Arbitration and Conciliation Act, 1996: s. 34 – Setting aside of arbitral award –Dispute between the appellant and respondent as regards sale of share – Complaint by the respondent before the police against the appellant – Parties entered into settlement deed whereby the respondent had to withdraw all complaints against the appellant and was forbidden from writing complaints to any person about the Deed and in return was to be paid US$ 1.5 million held in escrow till the withdrawal of complaints; and US$ 2 million was to be paid to the respondent out of the proceeds from the sale of shares of the company – Breach of settlement deed through e-mail sent by respondent’s wife – Initiation of arbitration proceedings –Direction to escrow agent not to hand over the cheque for US$ 1.5 million till the direction of the arbitrator–Meanwhile execution of share purchase agreement and the shares were sold – Final award passed awarding liquidated damages of US$ 1.5 million in favour of the appellant; and that the respondent would not be entitled to the second cheque of US$ 2 million held in escrow – Petition u/s. 34 – Both the Single Judge and the Division Bench set aside the award – On appeal, held: Appellant is a party based in Singapore thus, the arbitration though carried out within the country, would be an international commercial arbitration – Pre-2015 legal position would prevail since s.34 proceedings had already commenced when the 2015 Amendment Act came into effect – A generally worded clause, Clause 9 of the Settlement Deed cannot be said to constitute an agreement to change the course of law that the s.34 proceedings were subject to – General phraseology of a clause which seeks to include any amendment to the Act would not be able to be availed of to expand the scope of scrutiny as it would appear to run contrary to the legislative intent of s.26 of the Amendment Act – Necessary conditions of the Deed of Settlement stood satisfied – Effect of the award would be to deprive the respondent of the due valuation of the shares and what was paid to him to bring his complaints to an end – Respondent cannot be denied his dues because of such indiscreet e-mail by his wife, who was not even party to the proceedings nor party to the Settlement Deed – Arbitrator ’s conclusions not in accordance with the fundamental policy of Indian law, and can thus be set aside under the pre-2015 interpretation of s.34 – Since the consequencesare so inappropriate, the both the High Courts opined that whatever be the position that is applicablepre or post amendment, in these facts the award would not standand the same is upheld – Arbitration and Conciliation (Amendment) Act, 2015.
Dismissing the appeal, the Court
HELD: 1.1 The admitted position is that the appellant is a party based in Singapore and thus, in terms of the said definition of “international commercial arbitration” u/s. 2(1)(f) of the Arbitration and Conciliation Act, 1996, the arbitration although carried out a within the country, would be an “international commercial arbitration”. It is nobody’s case that the award in question is a foreign award within the meaning of Part II Section
44 of the said Act. For domestic awards, Chapter 7 of the said Act provides recourse against the arbitral award. Section 34 of the said Chapter provides for application for setting aside an arbitral award and specifies the ground available for the same. The Arbitration and Conciliation (Amendment) Act, 2015 amended the said Act w.e.f. 23.10.2015; inter alia by inserting Explanations to Section 34(2) of the said Act as well as by inserting Sub-Section 2A to Section 34. There is no doubt that the scope of interference by the Court became more restrictive with the amendments coming into force. [Para 12][108-G-H; 109-A-C]
1.2 A distinction is sought to be carved out between a domestic award arising from an international commercial arbitration and a purely domestic award. The test for interference was sought to be made more stringent by the amendment in respect of a domestic award arising from an international commercial arbitration. A distinction is sought to be made between purely domestic awards and awards arising out of arbitrations other than international commercial arbitrations, as set out in sub-section 2A to Section 34 of the said Act.The crux of the said is that while the plea of the award being vitiated by patent illegality is available for an arbitral award, such an award has to be a purely domestic award, i.e. the plea of patent illegality is not available for an award which arises from international commercial arbitration post the amendment.The judgments of the Single Judge and the Division Bench decided the challenge to the award on the plea of patent illegality without noticing this distinction. No doubt both judgments proceeded on the basis that in either situation, i.e., within the test available for a purely domestic award or a domestic award arising from an international commercial arbitration; the award cannot be sustained. Thus far as to the nature of the award. [Para 13, 16-18][109-D; 110-A, C-E]
2.1 It is the say of the appellant that the award has to be scrutinised in the post amendment scenario and, thus, both the forums below fell into error by applying the test applicable in the pre-amendment scenario. It is, thus, the appellant’s say that patent illegality has no application as a test to the award in question.It is not in dispute that the Section 34 proceedings commenced prior to 23.10.2015, which is the crucial date. As to when the amendment would apply is an aspect that is no longer res integra. [Para 19, 20][110-F-G]
2.2 The matter concerns Section 34 proceedings for setting aside the award. In this case, the Section 34 proceedings had already commenced when the 2015 Amendment Act came into effect. The court proceedings were already subject to the pre2015 legal position. In a conspectus of the aforesaid, a generally worded clause such as Clause 9 of the Deed of Settlement cannot be said to constitute an agreement to change the course of law that the Section 34 proceedings were subject to. [Para 30][113E-G]
