“The construction of an arbitration clause should start with the assumption that parties, as rational businessmen, are likely to have intended that any dispute arising out of their commercial relationship should be decided by the same tribunal.”
Lord Hoffman 1
INTRODUCTION
The nature of commercial relationships in the changing world is increasingly complex, involving multiple contracts and multiple parties, often having separate dispute resolution clauses.
Although the above extract from Lord Hoffman’s opinion in Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd. 1 was in the context of the scope of an arbitration clause, the fact remains that in certain situations, common adjudication of disputes involving multiple contracts and multiple parties serves significant public policy objectives by avoiding multiplicity of proceedings, which may result in conflicting outcomes and significantly higher costs for all parties involved.
In this context, it is important to understand the scope of two neighbouring concepts in arbitration law:
(a) composite reference and composite adjudication;
(b) consolidation of references for analogous (or consolidated) adjudication.
COMPOSITE ADJUDICATION
In Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc. 2, the Supreme Court of India recognised the principle of making a composite reference to arbitration under Section 11 of the Arbitration and Conciliation Act, 1996, as applicable (“the Arbitration Act”), before one Arbitral Tribunal, in order to avoid multiplicity of proceedings, in cases involving a single economic transaction or contracts consisting of a principal contract and its ancillary contract(s) or where the “group of companies” doctrine could be invoked to bind a non-signatory to an arbitration clause (“Chloro Controls Test”). As explained later, such a composite reference would necessarily result in composite adjudication leading to a composite award delivered by one Arbitral Tribunal.
ANALOGOUS (OR CONSOLIDATED) ADJUDICATION
However, multiple contracts may not always relate to a single economic transaction or contracts consisting of a principal contract and its ancillary contract(s) or a situation where the “group of companies” doctrine could be invoked to bind a non-signatory to an arbitration clause.
In modern commercial relationships, disputes may also arise out of multiple contracts involving multiple parties in several other situations inter alia:
(a) independent disputes raised by different parties under the same arbitration clause, though not interconnected with the disputes raised by others
(b) disputes arising out of the same (or similar) legal relationships between the parties and
(c) disputes arising out of the same transaction and/or series of transactions.
By way of specific examples, separate claims made by multiple (independent) licensees appointed under a common licence agreement [see situation (a) above] or separate claims made by multiple (independent) licensees appointed separately under identical or standard form licences [see situation (b) above] or claims made under a series of identical purchase orders between the same parties, over a period of time, each having an identical dispute resolution clause [see situation (c) above]. Such cases do not ordinarily satisfy the Chloro Controls Test.
Internationally, the trend (especially in institutional arbitration) is that disputes arising out of multiple contracts involving multiple parties that satisfy even such broader criteria should be consolidated into a single arbitration, leaving it open for the Arbitral Tribunal to conduct a composite arbitration and issue a composite award or conduct analogous (or consolidated) arbitrations and issue separate awards, depending upon the facts and circumstances of each case. The underlying principle being that by subscribing to the rules of an international arbitral institution that provide for consolidation based upon such broader criteria, the parties have consented to consolidation on that basis. For example, the rules of nearly all the leading international arbitral institutions 3 now provide for broader grounds (which would include the specific situations discussed above) for consolidation of multiple arbitrations before one Arbitral Tribunal, without impinging on the authority of the Arbitral Tribunal to issue a composite award or separate awards, depending on the specific facts of each case.
Adjudication of such disputes by a common Arbitral Tribunal, with consent of the parties, poses no difficulty at all. However, as is evident from the decision of the Delhi High Court in Gammon India Ltd. v. NHAI 4, Indian judicial precedent appears to be evolving a concept of analogous (or consolidated) adjudication of certain inter-related disputes through ad hoc arbitration by a common Arbitral Tribunal, even if the parties have not expressly consented to such consolidation. In situations involving analogous (or consolidated) adjudication, it is generally open for that Arbitral Tribunal to conduct a composite arbitration and issue a composite award or conduct analogous (or consolidated) arbitrations and issue separate awards, depending upon the facts and circumstances of each case 5.
