India - Litigation & Arbitration Snapshots.

Legal News & Analysis – Asia Pacific - India - Dispute Resolution

17 January, 2019

 

SC confirms Applicability of Limitation Act to Applications made under Section 7 and 9 of IBC

 

The SC, in its decision dated October 11, 2018, in B. K. Educational Services Private Limited v. Parag Gupta and Associates4, addressed the issue of the applicability of the recently amended Section 238A (which came into effect on June 6, 2018) of the IBC, which deals with applicability of the Limitation Act, 1963 (‘Limitation Act’) to all applications made under the IBC. SC held that the Limitation Act applies to all applications filed under the IBC from the inception of the IBC, i.e. December 1, 2016 since Section 238A was a clarification of the existing position under the IBC and the law of limitation is procedural in nature and, therefore, can be applied retrospectively. 

 

SC distinguishes between ‘Place’, ‘Venue’ and ‘Seat’ of Arbitration 

 

The SC had referred Union of India v. Hardy Exploration and Production5 to a three-judge bench of the SC to decide the basis and principles on which the ‘seat’ of the arbitration is to be determined when the arbitration agreement specifies the ‘venue’ for holding the arbitration sittings but not the ‘seat’. In the present case, the law governing the substantive contract was Indian law. The law governing the arbitration proceedings was the UNCITRAL Model Law. The venue of the arbitration proceedings was Kuala Lumpur. Article 20 of the UNCITRAL Model Law provides that the parties are free to agree on the ‘place’ of arbitration, failing which the arbitral tribunal shall determine the place of arbitration. 

 

The three-judge bench of the SC, in its decision dated September 25, 2018, observed that when the ‘place’ is specified, and no other condition is attached to it, it is equivalent to ‘seat’ and that finalizes the issue of jurisdiction. However, if a condition is attached to the term ‘place’, the attached condition has to be satisfied for the ‘place’ to become equivalent to ‘seat’. The three-judge bench concluded that in this case neither the parties had chosen a juridical seat nor the tribunal had made an express determination of the ‘seat’ in the arbitral award. Therefore, the conditions attached to the term ‘place’ had not been satisfied. Reiterating the settled distinction between the ‘juridical seat’ and ‘venue’ of arbitration, the SC held that Kuala Lumpur could not be considered to be the ‘juridical seat’ merely because it was the venue and that the award was signed in Kuala Lumpur. In view of the above, the three-judge bench came to the conclusion that the courts in India have jurisdiction to hear the application for setting aside under Section 34 under the Arbitration and Conciliation Act, 1996 (‘A&C Act’). 

 

SC interprets scope of Definition of ‘International Commercial Arbitration’ under Arbitration and Conciliation Act 

 

The SC in its decision dated October 3, 2018 in Larsen and Toubro Limited v. Mumbai Metropolitan Region Development Authority6 addressed the issue of:

 

(i) whether a consortium formed between an Indian company (i.e. L&T) and a foreign company (i.e. Scomi Engineering BHD) is a ‘body corporate’ or an ‘association’; and

 

(ii) whether an arbitration proceeding in which such consortium is a party, would be considered to be an International Commercial Arbitration7 under the A&C Act. The SC held that it was not open for L&T and Scomi to act as independent entities while dealing with Mumbai Metropolitan Region Development Authority as they will have to deal with the MMRDA only as a consortium only and not as two separate entities.

 

Thus, it was held that the consortium formed by L&T and Scomi falls within the meaning of an association under Section 2(1)(f)(iii) of the A&C Act. The SC further held that since the lead member of the consortium was L&T, a company incorporated in India, and the consortium’s office was in Mumbai, the central management and control of the consortium was in India and, therefore, the matter did not qualify as an international commercial arbitration under the A&C Act. 

 

SC holds Jurisdiction of Consumer Courts cannot be Curtailed Despite Existence of Arbitration Agreement 

 

The SC, in its decision dated December 10, 2018, in Emaar MGF Land Limited v. Aftab Singh8 has held that the remedy available to a consumer under the Consumer Protection Act, 1986 (‘CPA’) is a special remedy in law.

 

Hence, the jurisdiction of consumer courts cannot be curtailed despite the existence of an arbitration agreement between the parties to a dispute.

 

The SC further stated that the 2015 amendment to Section 8 of the A&C Act were not to override special / additional remedies provided under different statutes, including the CPA. 

 

SC upholds Optional Arbitration Clause

 

The SC, in its decision dated September 14, 2018, in Zheijang Bonly Elevator Guide Rail Manufacture Co. Ltd. v. Jade Elevator Component9 has upheld the validity of optional arbitration clauses i.e. dispute resolution clauses which present parties with a choice to resolve disputes between them either through arbitration or through litigation in court.

 

The SChas held that where parties have agreed to such an optional clause, and one party invokes arbitration, the dispute shall be referred to arbitration and not litigation. This decision alters the previously settled position of law that a court shall refer parties to arbitration only if there is a clear and unequivocal intention of parties to arbitrate disputes arising out of a contract. 

 

For further information, please contact:

 

Zia Mody, Partner, AZB & Partners

zia.mody@azbpartners.com

 

4 Civil Appeal No. 23988 of 2017. 

5 Civil Appeal No. 4628 of 2018. 

6 Arbitration Petition (C) No. 28 OF 2017. 

7 An ‘international commercial arbitration’ is defined at Section 2(1)(f) of the A&C Act as an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is—(i) An individual who is a national of, or habitually resident in, any country other than India; or (ii) A body corporate which is incorporated in any country other than India; (iii) A company or an association or a body of individuals whose central management and control is exercised in any country other than India; (iv) the Government of a foreign country. 

8 2018 SCC OnLine SC 2771. 

9 2018 (9) SCC 774.