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Section 11 – A Minimalist Approach To The Constitution Of An Arbitral Tribunal In India

Arbitrations in India are subject to frequent judicial intervention throughout their tenuous lifespans, whether at the stage of interim relief, constitution of an arbitral tribunal or challenge to an award.

Please click here to read the full article authored by our Principal Associate – Siddhesh Pradhan and Associate Sanjana Pandey, which was published in Mondaq.

Tags Alternative Dispute Resolution, Arbitral tribunal, Arbitration in India, Arbitration Law, Corporate Law, Dispute Resolution, Indian law, JSA, Judicial Intervention, Law firm India, Leading Law Firm, Leading Lawyer, Leading Lawyers, Legal Insights, Minimalist approach, Section 11

JSA Prism | Dispute Resolution | April 2025

Judge's gavel resting on a wooden table with a neutral background.

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Supreme Court reaffirms limited scope of appeal under Section 37 of Arbitration and Conciliation Act, 1996

In the case of M/s. C&C Constructions Limited vs. IRCON International Limited[1], the Hon’ble Supreme Court of India (“Supreme Court”) re-affirmed that Section 37 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) grants narrower scope to the appellate court to review the findings in an award, if it has been upheld, or substantially upheld under Section 34 of the Arbitration Act. The Supreme Court also examined the validity of Clause 49.5 of the General Conditions of Contract (“GCC”) which barred the appellant/contractor from claiming damages or compensation for delays caused by the respondent/employer’s failure to fulfil its contractual obligations.

Brief facts

The parties entered into an agreement for the construction of Road Over Bridges (“ROBs”). The agreement provided for dispute resolution through arbitration.
Disputes arose between the parties concerning delays in the completion of the project, the imposition of penalties, and the validity of claims related to these delays.
M/s. C&C Constructions Limited (“Appellant/Contractor”) invoked the arbitration clause, leading to the initiation of arbitration proceedings.
The Appellant had submitted an undertaking for 3 (three) specific locations where ROBs were to be constructed, agreeing not to make any claims other than for escalation due to delays. Despite this, the Appellant later made claims for damages due to delays caused by the Respondent, for which extensions had been granted.
IRCON International Limited (“Respondent/Employer”) filed an application under Section 16(2) of the Arbitration Act, arguing that Clause 49.5 of the GCC barred the Appellant from claiming damages or compensation for delays caused by the Respondent.
Clause 49.5 of GCC states that any failure or delay by the Respondent/Employer in fulfilling contractual obligations does not entitle the Appellant/Contractor to damages or compensation. Instead, the Appellant/Contractor is only entitled to a reasonable extension of time as determined by the Respondent/Employer.
The Arbitral Tribunal passed an award in the Respondent’s application under Section 16 of the Arbitration Act on December 21, 2019, by which all claims were rejected based on clause 49.5 of GCC.
The Appellant challenged the award under Section 34 of the Arbitration Act, before the High Court of Delhi (“Delhi HC”). The Delhi HC dismissed the petition, holding that a term like Clause 49.5 of the GCC would bar the Appellant’s claim. It was also held that Clause 49.5 of the GCC was valid and, after the Appellant accepted the same, it could not contend to the contrary.
Being aggrieved by the Delhi HC’s judgment, the Appellant then appealed under Section 37 of the Arbitration Act to the Division Bench of the Delhi HC. The Division Bench dismissed the appeal, affirming the validity of Clause 49.5 of the GCC and stating that the Respondent had not waived its requirements. Consequently, the Appellant filed a special leave petition before the Supreme Court to appeal against the High Court’s Division Bench’s order.

Issues

The judgment deals with the following issues:

whether Clause 49.5 of the GCC, which prevents the Contractor from claiming damages or compensation for delays caused by the Respondent/Employer, is valid and enforceable?
whether the Respondent had waived the requirements of Clause 49.5 of the GCC through its conduct or communications, thereby allowing the Appellant to make claims for damages despite the clause?

Findings and analysis

Re: Limited scope of interference in appeal under section 37 of the Arbitration Act

The Appellant, for the first time in the appeal before the Supreme Court, invited the Court to examine the validity of Clause 49.5 of the GCC in light of Sections 23 and 28 of the Indian Contract Act, 1872.
The Appellant argued that the Delhi HC should have examined this issue. However, the Supreme Court observed that this contention was not raised by the Appellant either at the Section 34 stage before the learned Single Judge or at the Section 37 stage before the Division Bench. Therefore, the Supreme Court held that it is not open for the Appellant to raise this contention for the first time in the appeal before the Supreme Court.
The Supreme Court also relied on Larsen Air Conditioning and Refrigeration Company vs. Union of India[2] wherein it was held that when an award is upheld or substantially upheld under Section 34 of the Arbitration Act then the scope of appellate court under Section 37 of the Arbitration Act to review the finding in an award becomes narrower.
The Supreme Court also referred to the judgment of Konkan Railway Corporation Limited vs. Chenab Bridge Project Undertaking[3] to establish that scope of interference by a court in examining an award is limited. The grounds for setting aside or refusing to set aside an award in an appeal under Section 37 of the Arbitration Act is restricted and subject to the same grounds as available under Section 34 of the Arbitration Act.
The Supreme Court found no merit in the appeal and dismissed it, reaffirming the limited scope of interference in appeals under Section 37 of the Arbitration Act.

Re: Findings in relation to clause 49.5 of the GCC

The Supreme Court examined the clause 49.5 of the GCC and concluded that the Appellant had given a solemn undertaking not to make any claim other than for escalation in respect of delays in the completion of work. The claims made were contrary to these undertakings, and only an extension of time was available for such delays. Therefore, the Supreme Court held that by the undertakings, the Appellant agreed not to make a claim contrary to what is provided in clause 49.5 of the GCC. Consequently, by conduct, the Appellant was estopped from challenging the validity of clause 49.5 of the GCC.
The contention in relation to clause 49.5 of the GCC having been waived by the Respondent was raised by the Appellant for the first time before the Division Bench in the appeal under Section 37 of the Arbitration Act. The Supreme Court noted that although such argument could not have been raised at the stage of an appeal, it still examined the same.
On the argument of waiver, On the argument of waiver, the Supreme Court held that the Respondent’s request for the Appellant to submit detailed claims for early processing of the extension requests could not be termed as a waiver of Clause 49.5 by any stretch of the imagination. The argument of waiver of Clause 49.5 was thus rejected by the Supreme Court, and the finding of the High Court’s Division Bench that there was no merit in such contention was upheld.

