The Legal 500

Certain important and recent case laws in this area are set out below.

Dispute Resolution 

A.K. Balaji v.Government of India

In the present writ petition, the question before the division bench of Madras High Court ("Madras HC") was "whether a foreign law firm without establishing any liaison office in India is prohibited under the Advocates Act, 1961 ("Advocates Act") to visit India for the purpose of offering legal advice to their clients in India on foreign law?"

During the course of arguments, it was argued by the foreign law firms that Indian lawyers are permitted to advise on Indian law in any country around the world. Further, it was pointed out that since foreign law firms do not have any office in India and do not advise on Indian laws, they do not require enrolment under the Act. It was also highlighted that foreign lawyers qualify and are supervised by governing bodies in their respective countries and the absence of regulation by Bar Council of India ("BCI") may not be considered as a valid ground to prohibit foreign lawyers.

The Madras HC accepting the above contentions made, stated that refusal to permit foreign law firms from participating in negotiations, settling documents and conducting arbitrations in India will be contrary to government policies and also would be against national interest. The goal of promoting India as a commercial hub for international commercial arbitration would be defeated if foreign lawyers are not permitted to enter India to advise their clients.

The Madras HC held that the foreign law firms and/ or lawyers cannot be debarred from coming to India. The Madras HC further held that the foreign law firms have a right to conduct arbitration proceedings in India in respect of disputes arising out of a contract relating to international commercial arbitrations. There is no bar either in the Advocates Actor the rules of the BCI thereby prohibiting foreign law firms from visiting India for a temporary period on "a fly in and fly out basis" or for the purpose of giving legal advice to their clients in India regarding foreign law or their own system of law and on diverse international legal issues. The  Madras HC however, clarified that, foreign law firms cannot practice in India either on the litigation or non-litigation side, unless they fulfil the requirement of the Advocates Act and the rules specified by BCI. The  Madras HC further clarified that though the BPO companies providing the customised and integrated services and functions like word-processing, secretarial support, transcription etc do not come within the purview of the Advocates Act or the BCI Rules however, in case any complaint is made against such companies violating the Advocates Act, the BCI may take appropriate action against such erring companies. 

Arbitration 

Prasar Bharti v. B4U Multimedia International Ltd 

In the present case, the question which arose before the  Delhi High Court ("Delhi HC") was whether an arbitrator has the authority to pass an award which is contrary to the clauses of contract/agreement in dispute?"

The present petition was filed challenging the award passed by the arbitrator on the ground that the said award was contrary to the clauses of the contract and therefore was liable to be set aside. It was prayed that the arbitrator had passed an award upon an erroneous interpretation of the clauses of the contract in dispute and had incorrectly imposed damages upon the petitioner on the ground of its breach of contract by having failed to screen films and thereby causing loss to the respondent.

After hearing the parties, the Delhi HC, observed that there was no obligation upon the petitioner to telecast films and further none of the clauses imposed a liability upon the petitioner to compensate for the loss caused to the respondent due to non-screening of films. Thus, based on the respective obligations arising out in the agreement and relying upon the ratio set out in Steel Authority of India Vs J.C. Budharaja [(1999) 8 SCC 122], Delhi HC set aside the award passed by the arbitrator and held that an arbitrator derives his authority from the contract itself and if he acts in manifest disregard of the contract the award given by him would be an arbitrary one.

United Telecom Limited v. Mahanagar Telephone Nigam Limited 

In the present case, Delhi HC was to adjudicate inter-alia on the issue as to whether penalty can be imposed upon the defaulting party for any breach of contract if the other party had not suffered actual loss or has not alleged having suffered such a loss.

The petitioner in this case had submitted its bid for a contract to supply of 50,000 handsets to respondent. The tender was given to the Petitioner since its bid was the lowest priced. Accordingly, the respondent issued a letter of intent in favour of petitioner for supplying the handsets. It was explicitly agreed between the parties that any delay in the performance of the delivery obligations shall render the petitioner liable for imposition of liquidated damages or termination of the contract for default and/or the forfeiture of its performance security. 

Consequent upon the failure of the petitioner to commence the supply within the stipulated time, the respondent terminated the purchase order and imposed a penalty of 5% of the purchase order and forfeited the performance bank guarantee. The sole arbitrator, vide his award, interalia, while upholding the termination of the purchase order by the respondent, declared the imposition of the penalty as illegal. The learned arbitrator observed that it is well established that in a contract on its breach, penalty can be levied on the defaulting party only if the party claiming losses had suffered such losses and also proves the same. The learned arbitrator held that the penalty could not have been levied, as the respondent had neither alleged to have suffered any loss nor had it produced any evidence to prove loss, if any. The learned arbitrator therefore held the imposition of penalty in the termination order illegal.

Aggrieved by the award in so far as it upheld the termination of the purchase order, the petitioner approached the Delhi HC under Section 34 of Arbitration and Conciliation Act, 1996 ("Arbitration Act") for setting aside of the arbitral award in so far as it concerned the termination of the purchase order.

The Delhi HC, upon hearing the parties held that penalty can be levied on the defaulting party only if the other party had suffered loss and the same is proved and since no actual loss being suffered by the respondent had either been alleged or proved, the Delhi HC upheld the award of the arbitrator thereby upholding that the respondent was not justified in imposing of the penalty of 5% of the value of the terminals as no loss was alleged or proved by the Respondent 

Kailash Prajapati v. Citicorp Finance (I) Ltd 

In the present case, the question before Delhi HC was that, "whether the petition can be filed under Section 11(6) of the Arbitration Act without issuing the notice for the appointment of arbitrator to the other party of the contract"?