THESIS
The Supreme Court of India has recognised one exception to this general rule in Duro Felguera, S.A. v. Gangavaram Port Ltd. 6
In Duro Felguera case 6, the Supreme Court of India was dealing with multi-contract, multi-party disputes that do not satisfy the Chloro Controls Test. Due to the interrelated nature of those multi-party and multi-contractual disputes, the Supreme Court appointed the same members to the Arbitral Tribunals constituted under separate contracts. Apparently, the decision in Duro Felguera case 6 leaves it open for those Arbitral Tribunals to conduct analogous (as opposed to composite) adjudication in such cases. However, in Duro Felguera case 6, some of the contracts were only between Indian parties, giving rise to domestic arbitrations; while one contract involved a foreign party, giving rise to an international commercial arbitration.
In India, the has created a difference between the grounds for setting aside an award arising out of a domestic arbitration and an award arising out of an international commercial arbitration, by inserting Section 34(2-A) in the Arbitration Act. Patent illegality appearing on the face of the award is now an additional ground for setting aside an award of the former category. Therefore, as a result of the difference between grounds for setting aside in respect of the two categories of awards discussed above, the Supreme Court clarified in Duro Felguera case 6 that the Arbitral Tribunal in each case would be a separate Arbitral Tribunal and would have to render separate awards under the respective contracts.
The effect of the decision in Duro Felguera case 6 was that the respective awards arising out of the domestic and international commercial arbitrations would remain subject to separate grounds of challenge under Section 34 of the Arbitration Act i.e. patent illegality appearing on the face of the award would be available as an additional ground of challenge to the domestic awards under Section 34(2-A) of the Arbitration Act.
Clearly, the Duro Felguera case 6 addresses only the peculiar situation in India, arising out of the different grounds of challenge with respect to awards arising out of the domestic and international commercial arbitrations; and where the parties have not consented to arbitration by common Arbitral Tribunal.
Based on the comparative analysis under Indian law undertaken in this article, the author’s attempt is to demonstrate that:
First, the principles laid down in Duro Felguera case 6 do not apply to those multi-contract, multi-party disputes which satisfy the Chloro Controls Test. Those cases continue to remain subject to a composite reference and a composite arbitration resulting in a composite award, in accordance with the principles laid down in Chloro Controls case 2.
Second, even in case of multi-contract, multi-party disputes which fail the Chloro Controls Test, the principles laid down in Duro Felguera case 6 are restricted only to cases where the disputes in question involve some contracts (and parties) that would lead to awards arising out of domestic arbitrations while the other contracts (and parties) that would lead to awards arising out of international commercial arbitrations.
Third, the principles laid down in Duro Felguera case 6 do not preclude the parties involved to mutually agree or consent to any other arrangement. For example, the mere adoption of the SIAC Rules in all the arbitration clauses involved might result in Rule 8 overriding any such distinction.
PRECONDITIONS FOR A COMPOSITE REFERENCE
In Chloro Controls case 2, the Supreme Court of India recognised the principles of “composite transaction” and “composite performance” as preconditions for making a “composite reference” to arbitration. The relevant extracts at paras 73 and 76 are reproduced below, in which the Supreme Court held that: (SCC pp. 683-84)
- A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The Court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the Court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the Court answers the same in the affirmative, the reference of even non-signatory parties would fall within the exception afore-discussed.
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- … Where the agreements are consequential and in the nature of a follow-up to the principal or mother agreement, the latter containing the arbitration agreement and such agreements being so intrinsically intermingled or interdependent that it is their composite performance which shall discharge the parties of their respective mutual obligations and performances, this would be a sufficient indicator of intent of the parties to refer signatory as well as non-signatory parties to arbitration. The principle of “composite performance” would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand and the explicit intention of the parties and the attendant circumstances on the other.
(emphasis supplied)
These principles were reiterated by the Supreme Court of India in Cheran Properties Ltd. v. Kasturi & Sons Ltd. 7; Ameet Lalchand Shah v. Rishabh Enterprises 8, and MTNL v. Canara Bank 9.
The jurisprudential development of this concept in India can also be noticed from several earlier decisions of the Supreme Court and High Courts.