Conclusion

This judgment reinforces the well-established principle that courts have a limited scope of interference in an arbitral award. It adds to the growing body of precedents that emphasise judicial restraint in arbitration matters. The Supreme Court, in line with prior rulings, reiterated that a high threshold of proof is required to convince the court that an arbitral award is vitiated by any of the grounds enumerated under Section 34 of the Arbitration Act. Mere dissatisfaction with the award or a claim that the tribunal misinterpreted contractual provisions is insufficient to warrant judicial intervention. The Supreme Court also upheld strict interpretation of the contract by the Arbitral Tribunal. When parties enter a contract with full awareness of its terms, then later, a party cannot challenge the contractual terms simply because it ceases to be favorable to one party. The judgment establishes that the parties as well as the Arbitral Tribunal in passing an award and adjudicating the disputes are bound by the terms of the contract.

This Prism is prepared by:

Sidharth Sethi
Partner

Shreya Sircar
Partner

Deepank Anand
Associate

Shivangi Pathak
Associate

For more details, please contact [email protected]

[1] 2025 INSC 138

[2] (2023) 15 SCC 472

[3] (2023) 9 SCC 85

Tags Delhi HC, Delhi High Court, Dispute Resolution, Disputes, JSA, JSA Prism, Leading Law Firm, Leading Lawyer, Leading Lawyers, Legal Updates

JSA Prism | Dispute Resolution | April 2025

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Supreme Court holds that an entity being subject to regulatory guidelines under a statute does not automatically make it amenable to writ jurisdiction

A recent judgment of the Hon’ble Supreme Court of India (“Supreme Court”) has held in S. Shobha vs. Muthoot Finance Ltd.[1], that a body, public or private, should not be categorised as being amenable to writ jurisdiction simply because it is governed by the rules and regulations framed by a statutory regulatory authority. Relying on various legal precedents, the Supreme Court held that the most important and vital consideration while determining the maintainability of a writ application is the ‘function’ test.

Brief facts

Muthoot Finance Limited (“Respondent”), is a company registered under the Companies Act, 1956, regulated by the Reserve Bank of India (“RBI”). The Respondent company is a private financier.
The brief facts giving rise to the dispute are that S. Shobha (“Petitioner”) availed of a loan from the Respondent by pledging gold. Notably, the loan agreement between the parties contained an arbitration clause.
Disputes arose between the parties, and the Petitioner invoked the writ jurisdiction of the High Court of Karnataka at Bengaluru (“Karnataka HC”). The Learned Single Judge entertained the writ petition, despite noting that the Respondent did not have the status of ‘State’ under Article 12 of the Constitution of India (“Constitution”), since the Respondent had acted contrary to an interim order.
In appeal, the Division Bench of the Karnataka HC held that the writ petition is not maintainable on, inter alia, the following grounds:
- the definition of ’State’ within the meaning of Article 12 of the Constitution, has not been satisfied in the present case;
- the transaction of loan by pledging of gold by the Petitioner with the Respondent, could not be held to be involving any public function or being in the public realm; and
- the Respondent company is not discharging any public function.
Aggrieved, the Petitioner preferred a special leave petition before the Supreme Court.

Issue

Whether the Respondent company, a private financier, although regulated by a statutory regulator, being the RBI, can be said to be amenable to writ jurisdiction?

Key findings of Supreme Court

After appreciating the submissions advanced by the parties as well as legal precedents, the Supreme Court held that on applying the ‘function’ test, the Respondent cannot be called a public body; it has no duty towards the public; it has no power to take any action or pass any order affecting the rights of the members of the public. Therefore, in the absence of any public duty or public function, the Respondent cannot be said to be amenable to writ jurisdiction.
In support of the above conclusion, the Supreme Court observed that the duty of the Respondent is towards its account holders, which may include the borrowers who have availed of any loan facility. The binding nature of its orders and actions is confined to its account holders, borrowers and to its employees. The Supreme Court summed up the legal position as regards the amenability to writ jurisdiction as follows:
- Instrumentality or agency of State: For issuing writ against a legal entity, it would have to be an instrumentality or agency of a State or should have been entrusted with such functions as are Governmental or closely associated therewith by being of public importance or being fundamental to the life of the people and hence Governmental.
- Statutory function: A writ petition under Article 226 of the Constitution may be maintainable against (i) the State Government; (ii) authority; (iii) a statutory body; (iv) an instrumentality or agency of the State; (v) a company which is financed and owned by the State; (vi) a private body run substantially on State funding; (vii) a private body discharging public duty or positive obligation of public nature; and (viii) a person or a body under liability to discharge any function under any Statute, to compel it to perform such a statutory function.
- Mere subjection to regulation by statutory body not enough to invoke writ jurisdiction: Although a non-banking finance company is duty bound to follow and abide by the guidelines provided by the RBI for smooth conduct of its affairs in carrying on its business, yet those are in the nature of regulatory measures to keep a check and provide guideline and not a participatory dominance or control over the affairs of the company.
- Private company/scheduled bank not carrying on public function/duty: A private company carrying on banking business as a Scheduled bank cannot be termed as a company carrying on any public function or public duty.
- Private body performing public duty: Normally, mandamus is issued to a public body or authority to compel it to perform some public duty cast upon it by some statute or statutory rule. In exceptional cases a writ of mandamus or a writ in the nature of mandamus may issue to a private body, but only where a public duty is cast upon such private body by a statute or statutory rule and only to compel such body to perform its public duty.
- If a private body is discharging a public function and the denial of any rights is in connection with the public duty imposed on such body, the public law remedy can be enforced. The duty cast on the public body may be either statutory or otherwise and the source of such power is immaterial but, nevertheless, there must be the public law element in such action.
- Mere statutory force not sufficient to attract writ jurisdiction: Merely because a statue or a rule having the force of a statute requires a company or some other body to do a particular thing, it does not possess the attribute of a statutory body.
- No general definition of public authority or public action: There cannot be any general definition of public authority or public action. Each case must be decided on its own facts.

Conclusion

This judgment reinforces the settled principles as regards the invocation of writ jurisdiction. Invocation of writ jurisdiction with respect to a private entity not discharging any public function or public duty cannot be proceeded against in writ jurisdiction. There are other civil remedies available to an aggrieved party in such cases, for instance, filing a civil suit or invocation of arbitration clause, if available in the agreement/arrangement between the parties.

This Prism has been prepared by:

Sidharth Sethi
Partner

Shreya Sircar
Partner

Kunal Saini
Associate

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[1] 2025 INSC 117 (judgment dated 24 January 2025)

Tags Article 226, Constitutional Law, Indian law, JSA, Judicial Review, Leading Law Firm, Leading Lawyers, Legal Update, Legal Updates, Public Function, Regulatory Compliance, Supreme Court, Writ Jurisdiction

JSA Prism | Dispute Resolution | March 2025

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Forfeiture of earnest money, if ‘reasonable’, does not amount to imposing a penalty and therefore does not fall under Section 74 of the Indian Contract Act, 1872

The Supreme Court of India (“Supreme Court”) in Godrej Projects Development Limited vs. Anil Karlekar and Ors.[1], has held that forfeiture of a reasonable amount of earnest money is permissible and does not constitute a penalty under Section 74 of the Indian Contract Act, 1872 (“Contract Act”), provided it is not excessive.

