked up the fine lines of one side arbitration clause and held that parties had agreed the applicability of the 2015 in the Contract itself.

Facts and comments

Through the case has no binding value since it’s the section 11(6) Petition but the Court has effectuated the intent of the Act and has struck down the attempt of a party to appoint employee as an arbitrator. Some of the interesting facts and arguments placed before the Courts are hereunder along with come personal observation to the facts and parties conduct:

Rana Insfrastrure Project Pvt. Ltd.(Petitioner) was awarded a contract by MejaUrja Nigam Private Limited in 2010. Disputes arose between the parties and contract was terminated. Both claims and the counter-claims were referred to the same arbitrator. Claim was raised first which was quantified at. Approx. Rs. 27 Crore. Subsequently upon termination the government company referred a counter-claim of Approx. Rs. 207 Crore.

Comments- Opposite parties usually file a huge counter-claim often referred as counter-blast to pressurize the other side to settle. Facts are not given in the present case on the heads of damages as it was not part of the Section 11 Petition, therefore it cannot be said if the same was counter-blast or not.

  1. Clause 56 of the General Conditions of the Contract stated that CEO of the Respondent shall be the appointing authority and only the General Manager of the NTPC (The Respondent company was a JV of NTPC) shall be the sole arbitrator to adjudicate the dispute.

Comments- Standard terms of PSU’s and big corporations when they contract was parties with less bargaining power. The 2015 amendment act under section 12(5) read with the seventh schedulenow bars employees, ex-exployees, advisors of agitating party to be appointed as arbitrator.

  • Petitioner objected to the authority of the arbitrator under section 12 and 13 of the Act on the ground that as the arbitrator was not the project in-charge as mandated, he could not continue to be the arbitrator. The objections were dismissed by the arbitrator and therefore the Petitioner approached the High Court u/s 11.
  1. During the proceedings before the High Court of Delhi, the Respondent submitted that they have infact appointed a General Manager as a substitute arbitrator. It was further submitted that the provisions of the amendment act, 2015 putting bar to appoint employee as the arbitrator do not apply to the present arbitral proceedings since the section 26 uses the words “unless the parties otherwise agree”. The Respondent submitted that parties would have to agree, after coming into force of the Amendment Act, 2015 that the said Amendment Act would apply to the pending arbitration proceedings. It was submitted that a distinction is drawn between the words used in Section 26 of the Amendment Act and Section 37(1)(a) of the Act where the expression used is “unless the parties have otherwise agreed or the parties have agreed.” It is stated that the legislature has made a conscious departure and employed the expression “unless the parties otherwise agree” which makes it clear that the Amendment Act would apply to pending arbitral proceedings only after the parties enter into an agreement to this effect. Consequently, it is urged that Section 12(5) of the Act as amended is not applicable in the present case.
  2. CommentsAfter the bar of section 12(5) and recent decision of Justice Manmohan Singh in Assignia-Vil Rail Vikas Nigam, wherein the court criticised the appointment of the employee as arbitrator. In light of the 2015 amendment and Assignia caseseveral arbitrators who were employees, ex-employees have rescued themselves from continuing as the arbitrator. Such gesture was required to ensure that other party in the opposite party does not lose the confidence in the arbitration mechanism and justice delivery process in general. I fail to understand why Respondent in the present case continued to resist the appointment of an independent substitute arbitrator and sought to take the shelter of the technicalities of the interpretation.\

Observation of the High Court of Delhi

The observation of the Delhi High Court to use the contract clauses which are often one sided to rebut the defence taken by the Respondent is plausible. Justice Muralidhar has infact very carefully and smartly interpreted the wordings of the clause of 56 by observing that:

22…… The words “any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration…” satisfies the requirement of Section 26 of there being an agreement between the parties that the Act as amended with effect from 23rd October 2015 will apply.The Court is not prepared to draw the fine distinction between „agree‟ and „agreed‟. Once the amendment to the clause clearly stated that all statutory modifications and re-enactments would apply, then there is no need for further agreement in that respect after 23rd October 2015.

  1. The net result is that Section 12(5) as amended with effect from 23rd October 2015 would apply. Section 12 (5) clearly prohibits the employee of one of the parties from being an Arbitrator. This would straightway disqualify Mr. Kher who happens to be a serving GM of the Respondent.

Conclusion

To conclude, the 2015 arbitration amendments have brought phenomenal changes to the arbitration law in India. It shall be in the interest of the evolving commercial jurisprudence, if the 2015 amendments are interpreted in a harmonious manner taking forward the intent of the legislature towards improving the deplorable condition of arbitration in India. Interpreting the amendments just to make them fit to a particular set of facts would lead to ambiguity and loss of confidence. Justice Muralidhar’s observation in Ratna Infra case is yet another example of how judiciary is taking the daunting task for the betterment of arbitration practice in India.

Prakhar Deep is an Advocate practising in Delhi High Court.

[The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of LiveLaw and LiveLaw does not assume any responsibility or liability for the same].

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