TaxTMI 
TaxTMI 
2026 (10) TMI 463
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....e PLC v. Steel Authority of India'. 2. Vide the impugned judgment, the petition filed by the Appellant under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter, 'the Act') was dismissed and the Arbitral Award dated 13th September, 2018 was upheld. Brief background 3. The Appellant-Steel Authority of India (hereinafter 'SAIL'), a Public Sector Undertaking, is India's largest steel producer and regularly imports coking coal from various locations for the purpose of manufacturing steel. 4. The Respondent-British Marine PLC is an International Ocean Freight Transportation Company based out of the United Kingdom. It operates and manages various types of chartered-in vessels of Supramax, Handymax (H- MAX) and Panamax (P-MAX). 5. The Ministry of Shipping, Government of India has a division called 'Transchart' which operates a centralized framework for arranging of ships for transportation of coking coal. Transchart floated an enquiry on 27th November, 2007 for shipping of coking coal for a period of three years for a total quantity of 45 lakhs MTs by 30th September, 2012 or for a period of five years for a total quantity of....
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....it would not be in a position to declare any more STEMS in view of the global economic situation and unpredictable market conditions. At that stage, the Respondent informed the Appellant that it would take steps to mitigate its losses for such shipments. 10. On 10th March, 2010, intimation was given by SAIL to Transchart to inform the Respondent that it would not be able to meet its commitments under the CoA and was invoking the Default Clause i.e., Clause 62 to terminate the contract without liability on either side. Thereafter negotiations were undertaken and an Addendum-2 was signed on 20th April, 2011. Certain further quantities were agreed for shipment between the parties in May, 2011. However, thereafter no other STEMS were issued. 11. Subsequently, further correspondence had taken place between the parties and the Appellant had argued that there was novation of the agreement. An extension of three years was negotiated and demanded by the Appellant but the same did not fructify. Finally, on 25th October, 2011, the Appellant alleged that there was a breach of CoA by the Respondent and a termination letter was issued on 12th September, 2012. 12. Disputes arose between ....
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....[(2018) 12 SCC 471], wherein, it has been observed :- "12. After the 2016 Amendment Act, a dichotomy is made by the Act between persons who become "ineligible" to be appointed as arbitrators, and persons about whom justifiable doubts exist as to their independence or impartiality. Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as "ineligible". In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground. As opposed to this, in a challenge where grounds stated in the Fifth Schedule are disclosed, which give rise to jus....
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....eated as erased and not made. If the appellant files any objections under Section 34 of the A&C Act, the same would be considered on merits, including the assertion relying upon Fifth Schedule. Learned senior counsel for the respondent, however, clarifies that the aforesaid statement should not be construed as admitting the case of the appellant; that the arbitrators were disqualified in terms of Item No. 24 of the Fifth Schedule or otherwise in terms of Section 12, pre and post amendment vide Act No. 3 of 2016. Learned senior counsel for the respondent also reserves his right to argue that the Fifth Schedule would not be applicable. The statement and concession made by the respondent is taken on record. In view of the aforesaid position, we dispose of the present appeal with liberty to the appellant to file objections, on all grounds as are available to them under the law and in terms of the dictum in HRD Corporation (Marcus Oil and Chemical Division), before the High Court having jurisdiction to entertain such application. The award, a copy of which has not been made available to the parties, and is kept in a sealed cover, would be made available to the learned ....
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....iranjan Chakraborty. i) The ld. Single Judge, on this issue, analysed various rules of ethics including International Bar Association Rules of Ethics for International Arbitrators, 1987, UNCITRAL Arbitration Rules, 2013 and Section 12 of the Act. Ld. Single Judge came to the conclusion that the dispute relates to Charter Party Agreement which requires specialized Arbitrators owing to the restricted pool of Arbitrators who are available. Ld. Single Judge also came to the conclusion that the possibility of the same legal issues recurring in different disputes cannot be ruled out. ii) The Court then analysed Item No. 24 of the Fifth Schedule as also the decision in HRD Corporation (Supra) and various other judgments rendered in similar cases. The finding of the ld. Single Judge on this issue is captured in paragraphs 52 to 54 of the impugned judgment which reads as under: "52. From a conspectus of the aforesaid judgments, it is palpably clear that merely because an Arbitrator has decided an issue in another arbitration where one party may be common to the arbitration in question, is by itself not a ground to hold that there are justifiable doubts on the impa....
