NLA Arbitration Newsletter
Covering Delhi and Bombay High Court rulings on parallel civil and arbitral proceedings, SARFAESI versus arbitration, arbitrator impartiality and disclosure, writ jurisdiction in arbitration matters, and revenue interpretation in public-private concession agreements.
Delhi High Court — Court affirms arbitration can proceed despite parallel civil proceedings, and imposes costs on the respondent for delay tactics and baseless bias allegations.
The petitioner, Dalmia Family Office Trust, had entered into several investment agreements with the respondent, Getamber Anand, the Managing Director of ATS Group, but alleged a breach of contractual obligations. Following this, the Trust filed both a civil suit and initiated arbitration proceedings as stipulated in their agreements. The core legal issue revolved around whether the existence of a civil suit precluded the parties from proceeding with arbitration. The respondent argued that the petitioner, by filing a civil suit, had effectively waived its right to arbitration, rendering the arbitration clause inoperative. The petitioner contended that filing a civil suit was a precautionary measure and did not amount to a waiver of its right to arbitrate.
The Delhi High Court upheld the petitioner’s right to arbitration, emphasizing that the initiation of civil proceedings does not automatically extinguish the validity of an arbitration agreement unless there is a clear, intentional abandonment of arbitration rights. Citing the Supreme Court’s guidance in Alka Chandewar v. Shamshul Ishrar Khan, (2017) 16 SCC 119, the Court found that filing concurrent proceedings alone does not constitute a waiver of arbitration unless expressly stated. The Court further observed that the claims in arbitration and civil suits were largely interdependent but distinct enough to allow both to proceed without conflict.
Furthermore, the Delhi High Court scrutinized the conduct of the ATS Group throughout the arbitration. It found the challenge to the arbitrator’s impartiality both baseless and deliberately timed to hinder the arbitration. The Court emphasized that unsubstantiated claims of bias, particularly those raised without evidence at an advanced stage, cannot serve as a tactic to delay proceedings. The High Court also criticized the ATS Group’s introduction of a legal notice by a third party that was irrelevant to the arbitration and served only to obscure the proceedings.
As a result, the Delhi High Court imposed a substantial fine on the Respondent, Mr. Getamber Anand, payable to a charity selected by the arbitrator. Although Mr. Anand apologized, the Court deemed the apology insincere, noting that it came too late to mitigate his actions. The Court further ordered the Respondent to compensate the Petitioner with INR 3,00,000 to cover the costs incurred in the proceedings.
Key Takeaway
Arbitrator bias claims require credible evidence and cannot be based on mere suspicions or tactical delays. As laid out in Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., 2016 SCC OnLine Del 6568, challenges must have clear, substantive grounds to justify arbitrator recusal. Baseless claims of bias intended to derail arbitration proceedings will not be entertained and will attract costs, supporting arbitration’s integrity as an impartial dispute resolution method.
Bombay High Court — Court clarifies the arbitrability of disputes when SARFAESI Act remedies have also been invoked, holding that concurrent pursuit of statutory and arbitral remedies does not constitute a waiver of arbitration rights.
The central issue was the arbitrability of the dispute given the simultaneous invocation of statutory remedies under the SARFAESI and RDDB Acts. The Respondents argued that once Tata Capital opted for these statutory remedies, the matter became non-arbitrable, as the jurisdiction of the Debt Recovery Tribunal (DRT) under the RDDB Act is deemed exclusive for debt recovery. They further argued that by choosing SARFAESI and summary suit proceedings, Tata Capital had effectively waived its right to arbitration and was attempting to pursue inconsistent remedies.
Tata Capital contended that the arbitration clause remained intact and that the court’s role under Section 11 of the Arbitration and Conciliation Act, 1996, was limited to confirming the existence of a valid arbitration agreement. The Bombay High Court upheld the principle that financial institutions can pursue concurrent remedies under the SARFAESI Act and the Arbitration Act, clarifying that the arbitration clause remains enforceable unless SARFAESI remedies are fully exhausted. Citing Supreme Court rulings, including M.D. Frozen Foods Exports (P) Ltd. v. Hero Fincorp Ltd., (2017) 16 SCC 741 and Indiabulls Housing Finance Ltd. v. Deccan Chronicle Holdings Ltd., (2018) 14 SCC 783, the court reaffirmed that arbitration can proceed alongside SARFAESI proceedings, provided that these remedies are not mutually exclusive or contradictory in purpose.
