Arbitration In IndiaSubsequent Cause of Action from Same Agreement – Jurisdiction of Court Not Barred Under Section 9 (3)

HIGH COURT OF DELHI

Hero Wind Energy Private Limited v. Inox Renewables Limited and Another

FAO(OS)(COMM) 60/2020 and CM No. 10461/2020 | Date: 07.07.2020

FACTS

In the present case, Inox Wind Ltd. (“IWL”), Inox Wind Infrastructure Services Ltd. (“IWISL”) and Inox Renewables Ltd. (“IRL”) are a part of the Inox group of companies that developed various wind farms. The Appellant entered into 3 different agreements as follows:  

1. ‘Wrap Agreement’ (24.07.2014) – entered into with IWL, IRL, and IWISL. It pertained to sale, supply and commission of a wind farm in the Respondents’ wind part and made IWL in charge of all the agreements.

2. ‘Shared Services Agreement’ (24.07.2014) – entered into with IRL. It gave right to the Appellant to use the shared Infrastructure of the Respondents.

3. ‘Operation and Maintenance Agreement’ (“O&M Agreement”) (31.07.2014) – entered into with IWISL. It provided for maintenance of both the farm and the shared infrastructure. The termination of O&M Agreement for the farm would compel the parties to mutually decide the charges for the operation and maintenance of the shared services.

All the three contracts provided for an identical arbitration clause as under:

“20. DISPUTE RESOLUTION

20.1. If a Party considers that the other Party (‘Defaulting Party’) is in breach of any provision of this Agreement including by reason of bankruptcy and insolvency, corrupt or fraudulent practices, it may, without prejudice to any right of action or remedy that it may have under this Agreement, provide the Defaulting Party with a notice specifying the nature of the breach (‘Notice of Default’) and calling upon the Defaulting Party to cure such breach within 10 (ten) days (‘Cure Period’) from the date of receipt of the Notice of Default.

20.2 Any dispute, controversy, disagreement or disputed claim arising out of, in connection with or under this Agreement or the breach, termination, interpretation or invalidity thereof or in relation to any matters contained in or relating to this Agreement raised by any Party (‘Dispute’) shall be attempted to be resolved by the Parties by good faith negotiations in the best interest of the subject-matter of this Agreement within 5 (five) days from the Cure Period, failing which such Dispute shall be referred to arbitration under the Arbitration and Conciliation Act, 1996…”

Dispute arose when the Appellant accused the Respondents of defaulting on their obligations under the O&M Agreement.

The Appellant invoked the arbitration clause against IWL and IWISL by sending a request for arbitration notice dated 17.01.2018. This was pertaining to a default on part of the Respondents which caused the Appellant revenue loss.

The Appellant filed a petition (“First Petition”) in the High Court of Delhi for interim measures under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”), against IWISL and IWL.

The dispute and the interim measures sought under the First Petition were only related to operations under the O&M Agreement.

During the pendency of the First Petition, the Arbitral Tribunal was constituted and therefore the Appellant withdrew the First Petition in order to approach the Arbitral Tribunal under Section 17 of the Act.

Subsequently, the Appellant terminated the O&M Agreement on 22.10.2019 for the farm which triggered the clause for mutually deciding the rate for operation and maintenance of shared services. The negotiations, however, did not fall through.

IWISL stopped the supply of shared services to the Appellant pursuant to which the Appellant filed a petition (“Second Petition”) for seeking interim relief under Section 9 of the Act for the Respondents to continue the supply of shared infrastructure.

The Single Judge bench of the High Court of Delhi dismissed the Second Petition on the ground that the same is barred under Section 9(3) of the Act since the Arbitral Tribunal has already been constituted. The Court directed that the Appellant could file the application for interim measures before the Arbitral Tribunal as the disputes have arisen from the same set of agreements.

Therefore, aggrieved by the Order of the Single Judge Bench, the Appellant preferred an appeal under Section 37 of the Act before the Division Bench of High Court of Delhi.

ISSUE BEFORE THE HIGH COURT OF DELHI

The following issue was considered by the High Court of Delhi:

If an Arbitral Tribunal has already been constituted to adjudicate the disputes which have arisen out of an agreement or set of agreements containing an arbitration clause, whether the remedy of approaching the Court for interim measures with respect to disputes subsequently arising from the same agreement or set of agreements is barred by Section 9(3) of the Act.

CONTENTION OF THE PARTIES

The Court referred to the relevant provisions under the Act i.e. Sections 5, 9, 17, 21 and 29A of the Act in conjunction with Order II Rule 2, Order XLI Rule 24 and 33 and Order XLIII Rule 2 of the Code of Civil Procedure, 1908 (“CPC”).

The Appellant averred that the disputes which have arisen before this Court now are independent of the disputes which had arisen earlier and already been referred to arbitration before the arbitral tribunal. Further, the Appellant contended that separate disputes arising out of the same contract must be treated as independent suits.

Furthermore, even if the composition of the Arbitral Tribunal was same, the Arbitral Tribunal constituted to adjudicate the subsequent dispute would not be an ‘Arbitral Tribunal already constituted’ under Section 9(3) of the Act.

On the contrary, the Respondents resisted the Appellant’s averments by placing reliance on Parsvnath Developers Limited Vs. Rail Land Development Authority (2018) SCC OnLine Del 12399 and K.V. George Vs. Secretary to Government Water and Power Department, Trivandrum (1989) 4 SCC 595, and contended that Order II Rule 2 of the CPC or its principles are applicable to the arbitration proceedings.

Further the Respondents submitted that since the dispute arose at the same time at the time when the dispute for which an Arbitral Tribunal was already constituted, the Appellant’s petition is barred under Section 9(3) of the Act.