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.... the impartiality of the Presiding Arbitrator and Professor Orrego Vicuna, not owing to lack of independence or inappropriate action, but on issue conflict i.e., pre-existing views held by Professor Orrego Vicuna and Mr. Lalonde regarding an issue in dispute between the parties. It was argued that the two Arbitrators had strongly articulated their positions on interpretation of the "Essential Security Interests" provision in two cases i.e. CMS and Sempra and Professor Orrego Vicuna repeated this view in Enron. Overruling the challenge, it was held that to sustain any challenge, one would require to demonstrate more than simply showing a prior view or opinion, such that the Arbitrator will not be able to decide the issue again objectively or with an open mind. The fact that both Arbitrators in two cases adopted a consistent view on the concept of "essential security interests" was not surprising, as those Tribunals applied the same provisions to similar facts. 54. Applying the aforementioned judgements to the present case and tested on the anvil of the law laid down and observations made, in my view, Capt. Berry and Mr. Chakraborty were not de jure ineligible on th....
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....nding was also recorded to the effect that the Force Majeure Clause i.e., Clause 61 was not invoked by the Appellant. iv. These findings of the Arbitral Tribunal were upheld by the ld. Single Judge who came to the conclusion that the scope of interference against an award of an Arbitral Tribunal being limited, there was no justification to interfere in the present case. D. Award of damages i. Insofar as the aspect of damages is concerned, the award of damages was tested on the anvil of Section 73 of the Indian Contract Act, 1872. ii. The allegation of SAIL that no evidence was produced by the Respondent before the Arbitral Tribunal was rejected by the ld. Single Judge. iii. While, on the one hand, the Arbitral Tribunal held that damages could not be awarded on the basis of the difference between the rates stipulated in the agreement and the rates prevailing in the spot market, it nevertheless held that damages were liable to be granted on account of the non-declaration of STEM, which constituted a breach on the part of the Appellant. The Arbitral Tribunal further held that the grant of damages, calculated on the basis of the difference b....
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....arch, 2015, ICA dismissed the objections raised by SAIL under Section 12 of the Act. According to the Appellant, no hearing was given before dismissing the said application. The observations in the order rejecting the challenge are set out below: "For resolution of the dispute raised by the Respondent in the present arbitration the matter was referred to the Maritime Arbitration Committee. In consideration of the submissions made by both parties and after carefully going though the relevant facts and circumstances of the objection raised by the Respondent, the said Committee, at its meeting dated 4th February, 2015, decided to dismiss Respondent's application by a speaking order on the ground of delay." 23. Mr. Rao, ld. Senior Counsel further submits that the Arbitral Tribunal having not disclosed their interest in the present case, there exists a possibility of bias. Ld. Senior Counsel submits that under Section 12 of the Act, even a possibility of bias needs to be avoided and the challenge, though belated by a few days, cannot lead to a situation where the serious doubt raised to the impartiality of the Arbitral Tribunal can be ignored. 24. According to Mr. Rao....
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....hree issues that have been raised before this Court in this appeal are: i) Whether the two Arbitrators i.e., Captain S.M. Berry and Mr. Niranjan Chakraborty were disqualified in view of Section 12 read with the Fifth and Sixth Schedule of the Act or not; ii) Whether the interpretation given to Clause 62 of the CoA is correct in law ?; iii) Whether the award of damages/compensation and interest is justified? 30. At the outset, it is relevant to point out that the Arbitration Clause in the CoA i.e., Clause 60 contemplates that the disputes arising out of the CoA shall be referred to an Arbitral Tribunal constituted under the Indian Council of Arbitration and shall be in accordance with the Act. Moreover, as per the said clause, the Arbitrators for the said Tribunal shall be appointed from the Maritime Panel of Arbitrators of the ICA and the rules governing the arbitration are Maritime Arbitration Rules of the ICA. 31. The Respondent being a United Kingdom based company, this is an international commercial arbitration under Section 2(1)(f) of the Act and not a domestic arbitration. The grounds of challenge in respect of Awards passed in such arbitratio....