Brief facts

The Respondents Anil Karlekar and Ors. (“Complainants/Respondents”) booked an apartment with Godrej Projects Development Limited (“Appellant/Developer”) in its project styled as ‘Godrej Summit’ (“Project”) by paying an application money of INR 10,00,000 (Indian Rupees ten lakh).
The Appellant allotted an apartment to the Complainants in the Project. Pursuantly, an Apartment Buyer Agreement (“Agreement”) was executed between the parties.
Subsequently, the Appellant completed the construction of the Project and offered possession to the Complainants. However, the Complainants sought cancellation of the allotment and demanded a full refund of INR 51,12,310 (Indian Rupees fifty one lakh twelve thousand three hundred and ten).
Thereafter, the Complainants filed a Consumer Complaint (“Complaint”) against the Appellant before the National Consumer Disputes Redressal Commission (“NCDRC”), seeking a full refund along with 18% interest per annum.
The NCDRC, vide order dated October 25, 2022, disposed of the Complaint and held that the Appellant could deduct only 10% of the Basic Sale Price (“BSP”) as cancellation charges. In effect, the NCDRC directed the Appellant to refund the remaining amount along with 6% simple interest per annum, within a specified period. Aggrieved by the NCDRC’s decision, the Appellant filed an appeal before the Supreme Court.

Issue

Whether forfeiture of a reasonable amount of earnest money deposit constitutes a penalty under Section 74 of the Contract Act?

Findings and analysis

While partly allowing the appeal, the Supreme Court held as follows:

forfeiture of earnest money is permissible, provided it is reasonable and not excessive or arbitrary. In such circumstances, it shall not amount to a ‘penalty’ under Section 74 of the Contract Act;
while relying on its judgment in Maula Bux vs. Union of India[2], the Supreme Court reiterated that if the forfeiture of earnest money under a contract is reasonable, then it does not fall within Section 74 of the Contract Act, inasmuch as, such a forfeiture does not amount to imposing a penalty.
The Supreme Court further observed that if under the terms of the contract, the party in breach undertook to pay a sum of money or to forfeit a sum of money which he had already paid, such an undertaking is in the nature of a penalty and would attract the provisions of Section 74 of the Contract Act.
The Supreme Court also analysed and relied upon the decision rendered by the NCDRC in DLF Limited vs. Bhagwanti Narula[3] and Ramesh Malhotra and Anr. vs. Emaar Mgf Land Limited and Anr.[4],wherein it was held that 10% of the BSP is a reasonable amount which is liable to be forfeited as earnest money. Additionally, the Supreme Court also relied on other decisions passed by it in Ireo Grace Realtech Private Limited vs. Abhishek Khanna and Ors.[5], Wing Commander Arifur Rahman Khan and Aleya Sultana and Ors. DLF Southern Homes Private Limited and Ors[6], Pioneer Urban Land and Infrastructure Limited vs. Govindan Raghavan[7], and held that the forfeiture of the 20% of the BSP as earnest money by the Appellant was excessive, one-sided and unconscionable and therefore, not enforceable in law.

Conclusion

The Supreme Court has reaffirmed that the forfeiture of earnest money is permissible, provided it is reasonable and proportionate. It upheld the validity of forfeiture of earnest money observing that such clauses should not be one-sided or excessively punitive and that such an amount must be just and fair not qualifying as a penalty under Section 74 of the Contract Act. Any forfeiture that is excessive, punitive, or one-sided amounts to a penalty.

While earnest money serves as security for contractual performance, its forfeiture should not be excessive to the extent that it qualifies as a penalty. If a forfeiture is deemed unreasonable or oppressive, the court has the authority to intervene and reduce the amount, ensuring that contractual terms remain equitable and enforceable.

This Prism is prepared by:

Sidharth Sethi
Partner

Shreya Sircar
Partner

Kunal Saini
Associate

For more details, please contact [email protected]

[1] Civil Appeal No. 3334 of 2023, decided on February 3, 2025

[2] (1969) 2 SCC 554

[3] 2015 SCC OnLine NCDRC 1613

[4] 2020 SCC OnLine NCDRC 789

[5] (2021) 3 SCC 241

[6]. (2020) 16 SCC 512

[7] (2019) 5 SCC 725

Tags Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyer, Leading Lawyers, Legal Updates

JSA Prism | Power | March 2025

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JSA secures relief for Brahmani Thermal Power Private Limited, as Appellate Tribunal for Electricity upholds force majeure-based relinquishment of Long-Term Access sans any liability

In a significant judgment, the Appellate Tribunal for Electricity (“APTEL”) in the case of M/s Brahmani Thermal Power Private Limited vs. Central Electricity Regulatory Commission[1] held that Brahmani Thermal Power Private. Limited (“BTPPL”)[2] was entitled to relinquish its Long-Term Access (“LTA”) without any liability, due to force majeure events. By doing so, APTEL set aside Ld. Central Electricity Regulatory Commission’s (“CERC”) findings, by emphasising that the delay in land acquisition by the concerned State Government was a force majeure event beyond BTPPL’s control. APTEL returned these findings after considering Regulation 18 of the CERC (Grant of Connectivity, Long-term Access and Medium-term Open Access in inter-State Transmission and related matters) Regulations, 2009 (“Connectivity Regulations, 2009”).

