Operational Creditors cannot use the Insolvency Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures. The alarming result of an operational debt contained in an arbitral award for a small amount of say, two lakhs of rupees, cannot possibly jeopardize an otherwise solvent company worth several crores of rupees. Such a company would be well within its rights to state that it is challenging the arbitral award passed against it, and the mere factum of challenge would be sufficient to state that it disputes the award. Such a case would clearly come within para 38 of Mobilox Innovations (P) Ltd. V. Kirusa Software (P) Ltd., (2018) 1 SCC 353 being a case of a pre-existing ongoing dispute between the parties. The Code cannot be used in terrorem to extract this sum of money of Rupees Two Lakhs even though it may not be finally payable as adjudication proceedings in respect thereto are still pending. K. Kishan v. Vijay Nirman Company Private Ltd., (2018) 17 SCC 662.
Tag Archives: Arbitral Award
In Union of India v. U.P. State Bridge Corporation Ltd., (2015) 2 SCC 52, it was held as under:
“In the case of contracts between Government Corporations/State owned companies with private parties/contractors, the terms of the agreement are usually drawn by the Government Company or public sector undertakings. Government contracts have broadly two kinds of arbitration clauses, first where a named officer is to act as sole arbitrator; and second, where a senior officer like a Managing Director, nominates a designated officer to act as the sole arbitrator. No doubt, such clauses give the Government a dominant position to constitute the Arbitral Tribunal are held to be valid. At the same time, it also casts an onerous and responsible duty upon the persona designata to appoint such persons/officers as the arbitrators who are not only able to function independently and impartially, but are in a position to devote adequate time in conducting the arbitration. If the Government has nominated those officers as arbitrators who are not able to devote time to the arbitration proceedings or become incapable of acting as arbitrators because of frequent transfers, etc., then the principle of “default procedure” at least in the cases where the Government has assumed the role of appointment of arbitrators to itself, has to be applied in the case of substitute arbitrators as well and the court will step in to appoint the arbitrator by keeping aside the procedure which is agreed to between the parties. However, it will depend upon the facts of a particular case as to whether such a course of action should be taken or not. S.P. Singla Constructions (P) Ltd. v. State of H.P., (2019) 2 SCC 488.
In Mcdermott International Inc. v. Burn Standard Company, (2006) 11 SCC 181, it was held as under:
“Section 33 of the Arbitration and Conciliation Act empowers the Arbitral Tribunal to make correction of errors in arbitral award to give interpretation of a specific point or a part of the arbitral award and to make an additional award as to claims, though presented in the arbitral proceedings, but omitted from the arbitral award. Sub-section (4) empowers the Arbitral Tribunal to make additional arbitral award in respect of claims already presented to the Tribunal in the arbitral proceedings but omitted by the Arbitral Tribunal provided:
- There is no contrary agreement between the parties to the reference;
- A party to the reference, with notice to the other party to the reference, requests the Arbitral Tribunal to make the additional award;
- Such request is made within thirty days from the receipt of the arbitral award;
- The Arbitral Tribunal considers the request so made, justified; and
- Additional arbitral award is made within sixty days from the receipt of such request by the Arbitral Tribunal.”
The powers under Section 33 (4) of the Arbitration and Conciliation Act cannot be invoked for raising fresh claims or seeking an appeal against the arbitral award. The powers of the Arbitral Tribunal in these proceedings are restricted to making an award for such claims which formed a matter for adjudication and on which the parties had led arguments. Pramod v. Union of India, 2019 (1) AWC 969.
An arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian law, or (b) the interest of India, or (c) justice or morality. (Renusagar Power Co. Ltd. v. General Electric Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] ) Patent illegality was added to the above three grounds in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705. Illegality must go to the root of the matter and in case the illegality is of trivial nature it cannot be held that the award is against the public policy. It was further observed in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 that an award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court.
In DDA v. R.S. Sharma and Co., (2008) 13 SCC 80 it was held that an award can be interfered with by the Court under Section 34 of the Act when it is contrary to:
(a) substantive provisions of law; or
(b) provisions of the 1996 Act; or
(c) against the terms of the respective contract; or
(d) patently illegal; or
(e) prejudicial to the rights of the parties.
The fundamental policy of India was explained in ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 as including all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. It was held inter alia, that a duty is cast on every tribunal or authority exercising powers that affect the rights or obligations of the parties to show a “judicial approach”. It was further held that judicial approach ensures that an authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and its decision is not actuated by any extraneous considerations. It was also held that the requirement of application of mind on the part of the adjudicatory authority is so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law. The Court further observed that the award of the Arbitral Tribunal is open to challenge when the arbitrators fail to draw an inference which ought to be drawn or if they had drawn an inference which on the face of it is untenable resulting in miscarriage of justice. The Court has the power to modify the offending part of the award in case it is severable from the rest, according to the said judgment ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263.