Lastly, the Respondents relied on the 243^rd Law Commission Report and the subsequent 2016 amendment to the Act and contended that the introduction of Section 9(3) read with Section 5 of the Act is to minimise judicial intervention in arbitration proceedings.

OBSERVATION

At the very outset, the Division Bench noted that, from the pleadings of the Appellant in the First Petition, it was indisputable that the transaction between the parties was a composite transaction. The three agreements were intrinsically linked with each other and were incapable of being performed beneficially without performance of the other. The Court referred to the decision of the Supreme Court in the case of Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 and Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678.

Further, the Court opined that the fact, that each agreement has its own arbitration clause, does not change their interdependence. Meaning, even where there were two separate agreements, each with arbitration clause, the benefit of single arbitration could not be denied as multiplicity of proceedings and conflicting decisions would cause injustice.

On the conjoint reading of Section 7 of the Act and the arbitration clause of the Agreements, the Court observed that the parties had indeed agreed to submit all disputes to arbitration, which may arise in relation to the transactions.

The Court also noted that depending on nature of the agreement or obligations to be performed thereunder, it is not necessary that all disputes between the parties arise at one point of time.

While discarding the Respondents argument, the Court referred to the decision of the High Court of Delhi in National Highways Authority of India Vs. ITD Cementation India Ltd. 197 (2013) DLT 650 wherein it was held that in the scenario of large scale work contracts, Order II Rule 2 should not be applied in a rigid manner.

CONCLUSION

The Court held that an Arbitral Tribunal constituted of the same composition, to adjudicate a dispute subsequent to another dispute already referred to an Arbitral Tribunal, would not be an ‘Arbitral Tribunal already constituted’ under Section 9(3) of the Act.

The Court referred to the Supreme Court judgement in Dolphin Drilling Ltd. v. Oil and Natural Gas Corporation Ltd. (2010) 3 SCC 267 wherein it was held that the words “all disputes” in arbitration clause can only mean “all disputes that may be in existence when the arbitration clause is invoked and one of the parties to the agreement gives the arbitration notice to the other”.

While interpreting Section 21, the Court held that:

“Section 21 of the Act provides that unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. There is no agreement to the contrary in the arbitration clause in the present case.

The use in Section 21 of the Act, while defining the date of “commencement of arbitral proceedings”, of the words “arbitral proceedings in respect of a particular dispute”, is clearly indicative of the Act envisaging a separate Arbitral Tribunal with respect to successive disputes which may arise between the same parties out of the same agreement or set of agreements. All these provisions show that there can be multiple claims and multiple references at multiple stages.”

Based on the above interpretation, the Court read Section 9(1) of the Act to cover arbitral proceedings for adjudication of a particular dispute only. The Court therefore arrived at the conclusion that since there is no request by either of the parties to the other for arbitration of the subsequent disputes, the arbitral proceedings with respect to such dispute have not commenced.

Moreover, while referring to the Supreme Court judgement in Firm Ashok Traders v. Gurumukh Das Saluja (2004) 3 SCC 155, the Court held that pre and post arbitration proceedings there is no overlap of power amongst the Court and the Arbitral Tribunal, and thus the party must only approach the Court for an interim measure.

Therefore, the Court held that:

“the Arbitral Tribunal constituted with reference to the disputes which had earlier arisen, even though from the same agreement, cannot be the Arbitral Tribunal within the meaning of Section 9(3) of the Act even if were to be of the same composition. Section 9(3) of the Act does away with the jurisdiction of the Court with respect to interim measures also, once the Arbitral Tribunal is constituted. However, if a separate Arbitral Tribunal even if of same composition is to be constituted for disputes arising out of successive causes of action, Arbitral Tribunal constituted for adjudication of disputes arisen from an earlier cause of action cannot be the Arbitral Tribunal constituted for the disputes arising from a subsequent cause of action and qua which interim measures are sought.”

The Division Bench of the High Court of Delhi thus, disagreed with the order of the Single Bench and held that interim relief can be granted under Section 9(3) of the Act.

Subsequently, the Court decided not to remand the matter to the Single Judge to decide on merits and held that:

“A proceeding under Section 9 of the Act has a sense of urgency about it. Considering the same, it is not deemed appropriate by us to shuttle the parties to and fro the Benches of this Court. The principle of Order XLI Rules 24 & 33 read with Order XLIII Rule 2 of the CPC also permits the appellate Court to proceed to decide the merits even if have not been decided by the trial Court.”

The Court granted interim relief in the form of continuation of supply of shared services by the Respondents on the condition that the Appellant pays for the arrears of the operation and maintenance prior to the termination along with 4 lakhs rupees per annum for the shared services offered by the Respondents.

AMLEGALS REMARKS

The Court in the instant judgment has interpreted Section 9(3) in harmony with the other provisions in the Act and precedents set by the High Courts and the Supreme Courts to reveal that an Arbitral Tribunal, similar in composition to another Arbitral Tribunal for an ongoing issue, is a different Arbitral Tribunal when referred to for a subsequent dispute.

Similarly, the Court has kept the commercial aspect of the issue at hand in regard, which concerns the supply of electricity, and considered it expedient to grant interim relief to the Appellant on a condition that it pays all dues to the Respondents and further decided a price for the Appellants to pay to the Respondents for the continuation of shared services.

Thus, equity formed a significant basis of the decision of the Court.

ABOUT US

AMLEGALS is a multi-specialized law firm. We would love to hear your views, queries, feedback and comments on anand@amlegals.com or priyanshi.singhal@amlegals.com.