Petitioner in year 2007 filed a petition under Section 9 of the Arbitration Act in which interim relief was granted; further a contempt application was also filed against the respondent contented that, since it is not mandatory. In view of the above circumstances, petitioner contended that since the previous petitions are being pending, there was no necessity of issuing any notice for the appointment of arbitrator to the respondent. Further, petitioner submitted that the legal notice issued to the respondent clarifying that in case of the non-payment legal action shall be initiated was enough to draw the attention of the respondent.

However, the Delhi HC, disagreeing to the contentions made, found that the petitioner had failed to satisfy the basic ingredients which were essential to the very maintainability of the petition under Section 11 (6) of the Arbitration Act and hence the said petition was dismissed.

It was also observed that "not only it is mandatory for the petitioner to issue a notice prior to the filing of the petition under Section 11(6) of Arbitration and Conciliation Act, the contents of the notice should be clear and unambiguous and further the petitioner must place on record reasonable proof of service." 

IRC&T Corp ltd. v. Cox & Kings India Pvt. Ltd. 

In the present case, the issue before Delhi HC was as to whether the petition filed by Cox & Kings India Private Limited ("C&K") against Indian Railways Catering and Tourism Corporation Limited ("IRCTC") inter-alia praying for interim relief/measures to safeguard the subject-matter of arbitration (being the luxury train and Joint Venture Company) under Section 9 of the Arbitration Act was maintainable.

In the year 2008, the parties had come together to form a JV company for the purpose of acquiring, furnishing, maintaining, and managing luxury tourist train with the aim to sell holiday packages and in pursuance of this established the JV company for the running of the luxury train "Maharaja Express". IRCTC had thereafter terminated the agreement in January 2011 whereafter C&K had sought specific performance of the agreement and also sought interim relief under section 9 of the Arbitration Act.

The main question before the Delhi HC was "whether the operation of the luxury train (formed as a result of JV agreement) fell within the ambit of the arbitration clause between the appellant and respondent which sought settlement of disputes "arising out of or in relation to, this agreement including scope, validity, existence and the interpretation thereof, the activities performed thereunder". The single judge of the Delhi HC held that since the JV agreement was entered into with the sole objective of running of the luxury train and since the two parties are equal shareholders in the said JV company, the operation of the luxury train would indeed fall within the scope of the subject matter of the JV and hence a petition under Section 9 of the Act was maintainable.

The Delhi HC also delved into the question of whether the court can grant an injunction under section 9 of the Arbitration Act in the form of specific performance of a contract which was terminated by the IRCTC in the present case. It was held that such a mandatory injunction cannot be claimed under interim measures for the restoration of the agreement and this does not fall within the ambit of Section 9.

Bharat Oman Refineries Limited v. M/s. Mantech Consultants 

In the present case, the question before Division Bench of the  Bombay High Court ("Bombay HC") was "Whether the pronouncement of an award by an arbitrator after the expiry of time as stated in the arbitration agreement is valid"?

Bharat Oman Refineries Limited ("Appellant") and M/s. Mantech Consultants ("Respondent") had entered into an agreement dated December 30, 1996 ("Agreement") by which the Respondent was required to carry out certain work in respect of inter-state pipeline project. The Agreement contained an arbitration clause wherein it was agreed that, "the award shall be made in writing and published by the Arbitrator within two years after entering upon the reference or within such extended time not exceeding further twelve months as the Sole Arbitrator shall by a writing under his own hands appoint. The parties hereto shall be deemed to have irrevocably given their consent to the Arbitrator to make and publish the award within the period referred to hereinabove and shall not be entitled to raise any objection or protest thereto under any circumstances whatsoever". Subsequently certain disputes arose between the parties to the Agreement and the Respondent invoked the arbitration clause whereby a sole arbitrator was appointed by the single judge of Bombay HC in February 2001. After the arguments were concluded before the arbitrator on April 21, 2004, the arbitrator, vide letter dated March 14, 2006 requested the Respondent to send him a stamp paper for publishing the award and that he endeavoured to publish the same before March 31, 2006 or latest by April 30, 2006. However, the award was published by the arbitrator only on August 17, 2006.

The Learned Single Judge set aside the award passed by the arbitrator  and held in terms of section 15(1)(b) of the Arbitration Act,  the mandate of the arbitrator automatically stood terminated in terms of the arbitration agreement, when time limit for making the award expired . The Appellants, however, challenged the said before Bombay HC.

Bombay HC upheld the principle laid down in NBCC Limited vs. J.G. Engineering Private Limited that, "the arbitrator was bound to make and publish his award within the time mutually agreed to by the parties, unless the parties consented to further enlargement of time." Furthermore, the division bench of the Bombay HC clarified that the object and the scheme of the Arbitration Act is  to secure expeditious resolution of disputes. The arbitrator is required to adjudicate the disputes in view of the agreed terms of contract and the agreed procedure. Therefore, the arbitration proceedings should be governed and run by such terms. The arbitrator, therefore, cannot go beyond the arbitration agreement clauses. The speedy and alternative solution to the dispute just cannot be overlooked. Delay occurred, if any, may destroy the arbitration scheme itself.

Bombay HC, while dismissing the present appeal held that where the Arbitration Agreement prescribes a period within which the Award was to be passed and the said period has expired and has not been extended by mutual consent of the parties, the award passed by the Arbitrator after expiry of such period is bad in law and contrary to the agreed terms by which the parties as well as the Arbitrator are bound. 

Authors Atul Dua (atul.dua@sethdua.com) is a senior partner with Seth Dua & Associates, Solicitors & Advocates, India.