The limit of exercise of power by courts under Section 34 of the Act has been comprehensively dealt in Associate Builders v. DDA, (2015) 3 SCC 49. Lack of judicial approach, violation of principles of natural justice, perversity and patent illegality have been identified as grounds for interference with an award of the arbitrator. The restrictions placed on the exercise of power of a court under Section 34 of the Act have been analysed and enumerated in Associate Builders v. DDA, (2015) 3 SCC 49 which are as follows:
(a) The court under Section 34(2) of the Act, does not act as a court of appeal while applying the ground of “public policy” to an arbitral award and consequently errors of fact cannot be corrected.
(b) A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the sole judge of the quantity and quality of the evidence.
(c) Insufficiency of evidence cannot be a ground for interference by the court. Re-examination of the facts to find out whether a different decision can be arrived at is impermissible under Section 34(2) of the Act.
(d) An award can be set aside only if it shocks the conscience of the court.
(e) Illegality must go to the root of the matter and cannot be of a trivial nature for interference by a court. A reasonable construction of the terms of the contract by the arbitrator cannot be interfered with by the court. Error of construction is within the jurisdiction of the arbitrator. Hence, no interference is warranted.
(f) If there are two possible interpretations of the terms of the contract, the arbitrator’s interpretation has to be accepted and the court under Section 34 cannot substitute its opinion over the arbitrator’s view. M.P. Power Generation Co. Ltd. v. ANSALDO Energia SPA, (2018) 16 SCC 661.
In Union of India v. Tecco Trichy Engineers & Contractors, (2005) 4 SCC 239, a three Judge Bench of the Hon’ble Supreme Court, in respect to the issue of limitation for filing application under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the arbitral award, held that the period of limitation would commence only after a valid delivery of an arbitral award takes place under Section 31(5) of the Act. It was held as under:
“The delivery of an arbitral award under sub-section (5) of Section 31 is not a matter of mere formality. It is a matter of substance. It is only after the stage under Section 31has passed that the stage of termination of arbitral proceedings within the meaning of Section 32 of the act arises. The delivery of arbitral award to the party, to be effective, has to be “received” by the party. The delivery by the Arbitral Tribunal and receipt by the party of the award sets in motion several periods of limitation such as an application for correction and interpretation of an award within 30 days under Section 33(1), an application for making an additional award under Section 33(4) and an application for setting aside an award under Section 34(3) and so on. As this delivery of the copy of award has the effect of conferring certain rights on the party as also bringing to an end the right to exercise those rights on expiry of the prescribed period of limitation which would be calculated from that date, the delivery of the copy of award by the Tribunal and the receipt thereof by each party constitutes an important stage in the arbitral proceedings.”
In State of Maharashtra v. ARK Builders (P) Ltd., (2011) 4 SCC 616, while following the Judgment in Union of India v. Tecco Trichy Engineers & Contractors, (2005) 4 SCC 239 held that the expression “….party making that application had received the arbitral award….” cannot be read in isolation and it must be understood that Section 31(5) of the Act requires a signed copy of the award to be delivered to each party. By cumulative reading of Section 34(3) and 31(5) of the Act, it is clear that the limitation period prescribed under Section 34(3) of the Act would commence only from the date of signed copy of the award delivered to the party making the application for setting it aside. Anil Kumar Jinabhai Patel v. Pravinchandra Jinabhai Patel, (2018) 15 SCC 178.
As can be seen from Section 2 (c) and Section 31 (6), except for stating that an arbitral award includes an interim award, the Act is silent and does not define what an interim award is. Section 31(6) of the Act delineates the scope of interim arbitral awards and states that the arbitral Tribunal may make an interim arbitral award on any matter with respect to which it may make a final arbitral award.
The language of Section 31(6) is advisedly wide in nature. A reading of the said sub-section makes it clear that the jurisdiction to make an interim arbitral award is left to the good sense of the arbitral Tribunal, and that it extends to “any matter” with respect to which it may make a final arbitral award. The expression “matter” is wide in nature and subsumes issues at which the parties are in dispute. It is clear, therefore, that any point of dispute between the parties which has to be answered by the Arbitral Tribunal can be the subject matter of an interim arbitral award. However, by dealing with the matter in a piecemeal fashion, what must be borne in mind is that the resolution of the dispute as a whole will be delayed and parties will be put to additional expense. The Arbitral Tribunal should, therefore, consider whether there is any real advantage in delivering interim awards or in proceeding with the matter as a whole and delivering one final award, bearing in mind the avoidance of delay and additional expense.
To complete the scheme of the Act, Section 32(1) is also material. It goes on to state that the arbitral proceedings would be terminated only by the final arbitral award, as opposed to an interim award, thus making it clear that there can be one or more interim awards, prior to a final award, which conclusively determines some of the issues between the parties, culminating in a final arbitral award which ultimately decides all remaining issues between the parties. M/s IFFCO v. M/s Bhadra Products, 2018 (129) ALR 927.