Brief facts

The Appellant, BTPPL formerly known as Navbharat Power Private Limited, planned to establish a 1050 MW (2×525 MW) coal-based thermal power plant in Odisha. For this, it executed a Memorandum of Understanding (“MoU”) with the State Government of Odisha on June 9, 2006. Under the MoU, the State Government through its instrumentality, Odisha Industrial Infrastructure Development Corporation (“IDCO”), was to acquire 1,200 (one thousand two hundred) acres of land and hand it over free from encumbrances to BTPPL for setting up the power plant. BTPPL thereafter executed a Bulk Power Transmission Agreement (“BPTA”) with Power Grid Corporation of India Limited (“PGCIL”) for LTA to the transmission network on June 7, 2010.
The land was identified and the acquisition process commenced. After certain payments by BTPPL, the Government of Odisha issued Section 4(1) notification under the Land Acquisition Act, 2013 on November 6, 2007, which was followed by Section 6(1) notifications on November 29, 2008, and December 11, 2008. BTPPL obtained clearances from various authorities in relation to the identified land, some even before the BPTA was executed.
On July 30, 2009, the Collector, Dhenkanal informed that the Project area of 546.98 (five hundred and forty-six point nine eight) hectares fell within the Ayacut area of Rengali Right Canal System (“RRCS”), which required the matter to be settled with the Water Resources Department. Thereafter, the Water Resources Department inter alia requested BTPPL to revise its requirement of land or relocate the project. BTPPL expressed its inability to relocate.
Meanwhile, the MoU expired on December 31, 2011, and was not extended by the State Government. BTPPL had submitted a proposal reducing the share of Ayacut land and requested IDCO to initiate land acquisition process. BTPPL had also requested PGCIL to postpone the commercial operation date of the plant.
It was only on July 16, 2012, that the Department of Water Resources gave its in-principal acceptance to establishment of the plant in the Ayacut area of RRCS. BTPPL then wrote to the State Government of Odisha to seek resumption of the land acquisition process. It also sought extension of the MoU, but in vain.
Finally, BTPPL issued a force majeure notice on June 25, 2013, and sought relinquishment of the LTA and return of the bank guarantee submitted by it. PGCL advised BTPPL to approach CERC. Accordingly, BTPPL filed a petition[3] before CERC claiming force majeure under the BPTA and return of the bank guarantee.
On April 12, 2017, CERC rejected BTPPL’s claim of force majeure, ruling that the project was abandoned for commercial reasons and that force majeure under the BPTA only provided temporary relief, not an exit from obligations. CERC further held that BTPPL must pay relinquishment charges as per Regulation 18 of the Connectivity Regulations, 2009 and it was not entitled to a refund of the INR 36,00,00,000 (Indian Rupees thirty-six crore) bank guarantee.

Issue

Whether the BPTA was frustrated on account of force majeure events faced by BTPPL?

Findings of APTEL

Clause 9 of BPTA extends to permanent force majeure events

Clause 9 of the BPTA is not limited to only temporary force majeure events. The use of word ‘practicable’ in the last sentence of Clause 9 merely indicates that the agreement may be continued after the Force Majeure event ceases to exist if the affected party finds it practical so to do. To say that Clause 9 applies only in case of ‘temporary failure to carry out the Terms of the Contract’ would tantamount to adding words to the written agreement, which is impermissible.
APTEL in its earlier Judgment dated May 19, 2020 in PEL Power Limited vs. CERC and Anr.[4] (“PEL Power Judgment”) regarding an identical clause had held the same. There is no stay on PEL Power Judgment. The PEL Power Judgment was followed in judgment dated May 14, 2024, titled Himachal Sorang Power Private. Limited vs. CERC and Ors.[5]. The Appeal filed by Central Transmission Utility India Limited against the Himachal Sorang judgment has been dismissed by Hon’ble Supreme Court on August 27, 2024.

Force majeure events prevented BTPPL from setting up the plant

CERC’s finding that the project was abandoned due to commercial reasons is entirely unreasoned. The practice of writing unreasoned and cryptic orders needs to be deprecated sternly. Though CERC’s order could be set aside on the ground of it containing no reasons, the appeal was heard finally considering that it has been pending adjudication for more than 7 (seven) years.
The main reasons due to which the project could not be executed were: (a) failure on the part of the State Government to acquire land for project before expiry of the notifications issued under Sections 4(1) & 6(1) of the Land Acquisition Act, 2013; and (b) failure on the part of the State Government to extend/renew the MoU beyond December 31, 2011. Both these factors were undoubtedly beyond the control of BTPPL and therefore, constitute force majeure events contemplated under Clause 9 of the BPTA.
When the MoU dated June 9, 2006, clearly made it an obligation upon the State Government to acquire the land required for the project through IDCO and place it at the disposal of BTPPL free from any encumbrances, there was no reason or occasion for BTPPL to initiate land acquisition process. It is the State Government which has failed to fulfil its obligations under the MoU for which BTPPL cannot be held responsible.
Regulation 8 of the Connectivity Regulations, 2009 is only applicable in cases of voluntary relinquishment, without being affected by force majeure events.
As on June 25, 2013, when BTPPL issued force majeure notice, there was no stranded spare capacity in the lines in question, since no work began on these lines. This also rules out applicability of Regulation 18 of the Connectivity Regulations, 2009, which presupposes stranded capacity on account of relinquishment.
Therefore, CERC’s order is set aside, and the Appeal is allowed. Central Transmission Utility India Limited is directed to return BTPPL’s bank guarantee within 2 (two) weeks.

Conclusion

APTEL’s judgment rightly recognises force majeure conditions faced by the generator which prevented operationalisation of the LTA under BPTA. It also respects the force majeure clause in the BPTA by not resorting to a pedantic interpretation of the clause to hold that it covers permanent force majeure events also. Furthermore, it upholds the force majeure clause of the BPTA even in light of Regulation 18 of the Connectivity Regulations, 2009, by expressly holding that there was no stranded capacity in the present matter.

The Prism is prepared by:

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Partner

Malcolm Desai
Principal Associate

Samikrith Rao
Senior Associate

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[1] Judgment dated March 20, 2025, in Appeal No. 235 of 2017

[2] BTPPL was represented by JSA team comprising Abhishek Munot, Malcolm Desai and Samikrith Rao.

[3] Petition No. 317/MP/2013

[4] Appeal No. 266 of 2016

[5] 2024 SCC OnLine APTEL 13

Tags Appellate Tribunal, Bank Guarantee, Electricity Law, Energy Law, Force Majeure, Infrastructure Law, JSA, JSA Thought Leadership, Leading Law Firm, Leading Lawyers, Legal Update, Legal Updates, LTA Regulation, Power Sector, Regulatory Compliance, Transmission Law

JSA Prism | Dispute Resolution | March 2025

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Delhi High Court upholds exemption granted to Delhi International Airport Limited from payment of Annual Fee

On March 7, 2025, the single judge of the High Court of Judicature at Delhi (“Delhi HC”) in the case of Airports Authority of India vs. Delhi International Airport Limited and Anr.[1], granted relief to Delhi International Airport Limited (“DIAL”) in proceedings filed by Airport Authority of India (“AAI”) under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) by upholding an arbitral award dated 21 December 2023 (as corrected under Section 33 of the Act vide order dated 16 January 2024) decided in favour of DIAL (“Arbitral Award”).

