Ayyasamy vs Paramsivam & Ors.

Introduction

Ayyasamy vs Paramsivam & Ors. is a case based on Arbitration and Conciliation Act, 1996. Wherein, the discretion lied with the Supreme court and held that only in cases of a serious ground of fraud, the case is non-arbitrable. Precisely, a mere allegation of fraud cannot be considered as a ground for dispute between parties which cannot be settled through an arbitration agreement.

Facts of the case

The parties to this case were brothers, who had entered into a partnership deed agreeing to carry on a hotel business named ‘ Hotel Arunagiri ’, located in Tirunelveli, Tamil Nadu. The appellant had filed a civil suit before the court of Additional District Munsif Court, Tirunelveli, Tamil Nadu for imposing an injunction to prevent the respondents from managing the affairs of the firm. The respondents stood before the court seeking entitlement of right to participation, as partners, in the administration of the business; under the belief that since this case involved a segment of fraud, it was meant to be sorted out by the civil court.
The dispute arose when the appellant did not adhere to the partnership agreement and failed to deposit money collection into the bank account and was alleged of issuing a cheque for Rs. 10,00,050/- from the bank account in the name of the Hotel in favor of his son without informing the other partners for the same. The respondents also alleged that the appellant’s wife’s brother Dhanapalraj was reportedly enquired by CBI for a raid conducted at his living premises, where he falsely claimed that the seized amount Rs. 45,00,000/- belonged to the hotel.
The appellant, after receiving a summons from the court, moved the application under Section 8 of the Arbitration and Conciliation Act, 1996 by challenging the maintainability of the suit under the purview of the arbitration agreement as contained in clause (8) of the partnership agreement.
The respondents relied on the judgment of N. Radhakrishnan v. Maestro Engineers & Ors. and the appellant’s plea was dismissed accordingly. An appeal made to the Madras High Court was subsequently dismissed with the observations that Swiss Timing Ltd. (order relied upon by the appellant) was an order passed by a single judge of Supreme Court, whereas, in N. Radhakrishnan the decision was set out by a division bench of the Supreme Court, therefore, it was bound to follow the judicial precedent.
However, the appellant made an appeal to the Supreme Court of India for relief.

Issues

The question which arose before the court was whether the matter was arbitrable or non-arbitrable and meant to be resolved by the court considering the involvement of fraud, which makes it an exception for the arbitral tribunal to deal with.

Judgment

The court began with a close observation at the Arbitration and Conciliation Act, 1926, considering that it did not make any specific provision excluding any category of disputes terming them to be non-arbitrable but several provisions have been laid down defining the scope of judicial intervention. The Act contains provisions challenging the arbitral award [Section 34 and Section 48] and it may be set aside if the court finds that the ‘subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force.’
After interpreting, the court was of the opinion that the allegation of fraud purported was not serious and could not be taken as a serious ground that it makes the arbitral tribunal incapable of solving. The matter of accounts could have been easily dealt with by the arbitrators. However, the allegation of respondents against Dhanapalraj doesn’t fall for consideration, therefore, is not to be dealt with by the arbitral tribunal. The judgment was delivered in favor of the appellant, reversing all the prior judgments of the courts below, the appeal was allowed, consequently, the application filed by the appellant under Section 8 in the suit stood affirmed.

Conclusion

The court upheld the decision in favor of the appellant after legitimizing every sphere of the case and its related concepts. This case has scrutinized the seriousness of the allegation of fraud which sets aside the case to be carried out by the court other than an arbitral tribunal. As aforementioned, Arbitral Tribunal does not exclude any civil or commercial matter but there a few matters which although be reserved for Courts but do not make the arbitral tribunal incapable of solving.
Section 5, Section 8, Section 11, Section16, Section 34 (2)(b), and Section 48 are primarily highlighted in this case and focused upon respectively. The principle of fraud has been taken into account clarifying the distinction between a mere and a serious allegation.

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In Re Cognizance for Extension of Limitation (2020)

Introduction

In March 2020 Indian government had announced a lockdown due to the rapid spread of the Coronavirus or Covid- 19. This had caused a halt in the functioning of the whole country. All the sectors of the economy faced a huge difficulty, so did the judiciary. In Re Cognizance for Extension of Limitation (2020) considering the current pandemic situation, the Supreme Court of India passed a suo moto order stating that lawyers and litigants who are facing problems regarding the physically filing procedures in respective Courts/tribunals do not have to go to the courts to do so. It also ordered that all periods of limitation of the Arbitration and Conciliation Act be extended and also provided directions regarding the Negotiable Instrument Act 1881 from 15.03.2020 till further orders were passed in the present proceeding.

