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APPOINTMENT OF ARBITRATOR IN CONSOLIDATED CLAIMS

Updated: Feb 9

by Ashish Kumar, Swastika Chakravarti *












In the recent judgement of Godrej & Boyce Mfg. Co. Ltd vs Shapoorji Pallonji and Company Pvt. Ltd., the Hon’ble Calcutta High Court (“CHC”) had observed that under Section 21 of the Arbitration and Conciliation Act 1996 (“the Act”), a single composite invocation of Arbitration arising from three different purchase orders having similar but separate arbitration clauses, cannot be termed as unlawful or invalid. The CHC observed that all the three purchase orders were issued on different dates, but they were issued for the Respondent’s performance of a single parent contract and the court appointed an Arbitrator under Section 11 of the Act.

Factual Background and Contentions


There was a dispute between the parties over non-payment of the outstanding amount of money for furniture sold by the Petitioner under three different purchase orders which were supplied in West Bengal. As a result, the Petitioner consolidated the claims (for all three different purchase orders) and invoked Arbitration under Section 21 of the Act, filing an Application under Section 11 of the Act for appointment of an Arbitrator. The Respondent disputed that the dates of all three purchase orders were not the same, and they were independent contacts therefore, three separate invocations of arbitration would be required in order to constitute a valid invocation as each purchase order had a separate arbitration clause and the Petitioner was required to file three separate Applications under Section 11 of the Act. To this, the Petitioner asserted that all three purchase orders originated from the Respondent's performance of a single primary contract ("Main Contract") between the Respondent and its Employer. Further, the Petitioner contended that the ineffectual payment was released by the Respondent in a consolidated manner and that the Respondent treated the outstanding dues as a consolidated claim in its communications.

Issues

In this case, the CHC decided the issue of whether a common invocation of arbitration under Section 21 of the Act, for three separate contracts would be valid and whether a single application under Section 11 of the Act instead of three separate applications for the three separate contacts would be maintainable.

The High Court's Order


The CHC observed that although there are separate arbitration clauses in all three purchase orders (of different dates), the language of the arbitration clauses was ‘identical’. The Calcutta High Court observed that the Respondent issued three purchase orders to fulfill its contractual obligations with its employer, the West Bengal Medical Service Corporation Ltd., as specified in the Main Contract between them. The court also noted that there was a clear link between the performance of the Main Contract and the purchase orders. According to the Main Contract, the Petitioner was required to provide information and attend meetings concerning disputes that may arise from the purchase orders issued by the Petitioner under the Main Contract.
While drawing a link between the purchase orders and the Main Contract, the CHC also noticed that both the parties referred to a consolidated claim of the Petitioner in their communications and that the emails exchanged between them also referred to a consolidated amount of claim and to the dispute as “the issue”. To support his contention, the Petitioner relied on Duro Felguera, S.A. v. Gangavaram Port Limited, in which separate arbitrators were appointed for six separate arbitrable agreements, two providing for international commercial arbitration and four for domestic; and the Supreme Court had observed that the same arbitrators can be the same for the matter.
The CHC took a note of the discussion in NTPC Ltd vs SPML Infra Ltd while quoting Vidya Drolia vs Durga Trading Corporation case which prescribes that the underlying scheme of the Act is quicker and efficient resolution of disputes for which the court, under Section 11 of the Act, may embark upon an “intense yet summary prima facie review”. The CHC held that the contours laid down in the cited judgments cannot be lost sight of, and in the examination of the existence and validity of the arbitration clause, the scope of inquiry can definitely touch the two pivots - the arbitration clause and the nature of the dispute. The CHC held that in the present case, the invocation under Section 21 of the Act is merely a culmination of the communications leading up to the dispute, which clubbed the claims under the different purchase orders as a consolidated amount.
The CHC held that where the arbitration clauses in different contracts relate to a Single Main Contract- indirectly through reference- the arbitral reference for a single consolidated may be incidental and will fall in the category of "disputes which have arisen or may arise" as envisaged in section 7 (1) of the Act. The CHC held that the expression "may arise" in section 7(1) of the Act is wide enough to encompass not only the specific disputes spelt out in the invocation, but also the disputes which may reasonably arise out of those.
The CHC allowed the application, appointing an arbitrator thereby allowing the consolidation of disputes pertaining to the three different purchase orders.