Based upon the concept of a single economic transaction, cases involving joint causes of action, commonality of parties/interest have resulted in a composite reference. For example, in P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. 10, the Supreme Court held as follows: (SCC pp. 600-01, paras 18-19)
- In this case, the first respondent had a claim for Rs 36,98,354.73 jointly against the second respondent and the appellant. According to the first respondent, it entered into the transaction with the second respondent on the instructions of the appellant and on the understanding that the appellant will also be liable and in fact, the appellant accepting its liability, had also paid Rs 13 lakhs as part-payment. It is not disputed that the appellant and the second respondent were closely held family companies managed by the same person (Ms Kanan C. Sheth). According to the appellant the shareholdings in the appellant was Kanan C. Seth: 1,05,000 shares; Chetan M. Sheth: 45,000 shares and Jasumati P. Shah: 1,50,000 shares and the shareholdings in the second respondent Company was Kanan C. Sheth: 100 shares and Chetan M. Sheth: 100 shares.
- If A had a claim against B and C, and there was an arbitration agreement between A and B but there was no arbitration agreement between A and C, it might not be possible to have a joint arbitration against B and C. A cannot make a claim against C in an arbitration against B, on the ground that the claim was being made jointly against B and C, as C was not a party to the arbitration agreement. But if A had a claim against B and C and if A had an arbitration agreement with B and A also had a separate arbitration agreement with C, there is no reason why A cannot have a joint arbitration against B and C. Obviously, having an arbitration between A and B and another arbitration between A and C in regard to the same claim would lead to conflicting decisions. In such a case, to deny the benefit of a single arbitration against B and C on the ground that the arbitration agreements against B and C are different, would lead to multiplicity of proceedings, conflicting decisions and cause injustice. It would be proper and just to say that when A has a claim jointly against B and C, and when there are provisions for arbitration in respect of both B and C, there can be a single arbitration.
(emphasis supplied)
The decision in P.R. Shah case 10 was followed by the Bombay High Court, in Filmwaves Combine (P) Ltd. v. Kochi Cricket (P) Ltd. 11 The relevant extract is reproduced below: (Filmwaves Combine case 11, SCC OnLine Bom para 7)
- … The claim of the applicant both against the first respondent and against the partners who constituted a part of the joint venture essentially arises from the same business transaction. The first respondent is governed by the agreement dated 14-12-2010 to which it was a party. The joint venture partners as noted earlier are parties to both sets of agreement. In these circumstances, following the principle which has been laid down 10by the Supreme Court, there is no justification to relegate the Applicant to the pursuit of two independent arbitrations which would only result in a multiplicity of proceedings, which as a matter of first principle, the law must seek to obviate where that is possible. I am unable to subscribe to the contention of the first respondent that the judgment in P.R. Shah 10must be confined to the context of an institutional arbitration governed by the bye-laws of the Stock Exchange and not to an arbitration governed by a commercial agreement. There is no reason or justification why the same principle which is intended to facilitate efficacy of arbitration as a form of alternate dispute resolution should not be given effect to.
(emphasis supplied)
A similar view was recently expressed again by the Delhi High Court in RV Solutions (P) Ltd. v. Ajay Kumar Dixit 12.
- In the present case, there is clearly commonality of facts which bind the defendants together. It is the own case of the plaintiff that the defendants have in collusion with each other in a mala fide and unlawful manner acted to cause loss and damages to the plaintiff. Defendants 1 to 4 are said to be the ex-employees of the plaintiff. The said five defendants are said to have together caused loss and damages to the plaintiff. It is manifest that there is commonality of parties, commonalities of interest which would warrant that the matter be referred to arbitration. The objection of the plaintiff is without merit.
(emphasis supplied)
A COMPOSITE REFERENCE OF MULTI-CONTRACT, MULTI-PARTY DISPUTES WOULD LEAD TO A COMPOSITE ADJUDICATION AND A COMPOSITE ARBITRAL AWARD
When parties consciously chose to merge all their rival claims, contentions and disputes, in their entirety, into the arbitration clause of the wider/principal agreement because such claims, contentions and disputes are intrinsically intertwined, interdependent and intermingled; such a composite reference to arbitration would lead to a composite award. Even in cases where a composite reference is made by courts in India, it is based upon such an agreement and presumed intention of the parties and would lead to a composite award. In such cases, the composite award is rendered by one tribunal under the (single) arbitration clause of the principal (or mother) agreement, to which all parties are presumed to have subscribed. As a result, there is no concern regarding the separate grounds of challenge for such a composite award. The domestic or international nature of the composite award would depend upon the Indian or foreign identities of the parties, under Section 2(1)(f) of the Arbitration Act, who are presumed to have subscribed to the arbitration clause in the principal (or wider) agreement.