2.3 The line of reasoning in Ssangyong Engineering and Construction Company Ltd’ case itself shows that to prevent any uncertainty in law, while seeking to fine tune the law to restrict the scope of interference in awards the legislature took a conscious decision to make applicable the amendments only from the date it came into force. Thus, the general phraseology of a clause which seeks to include any amendment to the Act would not be able to be availed of to expand the scope of scrutiny as it would appear to run contrary to the legislative intent of Section
26 of the Amendment Act. [Para 31][114-G; 115-A-B]
3.1 It would be the pre-2015 legal position which would prevail. It is no doubt true that the arbitrator has the first hand benefit of recording evidence and examining the factual scenario. The instant case is one which is solely based on an interpretation of a clause against the background of a dispute which gave rise to the Deed of Settlement. The relevant clauses emphasise that the respondent was required to take a couple of steps back from the position they had reached in the dispute, in order to avail the financial benefit under the Deed of Settlement. [Para 32, 33][116G-H; 117-A-B]
3.2 The first such step was to withdraw all complaints and proceedings against appellant and all other named and unnamed persons before the EOW. The respondent complied with the same and all such proceedings were brought to an end. US $ 1.5 million was kept in escrow to ensure that those proceedings came to an end, and on achieving the said objective the escrow amount had to be released to the respondent. [Para 34][117-B-C]
3.3 The second stage was of the sale of shares and the escrow amount of US$ 2 million was to be paid to the respondent when the shares were sold. It appears that there was some delay in the sale of shares which is what was objected to by the wife of the respondent and the appellant claimed that he could not be pushed into an early sale. Be that as it may, the sale did take place. Thus, the necessary conditions of the Deed of Settlement stood satisfied. Clause 6 provided for the return of the amount of US$ 1.5 million in case the representations/assurances of the respondent turn out to be false or incorrect. That was not the case. The only aspect emphasised by the appellant as a cause for denying the respondent his dues are the two e-mails sent by his wife. Though the wife was initially impleaded in the proceedings under Section 9 of the said Act, she was later dropped from the arbitration proceedings as she was not a party to the agreement vide consent order dated 06.08.2012. In a sense the agreement accepted that the wife of the respondent had no role to play and the respondent could not be penalised for her conduct. [Para 35][117-C-G]
3.4 What weighed with the Courts below is the fact that the respondent did nothing to ratify the e-mails of his wife. The effect of the award would be to deprive the respondent of the due valuation of the shares and what was paid to him to bring his complaints to an end.The complaints of the wife, at best would fall in the category of some indiscreet language. The e-mail dated 09.06.2011 makes a grievance to the appellant about not being informed about the deal term sheet having been signed and uses the expression that the appellant was not being “straight with us.” This can hardly be objected to. Of course, this was circulated to their associates but the e- mail itself can hardly be called damaging. In the e-mail dated 15.06.2011, once again, a grievance about updates not being given is made. Certainly, the sentence “I have no wish to fraternise with a forger.” must be called wholly inappropriate. But then, that by itself cannot deny the respondent of his dues merely because of such an indiscreet e-mail by his wife, who was not even party to the proceedings nor party to the Deed of Settlement which contained the arbitration clause. It is in the said context that the impugned orders were delivered and the para 23 of the Single Judge’s order succinctly set forth what would be the consequences of the result of the award. [Para 36, 37][117-G-H; 118-A-D]
3.5 The said scenario cannot be accepted and this is what has been responsible for interference with the award of the arbitrator in the context of the legal position applicable to the award pre the amendment. The arbitrator’s conclusions are not in accordance with the fundamental policy of Indian law, and can thus be set aside under the pre-2015 interpretation of S. 34 of the said Act. Clause 6 of the Deed of Settlement could not have been relied on to award liquidated damages in favour of the appellant, the observations of the Single Judge and the Division Bench in this regard are accepted. In fact, the consequences are so inappropriate that the same appears to be the reason that both the Single Judge and the Division Bench have opined that whatever be the position that is applicable - pre or post amendment, in these facts the award would not stand, is accepted. [Para 38][119-B-D]
ABB India Ltd. v. Bharat Heavy Electricals Ltd. OMP (T) (Comm) No.48/2020 – approved.
Ssangyong Engineering and Construction Company Ltd. v. National Highways Authority of India (NHAI) (2019)
15 SCC 131 : [2019] 7 SCR 522 – relied on.
Associated Builders v. Delhi Development Authority (2015) 3 SCC 49 : [2014] 13 SCR 895; Board of
Control for Cricket in India v. Kochi Cricket Pvt. Ltd. & Ors. (2018) 6 SCC 287 : [2018] 2 SCR 829;
Hindustan Construction Company Ltd. and Anr. v. Union of India & Ors. (2019) SCC OnLine 1520;
Thyssen Stahlunion Gmbh v. Steel Authority of India Limited (1999) 9 SCC 334 : [1999] 3 Suppl. SCR 461; Padmini Chandran Menon v. Vijay Chandran Menon 7 (2018) 2 AIR Bom R 108; Board of Trustees of the Pot of Mumbai v. Afcons Infrastructure Limited (2016) SCC Online Bom 10037; S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh & Anr. (2019) 2 SCC 488 : [2018] 14 SCR 1005; Union of India v. Parmar Construction Company (2019) 15 SCC 682 : [2019] 5 SCR 1009 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.