On the issue of non-arbitrability under the RDDB Act, the High Court dismissed the Respondents’ argument, highlighting that Tata Capital, as a Non-Banking Financial Company (NBFC), was not authorized to initiate proceedings before the DRT under the RDDB Act. The court reasoned that the arbitration process, initiated on the basis of the 2019 Sanction Letter, was separate from the larger debt claims that might be handled through statutory channels.
Addressing the Respondents’ contention that Tata Capital had waived its arbitration rights, the High Court found no merit in this argument. The court emphasized that merely initiating parallel proceedings does not amount to an automatic waiver of arbitration rights, especially when the claims in arbitration are distinct from those in statutory proceedings. In its examination under Section 11, the court clarified that questions of non-arbitrability should primarily be resolved by the arbitral tribunal itself, and therefore appointed an arbitrator to resolve the matter.
Key Takeaway
In Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1, the Supreme Court delivered a landmark judgment clarifying arbitrability. The Court held that issues involving public rights or matters requiring specific judicial oversight are non-arbitrable, while purely private disputes are arbitrable. The Court established a fourfold test for determining arbitrability. Invoking SARFAESI or other statutory remedies does not automatically waive an arbitration clause or render a dispute non-arbitrable — the key question is whether the statutory and arbitral remedies are mutually exclusive.
Delhi High Court — Court sets aside arbitral award due to the arbitrator’s failure to disclose a subsequent appointment in writing and ex parte receipt of documents, holding these to be serious violations of Sections 12 and 24(3) of the Arbitration Act.
A dispute arose from a Concession Agreement granting FLFL the right to develop and operate retail outlets at airports, including the Chaudhary Charan Singh Airport in Lucknow. FLFL alleged that delays caused by AAI in obtaining necessary security clearances prevented it from operating its outlets fully, leading to claims for a concession fee refund totaling over INR 4 crores. An arbitrator awarded FLFL a partial sum, which FLFL challenged under Section 34, citing two major procedural grievances: failure to disclose the arbitrator’s subsequent appointment by AAI, and ex parte receipt of documents post-reservation of the award.
The petitioner argued that after reserving the award, the arbitrator accepted a new appointment in another arbitration for AAI without disclosing this in writing, as mandated by Section 12 of the Arbitration Act. This omission, FLFL claimed, compromised the arbitrator’s independence, as continuous disclosure of potential conflicts is required throughout the arbitration. The petitioner further contended that receiving ex parte documents from AAI without timely notice denied it a fair opportunity to respond, violating Section 24(3) of the Act, which requires equal access to evidence.
The High Court ruled that the arbitrator’s failure to disclose the subsequent appointment in writing breached Section 12(2), which demands ongoing, written disclosures of conflicts of interest. A telephonic disclosure was deemed inadequate and contrary to statutory requirements. Citing Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., 2016 SCC OnLine Del 6568, the Court found that this lack of transparency raised valid concerns about the arbitrator’s independence, undermining the legitimacy of the award. The Court also agreed that receiving and considering ex parte documents from AAI without notifying FLFL violated principles of natural justice. The Delhi High Court set aside the arbitral award, holding that both violations were serious procedural breaches under the Arbitration Act.
Key Takeaway
Section 12 of the Arbitration and Conciliation Act, 1996, mandates ongoing written disclosure of conflicts of interest by arbitrators throughout the proceedings — a telephonic disclosure is legally insufficient. Section 24(3) requires equal access to evidence for all parties; receiving and considering ex parte documents violates natural justice. Either violation, if proven, can justify setting aside an arbitral award under Section 34.
Delhi High Court — Court reaffirms the limited scope of writ jurisdiction under Article 227 in arbitration matters, holding that procedural grievances and bias allegations must be addressed through the Arbitration Act’s own statutory mechanisms.