In Chloro Controls case 2, the Supreme Court of India clarified this principle as follows: (SCC pp. 715-16, para 148)
- The conduct of the parties and even the subsequent events leave no doubt in the mind of the Court that the parties had executed, intended and actually implemented the composite transaction contained in the principal agreement. The courts have also applied the Group of Companies Doctrine in such cases. As already noticed, this Court in Olympus Superstructures (P) Ltd. 13permitted reference to arbitration where there were multiple contracts between the parties, interpreting the words “in connection with” and “disputes relating to connected matters”. Besides making the reference, the Court also held that making of two awards which may be conflicting in relation to the items which are likely to overlap in two agreements could not be permitted.
(emphasis supplied)
As a matter of fact, in cases of a composite reference, the separate arbitration clauses lose their independent existence for the purpose of adjudication of such intrinsically intertwined, interdependent and intermingled claims, contentions and disputes.
Even in the absence of an express understanding with respect to composite adjudication and joinder/intervention of parties, the mere agreement of all the parties to subscribe to a common arbitration clause contained in the principle agreement, and to permit joinder/intervention of additional parties to that common arbitration clause, will ordinarily lead to an inference in favour of an agreement amongst all the parties for a composite adjudication, as opposed to separate arbitrations/awards. The following extract from International Commercial Arbitration, by Gary B. Born, is relevant:
The role of an implied agreement to consolidate arbitrations or permit joinder or intervention of additional parties has particular importance where three (or more) parties agree to the same arbitration agreement contained in the same underlying contract, but do not expressly deal with the issues of consolidation and joinder/intervention. In these circumstances, there is a substantial argument that the parties have impliedly accepted the possibility of consolidating arbitrations under their multi-party arbitration agreement and/or the joinder or intervention of other contracting parties into such arbitration.
The parties’ joint acceptance of a single dispute resolution mechanism, to deal with disputes under a single contractual relationship, reflects their agreement on the possibility of a unified proceeding to resolve their disputes, rather than necessarily requiring fragmented proceedings in all cases. 14
(emphasis supplied)
Therefore, in a case where the parties consciously agree to a composite adjudication of separate disputes under separate agreements having separate arbitration clauses, such a composite reference can only result in a composite award. Similarly, if notwithstanding (a) separate arbitration clauses in some ancillary agreement and/or (b) absence of arbitration clauses in some other ancillary agreements, the parties consciously agree to refer all their inter se disputes under all such agreements, forming part of a composite transaction, to one Arbitral Tribunal, constituted under the wider arbitration clause of the wider/principal agreement.
In any event, if the court finds that there exists a composite transaction and decides to make a composite reference of disputes under multiple agreements, to a single Arbitral Tribunal, then such composite reference can only result in a composite award.
It appears that the concept of a composite reference arising out of a composite transaction is closer to the principle of “consolidation of suits in their entirety”, recognised under Section 151 of the Civil Procedure Code, 1908. In S.C. Jain v. Bindeshwari Devi 15, the Delhi High Court held as follows: (SCC pp. 246, 248 & 250, paras 16, 21 & 25)
- The two suits if ordered to be consolidated in entirety, the court may frame consolidated issues before commencing the trial.
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- Three neighbouring concepts, often confused with each other, may be made precise. They are: (i) a direction for analogous or simultaneous hearing of the suits; (ii) consolidation of suits in their entirety; and (iii) consolidation of suits for the purpose of trial.
21.1. A direction for analogous or simultaneous hearing of the suits requires the court to take up the two suits for hearing on the same date. The identity of the suits remains distinct and independent from each other. It is not merged either wholly or even partially. The hearing takes place separately in each suit though on the same date. Such are the cases where on account of similar or same question of law arising for decision in different suits or the same material witness being required to be examined in different suits, for the sake of convenience the court directs the suits to be taken up for hearing on one day. There may be cases where in spite of the parties and or the subject-matter being different, not attracting applicability of Section 10, Section 151 CPC, the Court feels that while hearing one suit, it must keep a watch on the progress of or developments in the other suit, and therefore, directs the two suits to come up for hearing on the same day.