The issue before the Arbitral Tribunal (“AT”) was whether during the period of the pandemic, the general provisions of the contract between AAI and DIAL, which mandates DIAL to pay an Annual Fee (“AF”) at a certain percentage, will continue to operate if DIAL had sought benefit of the force majeure clause. The case of DIAL was that though they continued to run the operation, their revenues had fallen down so much that they were unable to meet even the expenses. On the other hand, the case of the AAI was that firstly, it cannot be said that the DIAL was unable to pay the AF and secondly, the conditions as provided in the force majeure clause never existed in entirety. The AT agreed with the contentions of DIAL and passed an award against AAI.

AAI filed a petition under Section 34 of the Arbitration Act challenging the Arbitral Award on the grounds that it is perverse, contrary to law and fundamentally alters the contractual framework between the parties, which has been dismissed by the Delhi HC.

Brief facts

AAI executed an Operation, Management and Development Agreement (“OMDA”) dated April 4, 2006, with DIAL, whereunder Article 11 required DIAL to pay AAI an AF for each year during the term of OMDA at 44.99 % of projected revenue as set forth in the business plan for a said year. The AF is payable in 12 (twelve) equal Monthly Instalments (“Monthly AF” or “MAF”)to be paid through an escrow bank. A delay in MAF bears interest calculated at State Bank of India prime lending rate + 10% p.a.

In March 2020, upon the outbreak of the COVID-19 pandemic, DIAL sought relief under force majeure provision of OMDA i.e. Article 16, citing force majeure and requested AAI to refrain from instructing the escrow bank regarding the Monthly AF for April 2020 and sought a 3 (three) month waiver upto June 2020 on MAF payments due to the nationwide lockdown.

In response, AAI requested a board resolution confirming the invocation of force majeure. While the board resolution was pending, AAI accepted DIAL‘s request and granted a 3 (three) month deferral of MAF payments from April to June 2020 on a ‘without prejudice’ basis. Under this arrangement, DIAL was required to pay the cumulative MAF for April, May and June 2020, computed on actual revenues by July 15, 2020, without incurring interest under Article 11 of the OMDA. However, DIAL did not provide the required board resolution confirming the invocation of force majeure and continued to pay the MAF for April, May and June 2020 despite the above arrangement agreed with AAI. In fact, on May 1, 2020, DIAL reaffirmed its commitment to paying MAF.

On June 24, 2020, DIAL provided AAI a board resolution and formally requested deferment of MAF payments on a cash basis, submitting board meeting minutes and a document titled ‘Detailed Note on Relaxation in Business Plan Submission and Payment of MAF’. On August 7, 2020, AAI rejected this request and directed DIAL to comply with its OMDA obligations.

Pertinently, even while DIAL formally sought to be excused from MAF payments, nonetheless, it continued to remit the MAF as per the usual practice.

Parties invoked Article 15.1.1 of the OMDA for seeking resolution of the ongoing dispute. The AT was constituted on January 13, 2021. The Arbitral Award was passed on December 21, 2023, whereby the Tribunal inter alia excused DIAL from making payment of AF for the period March 19, 2020, to 28 February 2022, while rejecting all the counterclaims of AAI. The Arbitral Award was pronounced on January 6, 2024, and on January 2024 16, the learned AT, sou motu, passed an order under Section 33 of the Arbitration Act, correcting certain stenographical errors in the Arbitral Award.

Issue

Whether Impugned Arbitral Award is patently illegal and contrary to public policy, warranting its setting aside under Section 34 of the Act?

Findings and analysis

The Delhi HC undertook a detailed analysis of the limited grounds on which a court can interfere under Section 34 of the Arbitration Act. While relying on plethora of judgments, the single judge inter alia noted the following ratios:

the 3 (three) characteristics of a reasoned order can be fathomed i.e. that the order is: (a) proper, (b) intelligible and (c) adequate. The award can only be interfered with if the court reaches to the conclusion that the perversity of the award goes to the root of the matter and there is no possibility of alternative interpretation which may sustain the arbitral award (Dyna Technologies vs. Crompton Greaves Limited[2]);
the court, in exercising its jurisdiction under Section 34 of the Arbitration Act to set aside an award, must determine whether the award is so irrational that no reasonable person could have reached the same conclusion. (Associate Builders vs. DDA[3]);
if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with (Kuldeep Singh vs. Commr. of Police[4])
the court is of the considered view that ‘a force majeure clause’ in a contract is generally an exception or an eclipse provision, meaning thereby if a force majeure is enforced the performance as mandated in the other terms of the contract will remain eclipsed till the force majeure event persists (Treitel on Frustration and Force Majeure, 3^rd Edition). Whether the force majeure has taken place or not or it exists or not or the time till when it exists is a question of fact to be determined by the AT;
a business-like interpretation of contractual provisions must be adopted in construing contracts entered into by persons of business to govern business dealings. The court must ensure that interpretation of law in commercial cases must not be disjointed from the intent and object which those having business dealings seek to sub-serve (Mumbai Metropolitan Region Development Authority vs. Unity Infraprojects Limited[5]);
the law is not divorced from business realities nor can the vision of the judge who interprets the law be disjointed from the modem necessities to make business sense to business dealings (UHL Power Company Ltd. vs. State of Himachal Pradesh[6]); and
Construction of the terms of a contract is primarily for an arbitrator to decide (Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Limited[7]), etc.

On basis of the above jurisprudence on Section 34 of the Arbitration Act, the Delhi HC held that there is no illegality or perversity in the impugned award passed by AT. The Delhi HC observed that AT has duly taken into account all the conditions as contained in Article 16.1.2 of the OMDA and appreciated the evidence of both parties. The AT also noted that OMDA was entered into with the motive of earning profit with the exception of contracted relief pertaining to force majeure circumstances and endeavour of the adjudicator should be to neutralise profit/losses between the parties.

As per the financial statement of DIAL for the year ending March 31, 2021, the total income/receipt from the sundry operations of the Airport aggregated at INR 1669.31 crore (Indian Rupees one thousand six hundred sixty-nine point thirty one crore) while the total expenses aggregated at INR 2567.10 crore (Indian Rupees two thousand five hundred sixty-seven point ten crore). The evidence produced by DIAL demonstrated an adverse impact on DIAL’s revenue with effect from March 2020 which has rightly been noted by the AT. DIAL was mandated to ensure that the airport services continued to function for handling permitted flight operations/transportation for essential goods/fire, law and order and emergency services. Therefore, DIAL was compelled by law to incur all the costs in the maintenance and operation of the airport. There is no fault with the finding of the AT that merely because the payment was made, it cannot be held that they were unable to make payment of the AF.

The Delhi HC also observed that the arbitrator is the final Arbiter of the disputed facts between the parties. The question of ‘inability’ is pre-dominantly a question of fact, which has been determined by the AT on the basis of the evidence produced by the parties. There is no finding which can be said to have been rejected without any evidence, nor is there any material on record to suggest that any extraneous material has been taken into account, or any relevant material has not been considered. In a situation where the closure of the Airport was not an option and the expenditure was more than the revenue earned, the AT has rightly held that DIAL had to be excused from the payment of MAF. In view of the same, the Delhi HC did not find any perversity in the Arbitral Award passed by the AT and dismissed the petition filed by AAI.

