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Only disputes that existed at the time of referral to arbitration are subject to arbitration, not any later disputes: Delhi HC
Introduction: The Delhi High Court on Raghuvir Buildcon Pvt. Ltd. v. Ircon International Limited recently passed a judgement that disputes which existed on the date of reference to arbitration are only within the scope of arbitration, not any later conflicts that may arise later.
The parties had entered into a contract in 2017. Under clause 50.1 of the GCC, the respondent had sent the petitioner a seven-day notice dated October 5, 2019, asking him to rectify the claimed defaults. On September 30, 2019, the petitioner was given a 48-hour notice to perform the work in line with the contract, failing which the respondent will pursue contract termination. The appellant applied to the Delhi High Court to stay on the Bank Guarantee's encashment under Section 9 of the Arbitration and Conciliation Act, 1996. It was agreed that the Bank Guarantee would be encashed and turned into demand drafts while the petition under Section 9 was pending.
The Court dismissed the petition under Section 9 on October 11, 2019, noting that the issue of encashment of bank guarantees had been resolved between the parties for the time being and that a solitary arbitrator had been appointed to resolve the parties' disagreements. In addition, an interim order was issued directing the demand drafts to be deposited with the sole arbitrator until a new interim order under Section 17 was issued. The Respondent cancelled the contract after the previous order was issued on October 11, 2019. The appellant filed a statement of claim with the arbitrator challenging the invocation and encashment of the bank guarantees, claiming that such invocation was contractually authorised only in the event of contract termination/rescission, not before it. The Appellant also criticised the contract's termination. The Respondent applied Section 16 of the 1996 Act, objecting to the appellant's claim's claim, including a challenge to the contract's termination. It was requested that the arbitrator explain that the arbitral tribunal's authority was confined to the issue over the validity of the BG's invocation and that it could not arbitrate any other disputes or claims about a contract termination that occurred after that.
The Respondent's plea was dismissed by the sole arbitrator, who reasoned that only the issues that existed at the Delhi High Court's judgement dated 11.10.2019 were submitted to arbitration. Claims originating simply from a contract termination that occurred later cannot be deemed to be within the scope of the current arbitration. The appellant, who was dissatisfied with the sole arbitrator's decision, filed an appeal under Section 37(2) of the Arbitration and Conciliation Act 1996.
Issues: i) Whether the limitations imposed on a Court when exercising jurisdiction under Section 34 of the 1996 Act also apply to an appeal under Section 37(2) (a) of the 1996 Act. ii) Whether additional issues that occurred after the arbitrator's appointment fell within the scope of the arbitration.
Decision and Analysis: The Delhi High Court ruled that, in the absence of any contrary legislative indication, the court's authority to intervene against an interlocutory decision under Section 37(2) is the same as that of the court to interfere against a final award under Section 37(1). The former cannot be claimed to be more expansive than the latter, and consequently, the rules and restrictions that apply to the exercise of authority under Section 34 would apply. As a result, the Court determined that it could only consider whether the arbitrator's order is patently unlawful or perverse or is otherwise unconscionable in law on circumstances in the current appeal under Section 37(2) (a).
Regarding the second point, the Court noted that the arbitrator's mandate had been limited by the ruling of November 11, 2019. According to the order, an arbitrator was appointed to resolve disagreements between the parties as of the date of the order. The notifications for terminating the contract were issued after the order dated 11.10.2019 was made. Thus there was no question about the validity of such termination at the time the order was issued.
Conclusion: In light of the preceding considerations, the sole arbitrator's position was judged as plausible and did not warrant intervention.
(This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, or Religion, Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code VIA Mediation and Arbitration Centre Foundation shall not be responsible for any errors caused due to human error or otherwise.)
- Introduction
- Decision and Analysis
- Conclusion
