Delhi High Court decides upon the efficacy of multiple arbitrations arising under the same contract resulting in multiplicity of proceedings

The Delhi High Court on June 23, 2020 in the case of Gammon India Limited v. National Highway Authority of India, decided upon the efficacy of multiple arbitrations arising under the same contract resulting in multiplicity of proceedings and its subsequent effect on the arbitral awards which is rendered. Brief facts of the case In the instant case, the Gammon India (“Petitioner”) and the National Highways Authority of India (“Respondent”) had appointed three separate arbitral tribunals which adjudicated different disputes and claims arising out of a single construction contract for the work of widening to 4/6 lanes and strengthening of existing 2 lane carriageway of NH-5 in the State of Orissa. The first, second and third arbitration were invoked on December 23, 2008, respectively. Out of the three awards, two awards i.e. the first and the third, had attained finality. The Petitioner had filed the instant petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) challenging the second award basis the findings of the arbitral tribunal in the third award. Observations of the court The Delhi High Court while acknowledging that the perusal of the provisions of the Act stated that the statute envisages that disputes can be raised at different stages and there can be multiple arbitrations in respect of a single contract, however, criticized such multiplicity of arbitral forums arising out of single contract and adjudicating upon overlapping disputes functioning parallelly. The court further held that The endeavor of courts in the domain of civil litigation is always to ensure that claims of parties are adjudicated together, or if they involve overlapping issues, the subsequent suit is stayed until the decision in the first suit. It is with the intention of avoiding multiplicity that the principles enshrined in Order 2 Rule 2 of the Code of Civil Procedure (“CPC”), Section 10 of CPC and res judicata are a part of the CPC from times immemorial. As arbitral proceedings are strictly not governed by the CPC, it is possible for parties to invoke arbitration as and when the disputes arises. However, the important point for consideration herein is if the same be permissible without any limitation and ignoring the principles of public policy as enshrined in these provisions. Multiple arbitrations before different arbitral tribunals in respect of the same contract is bound to lead to enormous confusion. The constitution of multiple tribunals in respect of the same contract would set the entire arbitration process at halt, as the purpose of arbitration being speedy resolution of disputes, constitution of multiple tribunals is inherently counter-productive. Considering that a previously appointed tribunal was already seized of the disputes between the parties under the same contract, the constitution of three different tribunals was unwarranted and inexplicable. A situation where, multiple arbitral tribunals parallelly adjudicate different claims arising between the same parties under the same contract, especially raising overlapping issues, should be clearly avoided. The underlying ratio in the case of Dolphin Drilling Limited . v. ONGC, AIR 2010 SC 1296, enumerates that all disputes that are in existence when the arbitration clause is invoked, ought to be raised and referred at one go. Though, there is no doubt that multiple arbitrations are permissible, it would be completely contrary to public policy to permit parties to raise claims as per their own convenience. It is possible that subsequent disputes may arise which may require a second reference, however, if a party does not raise claims which exist on the date of invocation, it ought not to be given another chance to raise it subsequently unless there are legally sustainable grounds. Decision by the court The Delhi High Court while disallowing the instant petition held that at the time of hearing a petition under Section 34 of the Act, it would be incongruous to hold that a finding in a subsequent award would render the previous award illegal or contrary to law. The award would have to be tested as on the date when it was pronounced, on its own merits, and not on the basis of subsequent findings which may have been rendered by a later arbitral tribunal. Also, in an attempt to further avoid multiplicity of tribunals and inconsistent/contradictory awards, as had arisen in the instant case, the following directions were issued by the court In every petition under Section 34 of the Act, 1996 (“Section 34 petition”), the parties approaching the court ought to disclose, whether, there are any other proceedings pending or adjudicated in respect of the same contract or series of contracts and if so, what is the stage of the said proceedings and the forum where the said proceedings are pending or have been adjudicated. At the time when a Section 34 petition is being heard, parties ought to disclose as to whether any other Section 34 petition in respect of the same contract is pending and if so, seek disposal of the said petitions together in order to avoid conflicting findings. 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 endeavor can be made by the arbitral institution or the High Court under Section 11 of the Act, to refer the matter to the same tribunal or a single tribunal in order to avoid conflicting and irreconcilable findings. Appointing authorities under contracts consisting of arbitration clauses ought to avoid appointment or constitution of separate arbitrators/arbitral tribunals for different claims/disputes arising from the same contract, or same series of contracts. This update has been contributed by R. Sudhinder (Senior Partner) and Pierre Uppal (Associate). Download Pdf