Arbitration venue to green clearance, key court orders from last week

SC quells row over arbitration venue

Though arbitration clauses are often drafted by the best legal brains, basic issues like jurisdiction of courts is a matter of frequent discord. Nomenclatures like ‘juridical seat’ of arbitration, or the ‘venue’, are hotly contested points of interpretation. In the latest case before the Supreme Court, BGS SGS Soma JV vs NHPC, these issues had to be decided in a hundred-page judgment. NHPC gave a contract to BGS for a hydroelectric project on the river Subansri in Assam, with an installed capacity of 2000 MW, stated to be the largest such project yet in the country. Disputes arose over payment and an arbitration tribunal, after 71 sittings spread over five years, awarded Rs  42,47,052,126.66 to the contractor. It was challenged by NHPC in a Faridabad (Haryana) court. The contractor stated that the arbitration clause stated it would be held in “New Delhi/Faridabad” and it should be held in New Delhi. The project was in Assam; therefore, one party moved the court there. The Faridabad commercial court ruled that the matter should go to New Delhi. On appeal, the Punjab and Haryana High Court decided that it should be before the Faridabad court alone. The contractor appealed to the Supreme Court. Allowing the appeal, the court ruled that the challenge to the award should be heard in New Delhi alone.

Court can’t sell assets under IBC process

The Supreme Court has reiterated that once the National Company Law Tribunal (NCLT) starts a corporate insolvency resolution process, it is not open to a high court to auction the properties of the corporate debtor or pass an order that goes against the moratorium. The court made these observations in the judgment in Anand Rao vs Varsha Fabrics. The Orissa High Court had ordered an auction of the properties of Hirakud Industrial Works, the corporate debtor. The resolution professional moved the Supreme Court against that order. The court stated that “in view of the provisions of the Insolvency and Bankruptcy Code, the high court ought not to have proceeded with the auction of the property of the corporate debtor once the proceedings had commenced, and an order declaring moratorium was passed by the NCLT.” Parallel proceedings concerning the main issue cannot take place in the high court. If assets are alienated during the proceedings, it will seriously jeopardise the interest of all stakeholders, the court said. 

Environment clearance for expansion

When a builder gets environmental sanction to raise a residential project and then expands it substantially, it should apply for fresh environment clearance from the pollution control authorities. “Any form of expansion, necessarily, puts a strain on the local environment and infrastructure and needs to be carefully evaluated in a holistic manner,” the Supreme Court stated in its judgment in the case Keystone Realtors vs Anil Tharthare. In this case, the builder got sanction for an 8,720-sq metre plot in Mumbai. Later, the project expanded 32,395 sq metre. Once again it was increased to 40,480 sq metre. More flats were built and sold by the builder. This was challenged by one resident alleging that the sanction of the authorities was against the environmental regulations. The authorities maintained that there was “only marginal increase”, which did not require fresh sanction. The dispute moved to the National Green Tribunal, while the project was completed. In view of the fait accompli, the tribunal imposed a fine of Rs 1 crore on the promoter and appointed a committee to evaluate the environmental impact. This was upheld by the Supreme Court, which also asked the committee to explore “the compensatory exaction to be imposed on the builder”.

Trusts don’t come under consumer law

The Supreme Court ruled last week that employees of ONGC, which formed a trust for their benefit, are not “consumers” of the trust for purposes of the Consumer Protection Act. The scheme is managed and run by a trust and not by ONGC. There is virtually no privity of contract for providing service between ONGC and the claimants. The scheme is also voluntary and optional. The court emphasised that there is no relationship of consumer and service provider between the claimants and ONGC. The Gujarat state consumer commission and the national commission had accepted the consumer complaints of the employees and ordered ONGC to pay amounts to the employees. On appeal (ONGC vs Consumer Education & Research Society), the court held that the employees are not consumers. However, they will be paid according to the commission orders as the public sector corporation had agreed to pay the amounts. 

BHEL executives cannot be arbitrators

TThe Delhi High Court has stated that the general manager of Bharat Heavy Electricals (BHEL) or his nominee was ineligible to be appointed the sole arbitrator to adjudicate disputes between it and its contractors. This rule is to avoid suspicion of bias of the arbitrator. The Arbitration Act and Supreme Court judgments have emphasised in several cases involving public sector undertakings that their executives or nominees should not function as arbitrators. In this case, Gogoal Hydro vs BHEL, the former moved the high court as BHEL was not appointing an arbitrator in disputes over payment. The high court stated that by not appointing an arbitrator, BHEL has forfeited its right to appoint the arbitrator. It further pointed out that the arbitration clause showed the arbitrator would be the general manager of BHEL or his nominee. This was also held to be against law. Therefore, the court referred the dispute to the Delhi International Arbitration Centre, which will conduct the proceedings.

Arbitrator of AAI replaced

The Bombay High Court, in a similar case last week, emphasised that the guiding principles in arbitration are “neutrality, independence, fairness and transparency even in the arbitral-forum selection process”. In this case, Lite Bite Foods vs Airports Authority of India, disputes arose after two restaurants at Pune airport were told to change their sites. They complained that the change had caused them severe loss as they received less footfall at the new locations. The airport director of Pune appointed a retired CPWD officer the sole arbitrator. This was opposed by Lite Bite as the airport director himself was disqualified under Section 12 of the Arbitration Act and its two schedules because he was an interested party in the adjudication. Therefore, he could not nominate the arbitrator. The court accepted this argument and appointed a former chief justice of the Bombay High Court the sole arbitrator in the case.

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