Background facts
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In 2008,
- In
April 2012 , the Respondent requested a deferment of the concession fee due to delays by Appellant in providing access to stations and slow retail activity. OnJuly 08, 2012 , the Respondent halted operations, citing safety concerns due to alleged defects in construction and design by Appellant. Thereafter, onJuly 09, 2012 , the Respondent issued a notice listing 8 defects and demanded Appellant to cure these within 90 days, failing which it would terminate the agreement. Subsequently, onOctober 08, 2012 , the Respondent terminated the agreement after the 90-day period lapsed without resolution. - Due to the unsuccessful conciliation attempt, the Appellant resorted to arbitration to resolve the disputes. In
May 2017 , theArbitral Tribunal ruled in favour of the Respondent, awarding them INR2782.33 crores plus interest, along with other compensations. - Being aggrieved, the Appellant challenged the award in the
Delhi High Court , where a Single-Judge dismissed their application. Pursuant thereto, the Division Bench of theHigh Court partly allowed the Appellant's appeal. - Being aggrieved by the aforesaid, the Respondent appealed to the
Supreme Court of India (SC), which restored the arbitral award. The Appellant's review petition was dismissed, leading to the present curative petition before the SC. - Whether the SC was justified in restoring the arbitral award, which had been set aside by the Division Bench of the
High Court on the ground of 'patent illegality'? - The SC reaffirmed the principles governing judicial interference with arbitral awards under Section 34 and Section 37 of the Arbitration and Conciliation Act. The SC further referred to previous judgments, such as
Associate Builders v. DDA2 andSsangyong Engineering and Construction Co. Ltd v. NHAI3 , highlighting that courts should only interfere with arbitral awards that are irrational or devoid of reasoning to the extent that no reasonable person would reach the same conclusion. The SC then emphasized that awards lacking evidence or ignoring vital evidence could be considered perverse and liable to be set aside. - The SC also clarified that decisions under Section 37 are not subject to appeal, but the constitutional right to challenge such decisions under Article 136 remains unaffected. However, the SC emphasized that the jurisdiction under Article 136 should be sparingly invoked and limited to exceptional circumstances.
- The SC determined that the arbitral award in favor of the Respondent was tainted by manifest illegality and the
Arbitral Tribunal failed to consider crucial evidence and misinterpreted the termination clause of the concession agreement. It further held that theArbitral Tribunal also failed to differentiate between 'curing defects' and 'taking effective steps to cure defects.' and that theArbitral Tribunal incorrectly concluded that the presence of defects at the end of the cure period indicated a failure to take effective steps, which did not align with the terms of the concession agreement - The SC held that the
Arbitral Tribunal overlooked vital evidence, particularly the CMRS certificate and the actions taken by the Appellant to cure the defects. The SC noted that the Appellant had taken substantial steps to address the defects, and this progress should have been considered under the 'effective steps' clause of the agreement. - Therefore, the SC invoked its powers under Article 142 to set aside its earlier decision and upheld the judgment of the Division Bench of the
High Court - The 3 arbitral awards were passed in separate arbitral proceedings conducted in relation to 3 charterparty agreements. Aggrieved by the awards, the judgment debtor filed petitions in order to set aside the awards under Section 68 of the English Arbitration Act, 1996 before the
High Court of Justice of England andWales (Seat Court). However, these petitions were dismissed by the Court. When the matter reached the stage of enforcement, the judgment debtor raised similar objections. - The objections raised by the judgment debtor were: -
- Regarding the Composition of the
Arbitral Tribunal : - The arbitration agreement provided that the arbitration proceedings shall be conducted in accordance with theLondon Maritime Arbitrators Association (LMAA). As per the judgment debtor, Rule 5 (a) of the LMAA required that the arbitrators shall be members of the LMAA. However, as per the judgment debtor, the arbitral tribunal comprised of 2 retired judges and a lawyer who were not experts in the field of maritime law according to the judgment debtor. Therefore, as per the judgment debtor, the arbitration enforcement of the award must be denied under Section 48 (1)(d) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) as the same contravened with the rules of appointment of arbitrator. - The Decree Holder argued that the objection regarding the composition of the arbitral tribunal was never raised earlier during the arbitration. Moreover, the Decree Holder argued that the above-mentioned objection was contrary to the case which the Decree Holder pleaded before the Seat Court
Violation of Merchant Shipping Act, 1958: - As per the judgment debtor, the vessels which were the subject matter of the charterparty agreements were loaded in contravention of Section 313 of the Merchant Shipping Act, and attracted penalties provided under Section 436 of the Merchant Shipping Act. As per the judgment debtor, one of the objects of the Merchant Shipping Act was to safeguard and secure Indian ships, and the award holder's claims conflicted with the public policy ofIndia . Therefore, as per the Judgment debtor, the arbitration was violative of substantive provisions of theMerchant Shipping and therefore contrary to the public policy ofIndia under Section 48(2)(b) of the Arbitration Act.