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.... & Construction Co. Ltd. v. NHAI15, this Court dealt with the effect of the Amendment Act, 2015. While doing so, it took note of a supplementary report of February 2015 of the Law Commission of India made in the context of the proposed 2015 amendments. The said supplementary report has been extracted in para 30 of that judgment. The key features of it are summarised below: (a) Mere violation of law of India would not be a violation of public policy in cases of international commercial arbitrations held in India. (b) The proposed 2015 Amendments in 1996 Act (i.e. in Sections 34(2)(b)(ii) and 48(2)(b) including insertion of sub-section (2-A) in Section 34 were on the assumption that the terms, such as, 'fundamental policy of Indian law' or conflict with 'most basic notions of morality or justice' would not be widely construed. (c) The power to review an award on merits is contrary to the object of the Act and international practice. (d) The judgment in ONGC v. Western Geco International Ltd.16 would expand the court's power, contrary to international practice. Hence, a clarification needs to be incorporated to ensure that the te....
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....lear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award. 39. To elucidate, para 42.1 of Associate Builders case10, namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders case10, however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award. 40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders case10, namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with the matters not allotted to him, he commits an error of jurisdiction. This g....
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....blic policy of India' must be accorded a restricted meaning in terms of Explanation 1. The expression 'in contravention with the fundamental policy of Indian law' by use of the word 'fundamental' before the phrase 'policy of Indian law' makes the expression narrower in its application than the phrase 'in contravention with the policy of Indian law', which means mere contravention of law is not enough to make an award vulnerable. To bring the contravention within the fold of fundamental policy of Indian law, the award must contravene all or any of such fundamental principles that provide a basis for administration of justice and enforcement of law in this country. Without intending to exhaustively enumerate instances of such contravention, by way of illustration, it could be said that: (a) violation of the principles of natural justice; (b) disregarding orders of superior courts in India or the binding effect of the judgment of a superior court; and (c) violating law of India linked to public good or public interest, are considered contravention of the fundamental policy of. Indian law However, while assessing whether there has been a contraventio....
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....ssarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204]. 35. It is important to notice that the ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justi....
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....n 34 of the A&C Act, which would be applicable to arbitral awards other than those delivered in an international commercial arbitration. In terms of said Sub-section, an arbitral award could be set aside if the same is vitiated by patent illegality appearing on the face of the award. XXXX 104. A plain reading of the above clearly indicates that the scope of setting aside an arbitral award on the ground that it falls foul of public policy of India is extremely narrow. The grounds that an arbitral award is perverse or irrational does not necessarily qualify as a ground to set aside an arbitral award on the ground that it is in conflict with the public policy of India. Thus, even if we accept (which we do not) that the Arbitral Tribunal's interpretation of the COA is erroneous, the impugned award could not be set aside on the ground of being in conflict with the public policy of India." Thus, the present dispute being an international commercial arbitration the only ground available for challenge is whether the Award is contrary to the public policy of India. The ground of patent illegality is not available for challenging the Award in question. B. Conflict....
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.... Fifth Schedule of the Act would be relevant. The same are extracted below: "THE FIFTH SCHEDULE [See section 12(1)(b)] The following grounds give rise to justifiable doubts as to the independence or impartiality of arbitrator: XXXX Previous services for one of the parties or other involvement in the case XXXX 24. The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties. XXXX Explanation 3. - For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above." 40. The above provisions of the Fifth Schedule of the Act are essential to determine whether the Arbitrators in the present case were in any manner conflicted in rendering the....
