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05 November 2020
On 16 September 2020 a three-judge bench of the Supreme Court, exercising jurisdiction under Section 11 of the Arbitration and Conciliation Act 1996, refused to refer disputes to arbitration under a domestic arbitration clause on the basis of prior invocation of a parallel international arbitration clause (Balasore Alloys Limited v Medima LLC, Arbitration Petition (Civil) 15/2020).
The case concerned separate arbitration clauses in parallel contracts between the same parties. Interestingly, neither party disputed the legality or validity of either agreement, nor the fact that disputes had arisen between the parties. As such, the court, exercising jurisdiction under Section 11 of the Arbitration and Conciliation Act, adjudicated on the basis of the link between the nature of the disputes and the agreements concerned. This decision is important given that the law on this subject requires only an ascertainment of the existence of an arbitration agreement.
Medima LLC and Balasore Alloys Limited entered into a comprehensive arrangement for the exclusive sale and purchase of goods (umbrella agreement). This agreement contained a London-seated International Chamber of Commerce (ICC) arbitration clause. The parties also executed purchase orders (POs) for each shipment. Such POs provided for arbitration seated in India as per the Arbitration and Conciliation Act. When disputes arose between the parties, Medima initiated arbitration under the umbrella agreement. In response, Balasore claimed that such disputes had arisen under the POs and thus sought an anti-arbitration injunction against the arbitration proceedings invoked by Medima from the Calcutta High Court. The Calcutta High Court declined to grant the injunction at the ad interim stage, and this order was not stayed in appeal before the division bench of the court. Balasore filed a special leave petition (SLP) against the division bench order. Balasore also filed an application under Section 11 of the Arbitration and Conciliation Act before the Supreme Court for the appointment of an arbitrator under the POs.
Balasore argued that since the validity and legality of the arbitration agreement was not disputed, no further issue for consideration had arisen in the proceedings under Section 11 of the Arbitration and Conciliation Act. It further argued that the POs provided for the resolution of disputes through arbitration and that upon due receipt of the notice invoking arbitration, Medima had failed to appoint its nominee. Balasore also argued that the disputes had arisen under the POs and not under the umbrella agreement.
Medima argued that the entire transaction between the parties and any disputes were governed by the umbrella agreement. It also argued that as the umbrella agreement provided for the resolution of disputes through UK-seated ICC arbitration which had already been invoked, and as the arbitral tribunal had been duly constituted, Balasore's application did not stand.
The Supreme Court noted that it was accepted that disputes concerning pricing and the terms of payment had arisen between the parties, and that these were to be resolved by arbitration. It went on to hold that as the scope for consideration in proceedings under Section 11 of the Arbitration and Conciliation Act is limited, on a reading of the arbitration clause in the POs, in normal circumstances, no other consideration would have been necessary. However, as there was a separate contract between the parties relating to the same transaction, which also contained an arbitration clause, the court had to determine which clause applied.
The court relied on Olympus Superstructures Pvt Ltd v Meena Vijay Khetan ((1999) 5 SCC 651), which concerned two different arbitration clauses in related agreements between the same parties, to determine the principles of harmonisation of clauses.
In order to harmonise the clauses, the court had to determine:
On these counts, the court decided as follows:
The Supreme Court held that as the parties had consciously entered into the umbrella agreement, the arbitration clause contained therein governed the disputes which had arisen. The Supreme Court also observed that the POs had been entered into only for a limited purpose. As a sequitur, the Supreme Court held that since arbitration had already been invoked under the umbrella agreement and the arbitral tribunal had already been constituted, it was inappropriate for Balasore to invoke arbitration under the POs. The Supreme Court went on to dismiss the application under Section 11 of the Arbitration and Conciliation Act.
As regards the SLP against the Calcutta High Court's order which had arisen out of the anti-arbitration proceedings, the Supreme Court acknowledged that there were concurrent findings by the Calcutta High Court and thus declined to interfere.
The Supreme Court's approach in this case is similar to its approach in Antrix Corporation Limited v Devas Multimedia Private Limited ((2014) 11 SCC 560). After Antrix, the provisions of the Arbitration and Conciliation Act were made more stringent by the 2015 amendments. Following said amendments, the Supreme Court, in Mayavati Trading Private Limited v Pradyuat Deb Burman ((2019) 8 SCC 714) (which followed M/s Duro Felgueria SA v M/s Gangavaram Port Limited ((2017) 9 SCC 729)), maintained that the arbitration of disputes is part of the legality and validity test.
On the facts of the present case, a hyper-technical approach of limiting the enquiry under Section 11 would have resulted in:
The Supreme Court took a holistic view of the facts of this case where the parties and the transaction were the same and the only remaining dispute concerned the applicability of the arbitration clause. This judgment is notable given the balancing act that the Supreme Court carried out between the narrow contours of Section 11 of the Arbitration and Conciliation Act and the practical realities of trade and commerce.
For further information on this topic please contact Nandini Khaitan, Aakash Bajaj or Shreya Singh at Khaitan & Co by telephone (+91 11 4151 5454) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Khaitan & Co website can be accessed at www.khaitanco.com.
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