by Zen Webnet | Mar 18, 2024 | Blog
Article by Pranav Nayar and Nikhat Jamal
Introduction
The Arbitration and Conciliation Act, 1996 provides parties with limited solutions for an appeal from an arbitral tribunal’s interim orders. In the absence of an established standard and procedure of review, the question arises whether an arbitral tribunal has the jurisdiction to review its own orders. In this article, we discuss the issues that arise owing to the lacunae in the statute and the consequential judicial interpretations. We further analyze the power of the arbitral tribunal to recall its orders and how the judiciary has addressed the same through various judgements.
The Power to Review
The Supreme Court in the landmark case of Kapra Mazdoor Ekta Union v. Management of Birla Cotton Spinning and Weaving Mills Ltd. carved out the difference between a review on merits and a procedural review.[1] In a procedural review, the Court or quasi-judicial authority having jurisdiction proceeds to do so and commits procedural illegality which goes to the root of the dispute. In turn, the authority invalidates the proceeding and the subsequent order passed thereof.[2] For example, cases where a decision is rendered by the Court or a quasi-judicial authority without notice to the opposite party or under a mistaken impression that notice had been served upon the opposite party were held to be falling in the category where the power of procedural review may be invoked. Such a review aims at setting aside a palpably erroneous order passed by the authority under a misapprehension. On the contrary, if a Court or a quasi-judicial authority having jurisdiction to adjudicate on merit proceeds to do so, its order can be reviewed on merit only if such an authority is vested with such power by express provision or by necessary implication. The Supreme Court has held that an arbitral tribunal has no inherent power to review on merit.[3]
The Power to Recall
The power to recall is different from the power of review. The power to review as elucidated above refers to a situation where there was an error apparent in the order of the Tribunal. The power to recall on the other hand relates to the order being reverted to the authority where the party was deprived of making its submission due to a sufficient cause. While the courts have the power to recall their own orders[4], the same is not available to arbitral tribunals. The High Courts have provided contrasting positions while dealing with the issue. While the Patna High Court reasoned that a recall power cannot be interpreted from the provisions of the Act either specifically or by necessary implication. However, the Delhi High Court in the matter of Awasthi Construction Co v. Govt of NCT of Delhi and Anr,[5] differed from the abovementioned judgements and held that the arbitrator does not become functus officio after passing an order under Section 25(a) of the Act and can recall the order after sufficient cause is shown.
Addressing the dichotomy
The aforesaid issues were addressed and settled by the Supreme Court in the case of Srei Infrastructure Finance Ltd v. Tuff Drilling Private Ltd[6]. The Hon’ble Court also upheld the view that every tribunal has inherent powers to review its order on the grounds of a procedural defect. It was held that arbitral tribunal, being a quasi- judicial authority, is vested with the power to invoke procedural review. The Apex Court also affirmed that there is no distinction between a statutory tribunal established under statutory provisions or the constitution when it comes to the authority for procedural review. Additionally, the court pointed out that Section 19 of the Act, which specifies that the arbitral tribunal is not bound by the procedural rules outlined in the Code of Civil Procedure, 1908 (“CPC”), should not be interpreted to mean that the arbitral tribunal is restricted from drawing guidance from any provisions within the CPC. Consequently, the underlying principles of Order IX Rule 9 can be utilized by an arbitrator. Furthermore, by drawing a clear distinction between terminations under Section 25(a) and Section 32, the Court emphasized that the option for recall is only applicable under the former. This distinction arises because Section 25(a) deals with terminations resulting from the ‘default of the claimant,’ while Section 32 pertains to situations where it is ‘impossible’ to continue with the arbitral proceedings.
Analysis
Arbitration proceedings are typically guided by the procedure agreed upon between the parties that are involved in the dispute and the provisions of the Act become applicable in cases where the procedure is not agreed upon. While the Act under Section 29 stipulates that the tribunal shall not be bound by the rules of CPC, the provisions of the Act do not prohibit the Arbitral Tribunal from drawing sustenance from the fundamental principles underlying the CPC or Evidence Act, but free the Tribunal from being bound, as would a Civil Court, by the requirement of observing the provisions of the CPC and the law relating to evidence with all its rigor.[7] Therefore, in the current scenario, the use of the CPC by the arbitral tribunal aligns with established court precedents in India. Additionally, applying the CPC to address procedural formalities not explicitly outlined in the Act ensures that the parties have suitable recourse.
Conclusion
The legal position regarding review was further clarified by the Delhi High Court in the case of Delhi Development Authority v. Naveen Kumar[8], which reaffirmed the Supreme Court judgement that the tribunal has no power to review on merit and is not available unless expressly conferred by law[9]. Moreover, the Delhi High Court last year categorically held that though the arbitral tribunal does not have the power of substantive review of its previous order, it does have the power to vacate or modify the conditions of its previous order if the change in circumstances so warrant or causes undue hardships to the party seeking such modification.[10]
While the Act provides for correction and interpretation of an arbitral award[11], the same is not expressly available for an order passed by the tribunal. Thus, the need for a proper legal framework is essential to avoid any arbitrariness in the process, further complicating the resolution process between the parties and requiring the involvement of the courts.
[1] Kapra Mazdoor Ekta Union v. Management of Birla Cotton Spinning and Weaving Mills Ltd, C.A No. 3475 of 2003.
[2] ATV Projects v. Indian Oil Corporation Ltd, 200 (2013) DLT 553.
[3] State of Arunachal Pradesh v. Damani Construction, (2007) 10 SCC 742.
[4] Order IX Rule 13, Code of Civil Procedure, 1908.
[5] Awasthi Construction Co v. Govt of NCT of Delhi, 2013 (1) ARBLR 70 (Delhi).