21.2. Consolidation of suits in entirety results into merger of the two suits into one, the two suits loosing their independent existence for all practical purposes after the order of consolidation. Take for example a suit for recovery of rent filed by the same landlord against the same tenant in respect of the same property and the same tenancy but for different periods, say three years each or take a case of two suits attracting applicability of Order 2 Rule 2 CPC but having been filed on the same day. Consolidation of suits may enable a court striking out consolidated issues. The two suits can be disposed of by one common judgment followed by one decree.
21.3. Consolidation of suits for trial merely or partial consolidation enables the evidence in the two suits being recorded in one suit only and the evidence so recorded being read in the other suit as well. In spite of the consolidated trial having taken place the two suits remain separate and distinct from each other. They may be disposed of by one judgment or two judgments on the same evidence but in any case two decrees shall have to be drawn up at the end. Take for example the case of cross suits filed on a cause of action arising out of the same transaction. One suit may be dismissed and the other may be decreed. The two decrees in the two suits will be different. One out of the two parties may appeal against one and may not appeal against the other if the bar of res judicata is not attracted while doing so. Take the case of an owner of limited estate having made several alienations in favour of different persons and the transactions having been challenged by the reversioners in different suits against different purchasers some suit may be decreed some may be dismissed though evidence may be common and common questions of law and facts arise. In spite of consolidation for trial of the suits and disposed of by the court pronouncing one or more judgments separate decrees shall have to be drawn up.
***
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- The parties have conceded to such a procedure being adopted and they cannot be allowed to resile from the same. The order for consolidation appears to be based on consent.
(emphasis supplied)
OTHER CASES OF MULTI-CONTRACT, MULTI-PARTY DISPUTES THAT DO NOT SATISFY THE CHLORO CONTROLS TEST MAY RESULT IN ANALOGOUS (AS OPPOSED TO COMPOSITE) ADJUDICATION
As explained by the Delhi High Court in S.C. Jain case 15, consolidation for analogous or simultaneous hearing or for the limited purpose of trial is a broader concept, based upon convenience, commonality of the issues and the evidence involved, in different disputes and/or references.
Unlike composite reference in cases that satisfy the Chloro Controls Test, cases involving mere consolidation of separate references under separate arbitration agreements before one Arbitral Tribunal (or separate Arbitral Tribunals consisting of the same members), for analogous or simultaneous adjudication, will not necessarily result in a composite award. Analogous or simultaneous adjudication may result in separate awards.
As discussed above, Indian judicial precedent appears to be evolving a concept of analogous (or consolidated) adjudication of certain interrelated disputes through ad hoc arbitration by a common Arbitral Tribunal, even if the parties have not expressly consented to such consolidation. For example, in Gammon India case 4, the Delhi High Court held as follows: (SCC OnLine Del paras 30, 35 & 45)
- Multiple arbitrations can be of various categories:
(i) Arbitrations and proceedings between the same parties under the same contract.
(ii) Arbitrations and proceedings between the same parties arising from a set of contracts constituting one series, which bind them in a single legal relationship.
(iii) Arbitrations and proceedings arising out of identical or similar contracts between one set of entities, wherein the other entity is common.
***
- … Thus, this Court is of the considered opinion that:
***
(iii) If an Arbitral Tribunal is constituted for adjudicating some disputes under a particular contract or a series thereof, any further disputes which arise in respect of the same contract or the same series of contracts, ought to ordinarily be referred to the same Tribunal. The Arbitral Tribunal may pronounce separate awards in respect of the multiple references, however, since the Tribunal would be the same, the possibility of contradictory and irreconcilable findings would be avoided.
***
- The issue of multiplicity in arbitral proceedings also needs to be effectively dealt with to ensure that a long-drawn arbitral journey, as in the present case, is avoided. Parties to arbitration are expected to adhere to a bona fide discipline of use of arbitral processes. There appears to be a clear need for streamlining the same. … In an attempt to further avoid multiplicity of Tribunals and inconsistent/contradictory awards, as has arisen in the present case, the following directions are issued:
***
(iii) In petitions seeking appointment of an Arbitrator/Constitution of an Arbitral Tribunal, parties ought to disclose if any Tribunal already stands constituted for adjudication of the claims of either party arising out of the same contract or the same series of contracts. If such a Tribunal has already been constituted, an endeavour can be made by the arbitral institution or the High Court under Section 11, to refer the matter to the same Tribunal or a single Tribunal in order to avoid conflicting and irreconcilable findings.