- Regarding the Composition of the
- According to the Decree holder, the objection regarding violation of the Merchant Shipping Act was already dealt with in the arbitral award as well as the judgment of the Seat Court. The Decree Holder's advocate also drew the
Delhi High Court's attention to the submissions made by the judgment debtor before the Seat Court. - The Court relied on
Avitel Post Studioz Limited v.HSBC PI Holdings (Mauritius) Limited 4 wherein Supreme Court observed that "bonafide challenges to arbitral appointments have to be made in a timely fashion and should not be used strategically to delay the enforcement process". - The Court opined that enforcement of an award should not be declined in cases where the judgment debtor raises the issue pertaining to composition of the arbitral tribunal before the executing court for the first time. This is because such an issue could have been raised by the judgment debtor before the Tribunal and before the seat Court. The Court noted that the parties were already aware of the composition of the arbitral tribunal for almost a decade. According to the court the challenge to the constitution of the arbitral tribunal was the judgment debtor's afterthought.
- A dispute arose between the First Appellant and the First Respondent, leading the First Respondent to file a suit for the specific performance of the MOU, as modified by certain consent terms, and the Second Respondent was also made a party to this suit. Meanwhile, the Second Respondent also filed a suit against the First Appellant, with the First Respondent also named a defendant. Eventually, a senior member of the Bar was appointed as the sole arbitrator to resolve the disputes among the three parties. The appointment order, passed on
October 13, 2011 in the Second Respondent's suit, referred the dispute to arbitration. OnNovember 17, 2011 , the First Respondent's suit was also referred to the same Arbitrator. Thus, theArbitral Tribunal was tasked with handling claims from both the First Respondent and the Second Respondent against the First Appellant. - The Second Respondent's claim was heard first, resulting in an arbitral award on
May 6, 2017 . However, the proceedings for the First Respondent's claim did not proceed forward. Subsequently, onNovember 26, 2019 , the First Appellant requested theArbitral Tribunal , for the dismissal of the First Respondent's claim on the grounds of abandonment. This was followed by another communication onJanuary 7, 2020 . In response, theArbitral Tribunal scheduled a meeting forMarch 11, 2020 , which the First Respondent did not attend. A subsequent meeting onMarch 18, 2020 was also not held due to the COVID-19 pandemic. The next meeting took place onAugust 12, 2020 , where theArbitral Tribunal directed the First Appellant to file a formal application for dismissal, which they did onAugust 27, 2020 . - The First Appellant argued that the First Respondent's inaction for 8 years indicated abandonment of the claim. However, the First Respondent opposed this, contending no ground existed for dismissal under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 (Act). Despite the opposition to the application for dismissal, on
December 1, 2020 , theArbitral Tribunal terminated the proceedings, placing reliance on the decision given in the case ofNRP Projects Pvt. Ltd. v.Hirak Mukhopadhyay & Anr5 . The First Respondent challenged this termination before theBombay High Court , which set aside theArbitral Tribunal's order and directed the continuation of the proceedings. - Aggrieved by the said order of the
Bombay High Court , the First Appellant challenged the said order before the Supreme Court (SC), hence the present appeal. - Additionally, the SC also noted that in the present case, separate arbitral proceedings were initiated involving distinct claimants and respondents. Furthermore, despite no directive from the
Arbitral Tribunal to simultaneously hear the First Respondent's claim alongside the Second Respondent's, the First Respondent diligently attended hearings until the passing of the award on the Second Respondent's claim. Accordingly, the SC was of the opinion that there was no express or implied abandonment of claim by the First Respondent because the conduct of a claimant who, after filing his statement of claim, does not move theArbitral Tribunal to fix a date for the hearing, per se, would not amount to the abandonment of the claim or to infer that the proceedings have become unnecessary. - Furthermore, the SC also opined that it is the
Arbitral Tribunal's duty to fix a meeting for hearing even if parties to the proceedings do not make such a request. It is the duty of theArbitral Tribunal to adjudicate upon the dispute referred to it. Accordingly, the SC held that the reasoning given by theArbitral Tribunal for dismissing the claim of the First Respondent was insufficient. - Consequently, the
SC Arbitral Tribunal's termination of proceedings, filed by the First Respondent, lacked a substantive basis and sufficient reasoning and thus the Arbitrator had committed illegality in holding that there was an abandonment of claim by the First Respondent. Therefore, the SC concluded that theBombay High Court was correct in setting aside the termination order and directing theArbitral Tribunal to continue the arbitration.
Issues at hand?
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Whether the curative petition is maintainable based on the facts and circumstances of the case?
Decision of the Court
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At the outset, the SC reiterated the principles from Rupa Hurra v. Ashok Hurra1 , emphasizing that curative jurisdiction should be invoked only in cases where there is a grave miscarriage of justice due to the Court acting beyond its jurisdiction, and therefore held that the curative petition is maintainable.
Background facts
Issues at hand?
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Whether contravention of the Merchant Shipping Act, 1958 results in a conflict with the Public Policy of
Decision of the Court
Background facts
Issue at hand?
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Whether the termination of the arbitral proceedings by the
Decision of the Tribunal
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At the outset, the SC delved into the authority of the
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