The case arose from a dispute between Agarwal Associates, a prominent real estate developer, and Sharda Developers over an infrastructure project. Agarwal Associates filed a writ petition, seeking intervention on procedural grounds and alleging bias on the part of the arbitrator, requesting that the High Court set aside the proceedings. The question before the Delhi High Court was the extent to which a High Court could exercise its writ jurisdiction to interfere with ongoing arbitration proceedings.
The Delhi High Court dismissed the writ petition, underscoring the limited scope for judicial intervention in arbitration matters, particularly when adequate remedies exist within the Arbitration Act. The Court emphasized that writ jurisdiction should be exercised sparingly in cases concerning arbitration, with intervention restricted to instances where there is a clear and substantial violation of fundamental rights or a patent lack of jurisdiction. The Court noted that the grounds presented by Agarwal Associates — allegations of bias and procedural lapses — did not meet the high threshold required for writ intervention, as these issues could be effectively addressed through mechanisms under the Arbitration Act itself.
Citing the Supreme Court’s rulings in Puri Investments v. Young Friends & Co., 2022 SCC OnLine SC 283 and IDFC First Bank Limited v. Hitachi MGRM Net Limited, (2023) 3 HCC (Del) 660, the High Court reaffirmed that arbitration proceedings should remain shielded from unwarranted judicial interference. The Court clarified that arbitration’s autonomy is a central tenet of the Arbitration Act, with built-in safeguards such as challenges to the arbitrator under Section 12 and recourse against awards under Section 34. These statutory remedies were more appropriate for Agarwal Associates’ concerns than writ intervention.
Key Takeaway
Article 227 of the Indian Constitution empowers High Courts to oversee all lower courts and tribunals within their jurisdiction. However, this supervisory power is discretionary and should be exercised only in exceptional circumstances where there is an evident miscarriage of justice or a fundamental violation of legal principles. In arbitration matters, writ jurisdiction is not intended as a substitute for the statutory remedies embedded within the Arbitration Act; parties must exhaust Section 12 (arbitrator challenges) and Section 34 (setting aside awards) before invoking writ jurisdiction.
Delhi High Court — Court addresses the scope of arbitral authority in concession agreements involving public entities, upholding the arbitral award’s interpretation of “Revenue” under the OMDA as including all pre-tax income without additional capital cost deductions.
The dispute arose between the Airports Authority of India (AAI) and Delhi International Airport Ltd. (DIAL) over the calculation of “Revenue” for determining the Annual Fee payable under the Operation, Management, and Development Agreement (OMDA). AAI contended that all forms of pre-tax gross revenue, including other income sources and without deductions for capital costs, were part of the revenue on which the fee should be based. DIAL argued that certain deductions, such as capital costs (depreciation, interest on borrowed funds, and equity returns), should be excluded.
The High Court upheld the arbitral award’s majority decision, agreeing with AAI’s interpretation that “Revenue” includes all income sources pre-tax, as specified in the OMDA. The Court emphasized that the OMDA’s clear language limited exclusions to five specific categories, without accommodating additional deductions for capital costs. Citing established principles from Transmission Corporation of Andhra Pradesh v. GMR Vemagiri Power Generation Ltd., (2018) 3 SCC 716, the Court rejected DIAL’s reliance on related agreements, noting that OMDA’s terms were self-contained and unambiguous.
The Court further supported the arbitral tribunal’s application of judicial restraint, affirming that contract language should govern unless there is ambiguity. In this instance, OMDA’s explicit definition of revenue reinforced the Annual Fee structure, maintaining AAI’s position on revenue calculation. The judgment affirms the significance of adhering to specific contractual terms, particularly in high-stakes public-private agreements, and reinforces that explicit contractual language governs financial obligations, limiting interpretative expansions absent clear contractual basis.
Key Takeaway
Operation, Management, and Development Agreements (OMDAs) are contractual frameworks used primarily in public-private partnerships where a private entity is granted the rights to operate, manage, and develop a public asset such as an airport. These agreements outline revenue-sharing mechanisms, service quality standards, and maintenance requirements. Where an OMDA defines “Revenue” with specific, limited exclusions, courts will not permit additional deductions beyond those expressly listed, reinforcing that clear contractual language governs financial obligations in PPP arrangements.
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