Conclusion

The Delhi HC has once again reiterated and upheld the principle that interpretation of the terms of the contract falls within the domain of the arbitrator alone and even if the alternative view is available, the court cannot substitute its own while exercising powers under Section 34 of the Arbitration Act.

This Prism is prepared by:

Poonam Verma Sengupta
Partner

Priyakshi Bhatnagar
Senior Associate

For more details, please contact [email protected]

[1] O.M.P. (COMM) 186/2024

[2] (2019) 20 SCC 1

[3] (2015) 3 SCC 49

[4] (1999) 2 SCC 10

[5] (2008) SCC OnLine Bom 190

[6] (2022) 4 SCC 116

[7] (2019) 7 SCC 236

Tags Delhi HC, Delhi High Court, Dispute Resolution, Disputes, JSA, JSA Prism, Leading Law Firm, Leading Lawyer, Leading Lawyers, Legal Updates, Newsletter

Supreme Court upholds invocation of urgency clause for land acquisition in Yamuna Expressway Project; saves exposure of thousands of crores

JSA successfully advised and represented Yamuna Expressway Industrial Development Authority (“YEIDA”) before the Hon’ble Supreme Court (“the Court”) in a landmark case concerning the acquisition of land for an integrated development project surrounding the Yamuna Expressway (“the Yamuna Expressway Project”). The Supreme Court’s judgment in Kali Charan and Others v. State of U.P. and Others, Civil Appeal No. 13119 of 2024 and 34 other civil appeals, decisively upheld the legality of the acquisition process and paved the way for the Yamuna Expressway Project’s continued progress.

The Yamuna Expressway Project spans 18,000 hectares across 16 villages in Gautam Buddha Nagar and forms a vital component of YEIDA’s development blueprint. The instant litigations concerned the acquisition of 2,375 hectares in 14 villages, impacting 12,868 landowners, with YEIDA having already invested approximately INR 972 crores.

The Supreme Court dismissed 29 civil appeals filed by landowners challenging the acquisition on the ground that the invocation of the urgency clause under the Land Acquisition Act, 1894 (“the 1894 Act”) was valid. Further, it allowed 6 civil appeals filed by YEIDA and set aside various decisions of the Allahabad High Court that had directed YEIDA to pay an enhanced amount of compensation to the erstwhile landowners.

The case involved unique challenges as conflicting decisions from co-ordinate benches of the Allahabad High Court had to be resolved (with certain decisions upholding the acquisition while others had declared it as illegal). The Hon’ble Supreme Court held the High Court’s decisions striking down the acquisitions to be per incuriam and upheld the judgments that had found the acquisition process to be legal and valid. The present decision, therefore, finally provides clarity and consistency of law regarding the vast lands acquired by YEIDA.

The Court’s further key findings are:

The Court affirmed YEIDA’s policy of planned development along the Yamuna Expressway, recognizing the integral connection between the Expressway itself and the development of adjacent lands for commercial, residential, and recreational activities.
The Court distinguished the Yamuna Expressway Project from standalone projects.
The Court held that the application of urgency clause under the 1894 Act was legal and justified, given the project’s scale and public importance.

Our Disputes Team is comprised of lead partners, Amar Gupta and Divyam Agarwal; senior associates, Pranav Tanwar and Zain Maqbool; and associates, Mohit Sharma and Abhay Pratap Singh.

Tags Disputes Update, Infrastructure Development, JSA, JSA Updates, Land Acquisition, Landmark Judgment, Leading Law Firm, Leading Lawyers, Legal Updates, Real Estate Law, Supreme Court, YEIDA

JSA successfully defended the Dismissal of an appeal challenging the admission order of Tarun Relators Private Limited in applications for recall of the dismissal order filed by its 49% shareholder and ex-suspended director

JSA successfully advised and represented Assets Care & Reconstruction Enterprises Limited (“ACRE”) and other members of the committee of creditors before the Hon’ble National Company Law Appellate Tribunal, Chennai (“NCLAT”), in dual applications seeking recall of the Hon’ble NCLAT’s order dated October 14, 2024, filed by Mantri Developers Private Limited (“Mantri”), a 49% shareholder of Tarun Realtors Private Limited (“Corporate Debtor”), and Mr. Baaskaran S., the ex-suspended director of the Corporate Debtor.

The said applications were filed for recall of the Hon’ble NCLAT’s order dated October 14, 2024 vide which an appeal filed by Baaskaran S., challenging the admission of the Corporate Debtor to corporate insolvency resolution process (“CIRP”), came to be dismissed owing to the resignation of Baaskaran S. from his post as a director of the Corporate Debtor. It was Mantri’s contention that on the date of dismissal of the appeal, it had filed an application for substitution in place of the ex-suspended director of the Corporate Debtor owing to his resignation, which was not numbered and listed on the date of hearing. Therefore, Mantri contended that owing to the dismissal of the appeal without considering its substitution application, principles of natural justice and due process were violated by the Hon’ble NCLAT.

Mantri further placed reliance on an order dated December 10, 2024 passed by the Hon’ble Karnataka High Court in a writ petition filed by it challenging the Hon’ble NCLAT’s order dated October 14, 2024, wherein the Hon’ble Karnataka High Court granted liberty to Mantri to file the said recall applications before the Hon’ble NCLAT.

Contending that the said recall applications were not maintainable and without merit, ACRE inter alia adduced the following submissions:-

Mantri had no locus standi to pursue an appeal challenging the admission of the Corporate Debtor to CIRP in its capacity as a shareholder, as it is a mere investor and not an ‘aggrieved person’ under Section 61 of the Insolvency and Bankruptcy Code, 2016.
The exceptional circumstances for recall of an order, as carved out in the judgment of the five-member bench the Hon’ble NCLAT, New Delhi in Union Bank of India Vs Mr. Dinkar T. Venkatasubramaniam & Ors., CA (AT) (Ins) No.729/2020, had not been made out in the present case as there existed no procedural lapses on the date of passing of the order in question.
The recall application filed by Baaskaran S. cannot be maintainable owing to his resignation as a director of the Corporate Debtor, a fact which was not disclosed to the Hon’ble NCLAT on two separate occasions when the Hon’ble NCLAT was considering the said appeal.

By its judgment, the Hon’ble NCLAT was pleased to dismiss the recall applications filed by Mantri and Baaskaran S. and found that the conditions for recall of its order dated October 14, 2024, were not made out in the present case.