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....foresaid disclosure should take notice of the grounds enumerated in the Fifth Schedule of the Act or such other schedule or amendment as may be made from time to time in respect thereof. " 42. As per these above Rules, a disclosure is to be made by all nominated Arbitrators, prior to the acceptance of the nomination, of any financial or personal interest which could disqualify them from being impartial or independent Arbitrators. 43. In the present case, the nomination was accepted between March to June, 2014. In the arbitration between the Appellant and M/s SeaSpray Shipping Company Ltd., the same two Arbitrators i.e., Captain S.M. Berry and Mr. Niranjan Chakraborty had already been nominated on 21st May, 2012 i.e., almost two years prior to the nomination in the present dispute. SAIL being a party in both the arbitrations was fully aware of these facts. Under Rule 10(4)(e) of the Maritime Arbitration Rules of the ICA, the challenge to the constitution of the Arbitral Tribunal or to any specific Arbitrator was to be raised within 15 days from when the appointment was communicated to the Appellant. The constitution of the Tribunal in the present case was notified on 25th June....
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....ose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. [(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.]" 46. Under Section 12(1)(a) of the Act, an Arbitrator has to disclose in writing any factor which is likely to give rise to justifiable doubts as to his/her independence or impartiality. Explanation 1 to Section 12 of the Act clearly states that guidance as to the circumstances which could rise to such justifiable doubts can be obtained from the Fifth Schedule of the Act and if an Arbitrator feels that there could be a doubt as to his or her independence or impartiality, the disclosure has to be made in the Forms specified in the Sixth Schedule of the Act. 47. Usually, these disclosures and the forms in the Sixth Sc....
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....Act, the time prescribed for raising such objections is as under: "13. Challenge procedure .- (1) Subject to sub- section (4), the parties are free to agree on a procedure for challenging an arbitrator. (2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. (3) Unless the arbitrator challenged under sub- section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. (4) If a challenge under any procedure agreed upon by the parties or under the procedure under subsection (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. (5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance wi....
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.... Waiver A party which knows or should have known that a provision of the Administrative and Financial Regulations, of these Rules, of any other rules or agreement applicable to the proceeding, or of an order of the Tribunal has not been complied with and which fails to state promptly its objections thereto, shall be deemed-subject to Article 45 of the Convention-to have waived its right to object. Under the Model Law, challenges related to impartiality or independence must be filed with the arbitral tribunal within 15 days of the party becoming aware of the circumstances giving rise to justifiable doubts as to those issues. Is the objection to be deemed to be waived if the time limit is not met, or may the objection be raised in a challenge to the award or on enforcement proceedings? This question has not been resolved definitively. The better view is that on policy grounds a failure to comply with the time limits should bar any attack of the award on this basis." 52. From the above, it is clear that the timeline for raising challenges for appointment of Arbitrators has to be strictly adhered to in order to ensure that belated challenges are not raised....
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....ntained in Items 22 and 24 is not absolute, as an arbitrator who has, within the past three years, been appointed as arbitrator on two or more occasions by one of the parties or an affiliate, may yet not be disqualified on his showing that he was independent and impartial on the earlier two occasions. Also, if he currently serves or has served within the past three years as arbitrator in another arbitration on a related issue, he may be disqualified under Item 24, which must then be contrasted with Item 16. Item 16 cannot be read as including previous involvements in another arbitration on a related issue involving one of the parties as otherwise Item 24 will be rendered largely ineffective. It must not be forgotten that Item 16 also appears in the Fifth Schedule and has, therefore, to be harmoniously read with Item 24. It has also been argued by learned counsel appearing on behalf of the respondent that the expression "the arbitrator" in Item 16 cannot possibly mean "the arbitrator" acting as an arbitrator, but must mean that the proposed arbitrator is a person who has had previous involvement in the case in some other avatar. According to us, this is a sound argument as "the arbi....
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.... The vice which the law must guard against is that the tribunal may approach the rehearing with a closed mind. If a judge has considered an issue carefully before reaching a decision on the first occasion, it cannot sensibly be said that he has a closed mind if, the evidence and arguments being the same as before, he does not give as careful a consideration on the second occasion as on the first. He will, however, be expected to give such reconsideration of the matter as is reasonably necessary for him to be satisfied that his first decision was correct. As I have said, it will be a most unusual case where the second hearing is for practical purposes an exact rerun of the first. 21. The mere fact that the tribunal has decided the issue before is therefore not enough for apparent bias. There needs to be something of substance to lead the fair-minded and informed observer to conclude that there is a real possibility that the tribunal will not bring an open mind and objective judgment to bear." 27. Those comments apply with as much force to arbitrators in international reinsurance arbitration as they do to adjudicators in building disputes. Just as an arbitrator or a....