(emphasis supplied)
Therefore, in such cases, the parties can seek separate adjudication/arbitration and separate awards under each agreement but the failure to seek such separate adjudication/awards will not generally vitiate the composite or common award. Such analogous (or consolidated) adjudication is similar to the broad requirement captured by Rule 8 of the SIAC Rules, 2016.
However, as held by the Supreme Court in Duro Felguera case 6, the Arbitral Tribunal (or separate Arbitral Tribunals consisting of the same members) must render separate arbitral awards in case of analogous or simultaneous adjudication only if (a) some awards may arise out of domestic arbitrations and others may arise out of international commercial arbitrations, and (b) the parties have not consented otherwise.
In Duro Felguera case 6, both the petitioners had issued five individual arbitration notices under five separate contracts. The respondent contended before the Supreme Court that a single Arbitral Tribunal should be constituted by making a composite reference for adjudication of all disputes between the parties under all five contracts. Having found that there was no interlinking, interdependence or intermingling of these contracts, the Supreme Court held that the five separate contracts had independent existence with five separate arbitration clauses and in such a case, a composite reference was not possible. Thereafter, while appointing the same members to the respective Arbitral Tribunals constituted under the respective contracts, the Supreme Court held that in such cases (i.e. not involving “composite transaction”, “composite performance” and “composite reference”), the Arbitral Tribunals so constituted would be separate for each such agreement.
According to the author, in Duro Felguera case 6, the Supreme Court agreed to a mere consolidation of separate references under separate arbitration agreements before separate Arbitral Tribunals consisting of the same member because of a broader interrelationship of the issues arising in all the arbitrations. As discussed above, the decision in Duro Felguera case 6 appears to leave it open for those Arbitral Tribunals to conduct analogous (as opposed to composite) adjudication in such cases. Some of the relevant extracts are reproduced below: (SCC pp. 757-58, 762 & 765, paras 42-44, 55 & 60)
- The learned Senior Counsel for GPL relied upon Chloro Controls India (P) Ltd. 2, to contend that where various agreements constitute a composite transaction, court can refer disputes to arbitration if all ancillary agreements are relatable to principal agreement and performance of one agreement is so intrinsically interlinked with other agreements. Even though Chloro Controls 2has considered the doctrine of “composite reference”, “composite performance”, etc., ratio of Chloro Controls 2may not be applicable to the case in hand. … In such factual background, it was held that all agreements pertaining to the entire disputes are to be settled by a “composite reference”. The case in hand stands entirely on different footing. As discussed earlier, all five different packages as well as the Corporate Guarantee have separate arbitration clauses and they do not depend on the terms and conditions of the Original Package No. 4 TD nor on the MoU, which is intended to have clarity in execution of the work.
- Duro Felguera being a foreign company, for each of the disputes arising under New Package No. 4 and Corporate Guarantee, International Commercial Arbitration Tribunal are to be constituted. M/s Duro Felguera has nominated Mr Justice D.R. Deshmukh (former Judge of Chhattisgarh High Court) as their arbitrator. Gangavaram Port Limited (GPL) has nominated Mr Justice M.N. Rao (former Chief Justice of Himachal Pradesh High Court). Along with the above two arbitrators Mr Justice R.M. Lodha, former Chief Justice of India is appointed as the Presiding Arbitrator of the International Commercial Arbitral Tribunal.
- Package No. 6 (Rs 208,66,53,657); Package No. 7 (Rs 59,14,65,706); Package No. 8 (Rs 9,94,38,635) and Package No. 9 (Rs 29,52,85,558) have been awarded to the Indian company FGI. Since the issues arising between the parties are inter-related, the same Arbitral Tribunal, Justice R.M. Lodha, former Chief Justice of India, Justice D.R. Deshmukh, former Judge of Chhattisgarh High Court and Justice M.N. Rao, former Chief Justice of Himachal Pradesh High Court, shall separately constitute Domestic Arbitral Tribunals for resolving each of the disputes pertaining to Packages Nos. 6, 7, 8 and 9.
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- The learned Senior Counsel also contended that for convenience, it is expedient that a single Arbitral Tribunal is constituted. We are afraid that this contention also cannot be appreciated. The parties are free to agree to anything for their convenience but once such terms are reduced to an agreement, they can resile from them only in accordance with law.