Furthermore, the Hon’ble NCLAT reaffirmed a shareholders’ lack of locus standi to challenge the admission of a corporate debtor to CIRP considering its status as a mere investor and opined that the same cannot be overcome / bypassed by seeking substitution in place of a suspended director considering the statutorily distinct roles.

ACRE was represented by Mr. P. S. Raman, Senior Advocate and Advocate General of Tamil Nadu. The remaining members of the committee of creditors were represented by Mr. Varghese Thomas.

Our Disputes Team comprised Lead Partner, Varghese Thomas, Partners, Aditi Deshpande and Srinivasan M.D., and Associates, Kabir Saund and Dharaniya Sri K.M

Tags CIRP, Corporate Insolvency, Dispute Resolution, IBC2016, Insolvency Law, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Nclat

JSA Prism | Dispute Resolution | March 2025

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A Limited Liability Partnership is bound by the arbitration clause in a Limited Liability Partnership Agreement despite not being a signatory to it

A single judge of the Bombay High Court (“Bombay HC”) has in Kartik Radia vs. M/s. BDO India LLP and Anr.[1] held that disputes between the partners of a Limited Liability Partnership (“LLP”) and the LLP are covered by the arbitration clause contained in the LLP Agreement (“LLP Agreement”) to which the LLP itself is not a signatory.

Brief facts

Kartik Radia (“Applicant”), a former partner of BDO India LLP (“Respondent No. 1”) was expelled from Respondent No. 1 by Mr. Milind Kothari (“Respondent No. 2” and together with Respondent No. 1 referred to as “Respondents”), the managing partner of Respondent No. 1. The Applicant’s grievance was regarding his treatment, and misconduct by the Respondents in effecting the expulsion. The Applicant issued an arbitration invocation notice nominating an arbitrator. The Respondents refused to appoint their nominee arbitrator. Given the same, the Applicant filed an application under Section 11 of Arbitration and Conciliation Act, 1996 (“Arbitration Act”) seeking appointment of an arbitrator (“Application”).

The Applicant inter alia contended that disputes between an LLP and its partners are covered by the arbitration agreement contained in the LLP Agreement even when the LLP is not a signatory to the LLP Agreement. Further: (a) Section 26 of the LLP Act, 2008 (“LLP Act”) provides that every partner is an agent of the LLP; and (b) Section 27 of the LLP Act provides that the LLP is liable for the acts of its partners.

Respondent No. 1 inter alia contended that: (a) the Applicant seeks to initiate arbitration proceedings against the LLP, which is not a party to the arbitration agreement; (b) the arbitration clause only covers disputes between the partners. The jurisdiction of the arbitral tribunal cannot be extended to cover disputes between a partner and the LLP; (c) the present dispute is not arbitrable given that the dispute is between the Applicant and Respondent No. 1, who is not a signatory to the arbitration agreement; and (d) every LLP has 2 (two) options i.e., having an agreement only amongst the partners and having an agreement between the LLP and its partners. The exclusion of the Respondent No. 1 from the LLP Agreement is a conscious choice of leaving the LLP out of the mix of rights and duties, thereby suggesting exclusion from arbitration.

Respondent No. 2 inter alia contended that the: (a) arbitration invocation notice was addressed to Respondent No. 2 and contained allegations and grievances that were personal in nature; and (b) Applicant made reference to the injury of his image and to his defamation at the hands of the Respondents, and defamation is not arbitrable.

Issue

Whether disputes between partners of an LLP and the LLP would be covered by the arbitration agreement contained in the LLP Agreement to which the LLP is not a signatory?

Findings and analysis

The Bombay HC disposed of the Application and inter alia held as follows:

an LLP is not a third party to an LLP Agreement in the manner that the concept of ‘third parties” is conventionally understood. The LLP Agreement is the charter document that gives agency to the partners to operate the LLP. An LLP is duty-bound to act in accordance with the LLP Agreement. To argue that there is no privity to the very document governing the body corporate is not a sustainable argument;
in the present case, the subject matter of arbitration would inter alia include any construction or application of the LLP Agreement, matters relating to the business and affairs of Respondent No. 1 and the rights, duties or liabilities of its partners. This would necessarily entail Respondent No. 1 being a necessary party to the dispute;
whether a non-signatory has accorded implicit consent to the arbitration agreement is a matter to be inferred through the acts, conduct, and circumstances including relationship between the contracting parties, the commonality of the subject matter and the involvement of such party in the performance of the contract containing the arbitration clause. The operation of the LLP during its existence is the common commercial objective of the parties to the LLP Agreement. Therefore, there is no merit in the argument that despite the LLP being the subject matter of the LLP Agreement, the LLP itself is extraneous to it;
the contention that the LLP is an alien to the LLP Agreement is untenable from the scheme of the LLP Act inter alia since: (a) Section 2(1)(o) of the LLP Act, which defines ‘limited liability partnership agreement’ makes it clear that the subject matter of an LLP Agreement is the determination of mutual rights and duties of the partners, and their rights and duties in relation to the LLP; (b) in terms of Section 2(1)(q) of the LLP Act which defines ‘partner’, the entry and exit of a partner from an LLP is governed by the LLP Agreement; and (c) Section 23(4) of the LLP Act provides that if there is no agreement on any matter, then the mutual rights and duties of the partners and the LLP would be governed by the First Schedule of the LLP Act, which provides that disputes arising therefrom would necessarily be referred to arbitration. This would necessarily render the LLP a necessary party to the arbitration proceedings relating to its operation and governance, despite not being a signatory to the LLP Agreement;
the scope of a Section 11 of the Arbitration Act is to examine the existence of an arbitration agreement, which the Respondents have submitted does not exist. The LLP Agreement contains an arbitration clause. The dispute relating to the expulsion of a partner being the subject matter of merits, whether Respondent No. 1 is a necessary party is for the Arbitral Tribunal to decide and cannot be rejected at this stage;
the arbitration invocation notice was issued to Respondent No. 2 in his capacity as the managing partner of Respondent No. 1. Therefore, to read it as a personal dispute of the Applicant with Respondent No. 2 in his individual capacity is a misconceived contention. Further, under Section 26 of the LLP Act, every partner is an agent of the LLP, and under Section 27(2), the LLP is liable for the acts of its partners; and
in the present case, the question whether a part of the claim and the approach to be taken in respect of alleged injury of the Applicant’s image squarely falls within the domain of the Arbitral Tribunal, which has the power to rule on its own jurisdiction under Section 16 of the Arbitration Act.

In view of the above, the Application was disposed and a nominee arbitrator on behalf of the Respondents was appointed by the court.