Analysis


The CHC in upholding the consolidated invocation of arbitration and a single application for appointment of arbitrator has effectively allowed the consolidation of disputes under three different arbitration agreements. This has been done on the grounds that all three purchase orders contained identically worded arbitration clauses and were interlinked and formed part of one single economic transaction. The CHC’s decision is in line with the orders passed by the Supreme Court of India. The Apex Court has held in the case of Chloro Controls India Private Limited v. Severn Trent Water Purification Inc (“Chloro Control”) that the court has the power to include and make a composite reference to arbitration when the agreements were executed on the same day and for the same purpose in continuation of main contract. This allows disputes (in some specific circumstances) to be combined into a single arbitral action, eliminating the need for multiple separate proceedings, which in turn avoids conflicting decisions and is more cost-efficient for the parties. In Chloro Control, the Supreme Court discussed that the consolidation of arbitrations can be permitted in the following circumstances and or in a combination of these circumstances:
Where the contracts involved consist of a main/parent contract and an ancillary contract.
Where the doctrine of "group of companies" can be invoked, indicating a close relationship among various entities involved in the transactions; or
Where the disputes arise from a single economic transaction.
Similarly, in Ameet Lal Chand Shah vs. Rishabh Enterprises, the Supreme Court referred the parties under separate but related agreements to a single arbitration, holding that the consolidation was permissible as all the agreements in question were connected and related to the construction of a solar power plant, forming a single economic endeavor. The same rationale was reiterated by the Delhi High Court in Global Infonet v Lenovo, where it was held that the three arbitration agreements were ancillary to the three principal distribution agreements, which formed a common transaction involving several parties and the court allowed consolidation of proceedings. In M/S Tantia Constructions Limited v. Union of India, the Supreme Court of India held that there cannot be two separate arbitral proceedings in case of same transaction or contract.
However, one limitation of this power of consolidation is that if different agreements provide for domestic and international arbitrations respectively, then they cannot be consolidated in a single arbitration proceeding as was held in Duro Felguera, S.A. v. Gangavaram Port Ltd.

Cross Jurisdictional Analysis


Institutional Rules also permit the consolidation of arbitrations. For instance, Rule 6 of Delhi International Arbitration Centre Rules allows consolidation of proceedings if the dispute is identical or between the parties or between the parties having common interest and if the dispute arises out of same transaction. Under the The London Court of International Arbitration Rules (2020), Article 22A, the LCIA Court may consolidate multiple arbitrations into a single arbitration if the parties agree to consolidation or if the claims arise from the same legal relationship(s) and are made under compatible arbitration agreements. Similarly, under the Singapore International Arbitration Centre Rules (2016), Rule 8.1, the SIAC may consolidate arbitrations if the parties agree to the consolidation and if the claims are made under the same arbitration agreement(s), or if the claims are made under multiple compatible arbitration agreements arising from the same legal relationship(s).

Conclusion


In conclusion, the recent judgment of Godrej & Boyce Mfg. Co. Ltd vs Shapoorji Pallonji and Company Pvt. Ltd. by the Hon’ble Calcutta High Court reaffirms the validity of a single composite invocation of arbitration arising from three different purchase orders with similar but separate arbitration clauses. The court allowed consolidation of disputes under the three different purchase orders, considering them as part of a single economic transaction and interlinked with the main contract. This decision aligns with the Supreme Court's approach in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc., permitting consolidation under specific circumstances, such as related agreements forming a single economic endeavor. Overall, the judgment promotes efficiency, avoiding multiple proceedings and conflicting decisions, while ensuring a quicker and cost-effective resolution of disputes.

*Ashish Kumar is a student at NMIMS School of Law, Bangalore and Swastika Chakravarti is an Advocate at Delhi High Court at the time of publication of this blog.


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