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- In the case at hand, there are six arbitrable agreements (five agreements for works and one Corporate Guarantee) and each agreement contains a provision for arbitration. Hence, there has to be an Arbitral Tribunal for the disputes pertaining to each agreement. While the arbitrators can be the same, there has to be six Tribunals — two for international commercial arbitration involving the Spanish Company M/s Duro Felguera, S.A. and four for the domestic.
(emphasis supplied)
In the author’s opinion, the Supreme Court specifically acknowledged in para 55 of Duro Felguera case 6 that the parties involved may mutually agree or consent to any other arrangement, in the absence of which the Court is bound to follow the terms of the contract while making a default appointment of an Arbitral Tribunal under Section 11 of the Arbitration Act.
The principles laid down in Duro Felguera case 6 were discussed by the Supreme Court in Quippo Construction Equipment Ltd. v. Janardan Nirman (P) Ltd. 5 In that case, the claimant had commenced arbitration by invoking two separate arbitration clauses contained in distinct agreements. 5 The Supreme Court upheld a common award rendered by the same sole arbitrator under different arbitration clauses of different agreements, having noted that it was open for the respondent in that case to have requested the Arbitral Tribunal for a separate adjudication and a separate award, at the appropriate stage, which was not done.
Further, in Quippo Construction case 5 the Supreme Court also noticed that the aspect of rendering a separate or a common award in such cases assumes significance only if arbitration under one (or some) of the agreements would be an international commercial arbitration and arbitration under the other agreement(s) would be a domestic arbitration, as these factors might impact the grounds of challenge of such separate awards. The relevant extract is reproduced below: (SCC paras 22-24)
- In Duro Felguera 6the submission that for convenience of either side the original contract was split into five different contracts and as such there ought to be a composite reference to arbitration covering all the contracts was not accepted by this Court. It was found by this Court: (SCC p. 758, para 42)
“42. … The case in hand stands entirely on different footing. As discussed earlier, all five different packages as well as the corporate guarantee have separate arbitration clauses and they do not depend on the terms and conditions of the Original Package No. 4 TD nor on the MoU, which is intended to have clarity in execution of the work.”
Incidentally, it was a case of International Commercial Arbitration and in each of those agreements the seat of arbitration was at Hyderabad. Moreover, the matter had arisen from an arbitration petition preferred under Section 11(6) of the Act.
- In the present case the arbitration in question is a domestic and an institutional arbitration where CIAA was empowered to and did nominate the arbitrator. It is not as if there were completely different mechanisms for appointment of arbitrator in each of the agreements. The only distinction is that according to one of the agreements the venue was to be at Kolkata. The specification of “place of arbitration” may have special significance in an International Commercial Arbitration, where the “place of arbitration” may determine which curial law would apply. However, in the present case, the applicable substantive as well as curial law would be the same.
- It was possible for the respondent to raise submissions that arbitration pertaining to each of the agreements be considered and dealt with separately. It was also possible for him to contend that in respect of the agreement where the venue was agreed to be at Kolkata, the arbitration proceedings be conducted accordingly. Considering the facts that the respondent failed to participate in the proceedings before the arbitrator and did not raise any submission that the arbitrator did not have jurisdiction or that he was exceeding the scope of his authority, the respondent must be deemed to have waived all such objections.
(emphasis supplied)
Importantly, in Cheran Properties Ltd. v. Kasturi & Sons Ltd. 7, a three-Judge Bench of the Supreme Court has clarified that the judgment in Duro Felguera 6 does not apply to cases where the Chloro Controls Test is satisfied i.e. the contracts are interconnected and interdependent and parties have expressed a common intention to bind both signatories and non-signatories to a composite arbitration.
The decision of the Supreme Court in Duro Felguera case 6 is peculiar to the situation in India, where there is a difference between the grounds for challenge to an award arising out of a domestic arbitration and an award arising out of an international commercial arbitration.
However, one conceptual concern that arises under arbitration law is whether analogous (or consolidated) adjudication of certain interrelated multi-contract, multi-party disputes that do not satisfy the Chloro Controls Test, can be ordered by courts in ad hoc arbitration, without the parties agreeing to such consolidation. It is difficult to rely upon any presumed intention of the parties, if such cases fail to satisfy the Chloro Controls Test.