Background

The Supreme Court invoked Article 142 read with Article 141 of the Indian constitution as many lawyers and litigators faced difficulty regarding the filing of the procedures during the lockdown and couldn’t adhere to the limitations stated by the Arbitration and Conciliation Act, 1996; The Negotiable Instrument Act, 1881 and also limitations regarding serving of summons, notice, and exchange of pleadings and documents.

Judgement

1. The Supreme Court passed an order extending all periods of limitation that were prescribed under the Arbitration and Conciliation Act. It also sought some temporary minor changes in the aforesaid order which are:
   1. Section 29 (A) of the Arbitration and conciliation Act, 1996 did not prescribe any period of limitation but it fixed a time to do certain acts such as making an arbitral award within a specific time. So the order directed that an extension of the limitation period will be granted.
   2. It also directed that the extension be applied in Section 23(4) of the Act aforementioned.

2. Sec 12 (A) of Commercial Courts Act 2015 dealing with prescribed time limit for completing the process of compulsory pre-institution of mediation and settlement also got an extension from the time lockdown is lifted plus 45 days thereafter.
3. The order also stated that; service of notice, summons, and exchange of pleading/ documents are necessary for legal proceeding thus it directed that alternative virtual methods be used such as e-mail, FAX, commonly used instant messaging services like WhatsApp Telegram, etc.
4. Regarding the extension validity of a cheque the Bench stated that even though the time period is not prescribed by the Statutes but also a period is prescribed by RBI under Sec 35 A of Banking Regulation Act 1949, the court didn’t find it appropriate to interfere with the prescribed limitation period. It advised that RBI may in its discretion alter the period accordingly.

Critical Analysis

1. The extension provided by this order passed by the Bench of Supreme court adheres to the current situation of a pandemic. It provided relief extensively.
2. As it is a temporary relief it won’t affect the procedure once the lockdown ends. It has clearly mentioned that the extension of limitation is till the end of the lockdown.
3. As social distancing and lockdown are instituted in India it becomes difficult to physically file for proceeding of the case and to serve notice, summons, and pleading/ documents. This order has made it easier by stating that these procedures can be done by using alternative virtual methods. Although it has lessened the burden of the lawyers and litigators it has a major drawback. There are chances that the documents that are submitted are forged or edited thus questioning the authenticity and validity of the document.
4. During the pandemic many people lost their business thus making it difficult to make profits. As there is no extension given for the validity of cheques many businessmen will become defaulters as they won’t be having enough funds for repayment.

Conclusion

The decree passed by the Bench has proven to be one of the important decisions as it has invoked its power considering the ongoing pandemic faced by the public and the judiciary at large. This decision will help smooth functioning of proceedings, as possible alternatives are suggested by the Hon’ble court. The extensions provided by the decree will aid those people who are in dire need of this relief thus reducing the burden on them. 

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Balasore Alloys Limited v. Medima LLC

Facts:

The petitioner- Balasore Alloys Limited filed a petition before the Supreme Court under sec-11(6) read with 11(12)(a) of the Arbitration and Conciliation Act, 1996 (Act 1996 short), praying that a sole arbitrator be appointed to adjudicate upon all the disputes arising between the parties in connection with the 37 purchase orders referred in the application. An alternative prayer was made to appoint a second arbitrator on account on the failure of Medima LLC- the respondents, to nominate an arbitrator according to the terms of the contract. The petitioner- a manufacturer of High Carbon Ferro Chrome entered into a transaction with the respondent, where the petitioner would supply their product to the respondent for sale in US and Canada, an agreement dated 19-06-2017 was made for sale of 2000 MT, subsequently the respondent placed 37 purchase orders in the petitioner’s favour with details of the supply specified in each order, an agreement dated 31-03-2018 was entered into by the parties for the same, disputes arose between the parties regarding these transactions which are to be resolved through arbitration. The petitioner relied on Clause 7 of the purchase orders relating to arbitration, and nominated Mr. Justice Amitava Lala Retired High Court Judge for constituting an Arbitral Tribunal, however, the respondent did not appoint an arbitrator, thus the petitioner has approached the Court seeking appointment of an arbitrator. The nature of transaction entered between the parties is not disputed. The respondent filed a counter-affidavit where they stated that the entire transaction is governed by the agreement dated 31-03-2018 which they referred to as the ‘Umbrella Agreement’, clause 23 of the said agreement makes provision for resolution of disputes through arbitration and that they invoked the same by issuing a notice. As per clause 23 they even filed a petition before the International Chamber of Commerce (ICC) and the Arbitral Tribunal was duly constituted. They thus contended the present application filed by the petitioner seeking appointment of Arbitral Tribunal under clause 7 of the purchase order is not bonafide and so is liable to be dismissed. The applicant filed a rejoinder to dispute the respondent’s contentions. 