[6] Srei Infrastructure Finance Ltd v. Tuff Drilling Private Ltd, (2018) 11 SCC 470.
[7] Maharashtra State Electricity Board v. Datar Switchgear Ltd, (2010) 10 SCC 479.
[8] Delhi Development Authority v. Naveen Kumar, 2017/DHC/4058.
[9] Supra Note 3.
[10] Airports Authority of India v. TDI International Limited, ARB. A. (COMM.) 17/2022 & I.As. 6774-75/2022.
[11] Section 33, Arbitration and Conciliation Act, 1996.
by Zen Webnet | Feb 6, 2024 | Blog
Article by Jagrati Maru and Anshuman Arha
Introduction
Recently, the Hon’ble Delhi High Court in MBL Infrastructures Ltd. v. Delhi Metro Rail Corporation[1] has held that clauses which restrict the right of a party to claim damages are restrictive as such clauses defeat the purpose of the sections 55 and 73 of the Indian Contract Act, 1872 (hereinafter “Contract Act”) which entitle an aggrieved party to claim damages. Furthermore, as per Section 23 of the Contract Act, such clauses are opposed to public policy as they aim at restraining the aggrieved party from claiming damages. In this article, the authors will be analysing this case to highlight the arbitration jurisprudence on such clauses which restrict parties from claiming damages and whether the contractual contours can be transgressed in case the contract itself limits such right from being invoked by aggrieved parties to such contracts thereby limiting the very entitlement to claim damages.
Analysis of MBL Infrastructure
The Arbitral Tribunal was dealing with the Claimant MBL’s claim for damages due to inaction and delays on part of respondent DMRC. Tribunal observed and held that the Claimant suffered certain damages on account of idling and machinery and loss of overheads because there was a default on the part of the Respondent in fulfilling the obligations under the Contract. However, after referring to the relevant clauses of the contract and relying on Clause 8.3 of the General Conditions of Contract (hereinafter “GCC”), the Tribunal concluded that the Claimant was entitled only to reasonable extension of time and the Respondent is not bound as per the contract for any compensation to the Claimant. Clause 8.3 of GCC therein provided that any delay on account of the Respondent shall entitle the contractor to a remedy of reasonable Extension of Time as deemed reasonable by the Engineer and there can be no monetary claims payable for delays including handing over of site, providing necessary notice of commencement of work, providing necessary drawings or instructions or clarification or supply of any material, plant or machinery which were the obligations of the employer as per the contract. Tribunal held that it is acting in accordance with Section 28 of the Contract Act as per which the Tribunal shall take into consideration the terms of the agreement and trade usages of relevant industry. It is with this rationale that the Tribunal held that the Respondent was not bound as per the contract for any compensation to the Claimant.
It is pertinent to note that herein the Tribunal clearly held that the Claimant was not responsible for the delay in mobilization and the start of the work as alleged by the Respondent, and further the termination of the contract along with the forfeiture of the performance security by the Respondent was held untenable.
The Hon’ble Delhi High Court has clearly pointed out these pivotal aspects and award and opined that a clause which restricts the right of a party in claiming damages is a restrictive clause and such a clause defeats the purpose of the Contract Act. The court held that no party can restrict or prohibit the claim for damages under Section 55 and 73 as the same is the right of the aggrieved party. The Court also observed that such kind of clauses are not in public interest as they hinder the smooth operation of the commercial transactions and create an environment which is not conducive for the business transactions.
The Court further went on to discuss the power of the Tribunal to award damages for delay on the part of the employer when the same is not provided in the contract and contractor is only entitled to extension of time. The court after referring to a number of judgements concluded that it is a settled law that the Arbitral Tribunal can award damages when the clause of the contract contemplates that only extension of time can be given as remedy when there is a delay on the part of the employer. Hence the act of awarding the damages to the aggrieved party does not amount to transgression from the terms of the contract[2].
The court highlighted that keeping the sanctity of contracts and its bindingness is a matter of public policy and the same must be given precedence over the entitlement to breach of the said contract vide clauses rendering no remedy of damages to the aggrieved party[3].
The Hon’ble Delhi High Court therefore set aside the Tribunal’s rejection of the Claimant’s claim holding that the Claimant was entitled to damages due to inaction and delays by the Respondent. The Bench held that the Tribunal erred by not awarding damages to the Petitioner despite holding that the delay was attributable to the Respondent which rendered the Petitioner remediless.
Conclusion
In infrastructure disputes’ landscape, it is often seen that claim restricting clauses stipulate that there can be no monetary claims payable for delays including handing over of site, providing necessary notice of commencement of work, providing necessary drawings or instructions or clarification or supply of any material, plant or machinery etc. which are primarily the obligations of the employer as per the contract. In such a scenario, there exists an imbalance of interest between parties to such a contract. The Hon’ble Delhi High Court’s decision in MBL Infrastructure is a welcome step as it has emphasised that aggrieved parties cannot be deprived of monetary damages even when there are contractual bars to such a relief and thereby upheld the sanctity of the settled principles of the Contract Act.
[1] MBL Infrastructures Ltd. v. Delhi Metro Rail Corporation, 2023 SCC OnLine Del 8044.
[2] Para 54, MBL Infrastructures Ltd. v. Delhi Metro Rail Corporation, 2023 SCC OnLine Del 8044.
[3] Asian Techs Ltd. v. Union of India (2009) 10 SCC 354, Simplex Concrete Piles v. Union of India 2010 SCC OnLine Del 821 and Delhi Metro Rail Corporation Ltd. v. J. Kumar-Crtg JV 2022 SCC OnLine Del 1210.