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....n Chapter 4-124, the learned author states as follows: "In certain circumstances, previously expressed views of an arbitrator, which suggest a certain pre-disposition to a particular course of action, outcome or in favour of a party, can constitute grounds for removal. One of the Locabail v. Bayfield applications ([2000] 1 All E.R. 65 at 92-93) against a judge was successful on this basis. The judge had written four strongly worded articles which led the Court to conclude that an objective apprehension of bias may arise on the part of one of the parties. However, a challenge against a sole arbitrator in a trade arbitration which alleged apparent bias because the arbitrator had previously been involved in a dispute with one of the parties failed. The judge found this on the facts to be no more than "an ordinary incident of commercial life" occurring in the relatively small field of trade arbitrations where it was thought the parties and arbitrators were quite likely to have had prior dealing with each other (Rustal Trading Ltd. v. Gill and Duffas SA [2000] 1 Lloyd's Rep. 14). Similarly, the fact that an insurance arbitrator had previously given a statement in another ar....
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.... Railway Electrification v. M/s ECI SPIC SMO MCML (JV) a Joint Venture Company, 2024 INSC 857 in respect of the doctrine of bias is slightly different from the issue which is being considered in the present case. The observation relied upon by Mr. Rao, ld. Senior Counsel is paragraph 88 in Central Organisation for Railway Electrification (Supra) which reads as under: "88. The principle governing the doctrine of bias is that a member of a judicial body with a predisposition in favour of or against any party to a dispute or whose position in relation to the subject matter or a disputing party is such that a lack of impartiality would be assumed to exist should not be a part of a tribunal composed to decide the dispute. " ............." 56. The above observation is to be read in the context of deciding the contours of independence and impartiality of Arbitral Tribunals. It is only under circumstances where an assumption has to be made that the Arbitrators would not be impartial, that such a disqualification would arise. The Supreme Court in the decision in Central Organisation for Railway Electrification (Supra) was considering the general framework of independenc....
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.... 154 of the impugned award as under: "152. It appears to us that the real bone of contention between the parties is part of the Clause 62, which entitles the Respondent to declare the Contract (COA) at an end at will, without any liability to either side when "Suppliers/Charterers in any manner or otherwise fail to perform the contract". The Respondent asserts that this phase gives it unfettered and absolute freedom to declare the contract at and end at any time whenever it wishes without assigning any reason. We are unable to accept the aforesaid submission for a number of reasons. a. Such an interpretation of Clause 62 would be absurd and vulnerable to being declared void under Section 23 of Indian Contract Act, 1872. Such an interpretation would also be contrary to Section 73 of the Indian Contract Act, 1872 ("The Contract Act 1872"). b. Such interpretation would also be in violation of Section 23 read with Section 28 of The Contract Act, 1872. It is well settled in law that parties cannot contract against this statute. xxx xxx xxx 154. The Tribunal has critically analysed the contention and submissions made by the parties and hold th....
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....ward, reveals that in respect of the issue of termination, the conclusion drawn by the Arbitral Tribunal largely turns on the interpretation accorded by the Arbitral Tribunal to Clause 62 of the Agreement between the parties. 64. It has been held in the award that (i) Clause 62 must be read in context with the other provisions of the Contract of Affreightment; (ii) if there are two possible constructions of Clause 62 then the one which would give effect to all the Clauses of the Agreement must be adopted and not another which would nullify them; (iii) it was found that the claimant's interpretation gave effect to the rest of the provisions of the Agreement, in contradiction to the interpretation canvassed by the SAIL; (iv) it was noticed that the construction sought to be canvassed by SAIL made it impossible to reconcile with its binding obligation to ship at least 1,900,000 MT of coal; (v) any interpretation which rendered the obligation of SAIL to ship the requisite amount of cargo in the relevant period "optional" would lead to an absurdity; (vi) reading of the Contract as a whole made it evident that the SAIL was obliged to ship a minimum of 1,900,000 MT and maximu....