Conclusion

By this significant judgement, the Bombay HC has held that an LLP cannot avoid arbitration proceedings on the basis that the LLP itself is not a signatory to the LLP Agreement. A non-signatory LLP to the LLP Agreement may be impleaded in arbitration proceedings inter alia on the ground that an LLP is not a third party to the LLP Agreement and there is privity between a partner of the LLP and the LLP under the document that governs it, i.e., the LLP Agreement to which the LLP is albeit not a signatory.

This Prism is prepared by:

Farhad Sorabjee
Partner

Pratik Pawar
Partner

Meher Mistri
Associate

Jatin Asrani
Junior Associate

For more details, please contact [email protected]

[1] Commercial Arbitration Application No. 31 of 2022

Tags Arbitration, Delhi High Court, Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates

JSA Prism | Dispute Resolution | March 2025

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A Division Bench of the Delhi High Court in an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 sets aside a Section 34 order as well as the arbitral award

A Division Bench of the Hon’ble Delhi High Court (“Delhi HC”) has in the matter of the Union of India (through the Ministry of Petroleum & Natural Gas) vs. Reliance India Limited and Ors.[1], allowed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) (“Appeal”) and set aside: (a) an arbitral award dated July 24, 2018 (“Award”); and (b) an order dated May 9, 2023 passed by a single judge of the Delhi HC under Section 34 of the Arbitration Act (“S.34 Order”).

The Appeal was filed by the Union of India against the Award and S.34 Order, both of which were passed in favour of Reliance Industries Limited (“RIL”) and arose from arbitration proceedings invoked by RIL against the Union of India under a Production Sharing Contract (“PSC”) inter alia for exploration of natural gas in the Krishna-Godavari Basin.

Brief facts

The Union of India entered into a PSC with a consortium of inter alia RIL and Niko Limited (“Niko”) regarding Block Kg-DWN-98/3 (“Reliance Block”) situated in Krishna-Godavari Basin. The Union of India also entered into another PSC with Cairn Energy India Limited (“CEIL”) and Oil and Natural Gas Corporation Limited (“ONGC”) regarding Block KG-DWN-98/2 and Block KG-OS-IG (“ONGC Blocks”). ONCG acquired the rights from CEIL in respect of Block KG-DWN-98/2. The ONGC Blocks adjoined the Reliance Block.

These proceedings have their genesis in a dispute between ONGC and RIL regarding the migration of gas from the ONGC Blocks to the RIL Block and a report prepared by DeGolyer and MacNaughton (“D&M”) for Niko, which was not forwarded to the Union of India (“D&M Report”). The D&M Report had concluded that there was an indication of reservoir connectivity and gas migration across the ONCG Blocks and the RIL Block.

In 2015, ONGC filed a writ petition before the Delhi HC against RIL and the Union of India alleging that due to migration of gas, RIL had been unjustly enriched. During the pendency of the writ petition, ONGC and RIL agreed to the appointment of D&M to undertake a third-party study on the allegations of migration of gas. The Union of India constituted a single member committee to consider this report and based on the findings of the single member committee, the Union of India issued a demand notice of USD 1.5 billion (US Dollars one point five billion) (plus interest) to RIL for unjust enrichment for benefitting from the migration of gas.

RIL invoked arbitration under the PSC seeking inter alia a declaration that it had the right to produce all hydrocarbons from wells in its contract area, which would include hydrocarbons that could have migrated to its wells from an adjacent block. By a majority of 2:1, the arbitral tribunal allowed RIL’s claim and inter alia held that: (a) RIL was permitted and required to extract all available gas within its contract area for the benefit of the Union of India, even if, such gas migrated from beyond the contract area; (b) RIL was not unjustly enriched; and (c) RIL was inter alia required to disclose the D&M Report and other important information regarding connectivity of the reservoirs, however, the non-disclosure was not a material breach of the PSC.

The Union of India filed a petition under Section 34 of the Arbitration Act before a single judge of the Delhi HC challenging the Award on inter alia the following grounds: (a) the Award suffered from patent illegality since despite holding that RIL had suppressed the D&M Report, the same was held not to be a material breach of the PSC; and (b) the Award erred in holding that RIL could not be made accountable for selling gas beyond its contract area in the teeth of the Public Trust Doctrine (“PTD”) as the same fell within the public policy of India.

By the said order, the challenge came to be rejected on the basis of the following findings: (a) the arbitration was an international commercial arbitration and the ground of patent illegality was not available to interfere with the Award; and (b) there was no dispossession of title/ownership of the gas from the Union of India and the PTD was not contravened.

The Union of India preferred the Appeal against the said order under Section 37 of the Arbitration Act.

Issues

Whether the arbitration proceeding inter se the Union of India and RIL was an international commercial arbitration?
Whether the single judge erred in not examining the Award under Section 34 (2A) of the Arbitration Act on account of patent illegality, leaving the appeal court under Section 37 of the Arbitration Act to decide the issue?

Findings and analysis

The Division Bench of the Delhi HC allowed the Appeal on the following grounds:

the single judge erred in holding that the arbitration was an international commercial arbitration, since the Award had come to the conclusion that RIL, an Indian entity was the sole claimant, and that Niko was not a formal party to the arbitration. In this regard, the Delhi HC relied upon the decisions of the Supreme Court in L&T-SCOMI vs. MMRDA[2] and Perkins Eastman Architects DPC vs. HSCC (India) Limited[3], which held that the lead claimant’s nationality determined the nature of the arbitration and when the lead member in an arbitration was an Indian entity, the arbitration must be treated as a domestic arbitration;
the scope of Section 37 of the Arbitration Act is akin to that of Section 34 of the Arbitration Act. RIL’s non-disclosure of the D&M Report was a material breach of the PSC and the Award’s findings were patently illegal;
RIL had no right to extract the migrated gas without explicit approval of the Union of India as held by the Supreme Court in Reliance Natural Resources Limited vs. Reliance Industries Limited[4];
RIL had unjustly benefitted from the non-disclosure of the D&M Report and extraction of the migrated gas from the ONGC Block, thus causing losses to the public exchequer especially given that the commodity at hand was a vital resource held by the Union of India as a trustee in public interest; and
the Award was based on conjectures and surmises. The view taken in the Award was not a possible view and was in violation of the fundamental law of India and patently erroneous.

Conclusion

This decision is a rare instance in which a court acting under Section 37 of the Arbitration Act has set aside both an arbitral award as well as the order passed under Section 34 of the Arbitration Act on that award by applying the principles of patent illegality under Section 34 of the Arbitration Act. This judgment reaffirms the principle that the provisions of Section 34 of the Arbitration Act apply equally to proceedings under Section 37 of the Arbitration Act.

This Prism is prepared by:

Farhad Sorabjee
Partner