The Supreme Court recently held that there cannot be a single arbitration reference for disputes arising out of different agreements, even if they are inter-linked to a single transaction.
In M/s Duro Felguera SA V M/s Gangavaram Port Ltd, a developer of a green-field sea port near Gangavaram village in Visakhapatnam district in Andhra Pradesh state, in 2011 granted a contract as per tender/bid to Spanish company Duro Felguera Plantas Industrials S.A. – now Duro Felguera (DF) – along with its Indian subsidiary Felguera Gruas India (FGI), which had submitted a single bid/tender-original package No. 4 tender document. The original package No. 4 tender document was split up into five separate contracts after discussions, with different job descriptions. Four of the contracts were with FGI and one of them was with DF. Each contract had a separate arbitration clause.
Gangavaram Port Ltd (GPL) in 2016 invoked a bank guarantee given by DF due to an inordinate delay. GPL had also issued termination notices in 2016 to DF and FGI. FGI then issued four arbitration notices and DF issued one arbitration notice under the respective agreements separately nominating their nominee arbitrator. GPL issued a comprehensive arbitration notice nominating its nominee arbitrator contending that five arbitration notices issued by DF and FGI were untenable, since DF had guaranteed the performance of the works covered under all the five packages and there has to be only one single arbitral tribunal for resolving the disputes of “international commercial arbitration”.
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The Supreme Court rejected the course of action adopted by GPL in issuing a comprehensive notice, and held that after amendments to the 1996 act in 2016, as per section 11 (6A), the power of the court is confined only to examining the existence of the arbitration agreement. Since the dispute between the parties arose in 2016, the amended provision of sub-section 6A of section 11 must govern the issue. The court observed that the dispute with respect to DF was an international arbitration, whereas the disputes with respect to FGI were domestic. The court then disposed of arbitration petitions with observations that there are six arbitrable agreements and each agreement contains a provision for arbitration. Hence, there has to be an arbitral tribunal for the disputes pertaining to each agreement. The arbitrators can be the same, but there has to be two tribunals for international commercial arbitration involving DF and four for the domestic company.
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The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