On the other hand, as the decision of the Delhi High Court in Gammon India case 4 correctly points out, there are significant public policy advantages in analogous (or consolidated) adjudication of such multi-contract, multi-party disputes, such as, saving costs, avoiding potential multiplicity of proceedings and conflicting outcomes.
Therefore, it would be advisable to make a clarificatory amendment to Section 11 of the Arbitration Act to enable courts to order analogous (or consolidated) adjudication of such multi-contract, multi-party disputes through ad hoc arbitration, in certain specified cases.
CONCLUSION
The nature and outcome of the arbitral proceeding in multi-contract, multi-party disputes will depend on the nature of reference made to the Arbitral Tribunal. For this purpose, parties must bear in mind the distinction between (a) one composite reference of several disputes to one Arbitral Tribunal; and (b) a mere consolidation of separate references under separate agreements and their respective arbitration clauses, before a common Arbitral Tribunal, for analogous or simultaneous adjudication. While the former will necessarily result in a composite award, the latter may result in separate awards under each separate agreement.
Since parties in India continue to rely upon the Duro Felguera case 6 to resist a composite reference to arbitration, it is important that Indian courts do not expand the application of the principles propounded in Duro Felguera case 6 and continue to restrict those principles to cases where:
(a) the multi-contract, multi-party disputes do not satisfy the Chloro Controls Test,
(b) the disputes in question involve some contracts (and parties) that would lead to awards arising out of domestic arbitrations while the other contracts (and parties) that would lead to awards arising out of international commercial arbitrations, and
(c) the parties involved have not agreed or consented to any other arrangement.
While the evolving concept of analogous (or consolidated) adjudication through ad hoc arbitration is a positive development; it would be advisable to make a clarificatory amendment to Section 11 of the Arbitration Act to enable courts to order analogous (or consolidated) adjudication of such multi-contract, multi-party disputes through ad hoc arbitration, in certain specified cases. In that case, like all analogous (or consolidated) adjudications, it would always be open for the Arbitral Tribunal to render a composite or separate award(s), depending on the facts of each case.
*The article has been published with kind permission of SCC Online cited as (2021) 10 SCC J-14
† The author is an Advocate practising in courts and tribunals in New Delhi, India with a practice focused on commercial litigation and arbitration; she reads as a junior in the Chambers of Mr Gaurav Pachnanda, Senior Advocate. The author gratefully acknowledges the contribution and guidance of Mr Gaurav Pachnanda, Senior Advocate in writing this article.
1 Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., [2007] Bus LR 1719 at p. 1725, para 13 (HL).
3 For example, see Rule 8 of the SIAC Rules, 2016; Article 28 of the HKIAC Rules, 2013; Article 10 of the ICC Rules, 2020; and Articles 22(ix) and (x) of the LCIA Rules, 2014.
4 2020 SCC OnLine Del 659 : AIR 2020 Del 132.
5 Quippo Construction Equipment Ltd. v. Janardan Nirman (P) Ltd., (2020) 18 SCC 277, paras 1, 15 to 17.
6 Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729.
2 Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641.
7 (2018) 16 SCC 413, paras 21, 23 to 28.
8 (2018) 15 SCC 678, paras 21 to 25.
9 (2020) 12 SCC 767, paras 10.1 to 10.12.
1 0 (2012) 1 SCC 594.
1 0 P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd., (2012) 1 SCC 594.
1 2 2019 SCC OnLine Del 6531 : (2019) 257 DLT 104.
2 Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641.
1 3 Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651.
1 4 Gary B. Born, International Commercial Arbitration, Second Edn., Chapter 18:“Consolidation, Joinder and Intervention in International Arbitration” (Kluwer Law International, 2014) p. 2582.
1 5 1997 SCC OnLine Del 417 : (1997) 42 DRJ 239, paras 16 and 21 to 25.
1 5 S.C. Jain v. Bindeshwari Devi, 1997 SCC OnLine Del 417 : (1997) 42 DRJ 239.
4 Gammon India Ltd. v. NHAI, 2020 SCC OnLine Del 659 : AIR 2020 Del 132.
6 Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729.
2 Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641.
2 Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641.
6 Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729.
6 Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729.
5 Quippo Construction Equipment Ltd. v. Janardan Nirman (P) Ltd., (2020) 18 SCC 277.
6 Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729.
4 Gammon India Ltd. v. NHAI, 2020 SCC OnLine Del 659 : AIR 2020 Del 132.
6 Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729.