Issues: 

• Whether clause 23 of the agreement dated 31-03-2018 or clause 7 of the purchase orders will apply in the present case.

Legal Provisions:

• Arbitration and Conciliation Act, 1996, Section 11(6) – Dissimilar arbitration clause – Appointment of arbitrator.
• Arbitration and Conciliation Act, 1996, Section 11(6)

Observations of the Court:

The court went through the arbitration clauses given in the purchase order and the agreement dated 31-03-2018. It was observed that the clause given under the purchase orders is explicit and would apply in normal circumstances and no other consideration would be necessary in the limited scope for considering an application under sec-11 of the Act 1996. The agreement dated 31-03-2018 is referred to as the ‘pricing agreement’ by the petitioner, the fact that the parties entered into an agreement on 31-03-2018 is not disputed and the fact that a dispute arose between the parties is also not disputed. The court to decide as to which clause will apply in the present case thought necessary to refer to the manner in which the arbitration clause was invoked and the nature of dispute the parties seek to resolve. It was then found that the arbitration clause was not invoked by the petitioner rather the counsel for the respondent had issued a notice to the petitioner on 13-03-2020 referring to the breach of the agreement dated 31-03-2018 and invoked the arbitration clause-23 of the said agreement to give the petitioner an opportunity to amicably resolve the matter within 30 days, failing which they would approach the ICC.

The petitioner by a notice dated 13-04-2020 disputed the respondent’s claim and referring to the nature of the claim indicated that the Arbitration Tribunal be constituted and arbitration proceeding be initiated as per provisions of clause 7 of the purchase orders. The court observed that since both documents make provision for arbitration proceedings, they either have to be read in harmony or reconciled to determine the nature of dispute between the parties which is to be resolved through arbitration and then conclude if the present application filed under sec-11 of the Act 1996 will be sustained. The court went through the contents of the agreement between the parties which forms the crux of the dispute. It also noted some of the issues repeatedly raised by Balasore against Medima.

It was observed that the agreement dated 31-03-2018 makes provision for regarding purchase and sale, final price, payment of provisional price and adjustment of advance, determination of final sales price and monthly accounting and payment, whereas the purchase order only provides for the price of the quantity ordered for and special terms relating to provisional price, etc. The nature of the dispute raised by the appellant in its reply notice dated 13-04-2020 indicate that those aspects should be determined according to the terms of the agreement dated 31-03-2018, the disputes relate to contract terms, pricing, deductions etc. given in the said agreement and the Arbitral Tribunal constituted under clause 23 can also adjudicate on any other issues arising out of the terms of contract of individual purchase orders. 

The counsel for the petitioner contended that though the respondent relied on the agreement dated 31-03-2018, the transaction commenced on 08-08-2017 and the purchase orders were placed upto 30-03-2018 i.e. before the agreement of 31-03-2018, and so it would not apply to the earlier purchase orders. The court did not accept this contention stating the clause 20(a) of the agreement dated 30-03-2018 provides that the agreement shall commence on 31-03-2017 and end on 31-03-2023, which shows that parties intention contained in the agreement will govern all transactions including those commenced from 08-08-2017. It was observed that agreement dated 31-03-2018 entered into by the parties, governs the parties in disputes regarding price and terms of payment including recovery, etc. like the dispute in the present case, whereas the purchase order is limited to the supply of produce with specific details that arise out of the agreement dated 31-03-2018. The court held that the petitioner invoking the arbitration clause in the individual purchase orders is not right, especially when the respondent had already invoked the arbitration clause given the agreement dated 31-03-2018 and appointed the Arbitral Tribunal. 

The petitioner had filed a Special Leave Petition in the Calcutta High Court where they claimed to be aggrieved by the respondent’s appointment of Arbitral Tribunal and filed a suit seeking a decree declaring clause 23 of the agreement dated 31-03-2018 as null and void. The petitioner also moved a Notice of Motion seeking injunction against the Arbitral Tribunal constituted by the ICC. The single judge of the High Court by a judgement dated 02-08-2020, rejected the petitioner’s prayer of interim order and dismissed the motion for injunction. The petitioner then approached the Division Bench of the High Court which after consideration declined the appeal for interim order but allowed appeal for consideration. 

Judgement:

The court after hearing both sides and going through the impugned order saw no reason to interfere with the same. The appeal was thus dismissed. 

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