Delhi High Court Declines Determination of Res-judicata in Section 11 Application, Appoints Arbitrator (Via the Indian Arbitration Blog)

The Petitioner in Parsvnath Developers v. Rail Land Development Authority[1] requested the Delhi High Court to appoint a nominee arbitrator for the recalcitrant Respondent under Section 11 of the Arbitration and Conciliation Act, 1996 (the Arbitration Act), in a dispute arising out of a development agreement (the Agreement).

The Respondent resisted the Petitioner’s request on grounds that the subject matter of the present arbitral reference could and ought to have been raised in the parties’ previous arbitration under the same Agreement; which had already culminated into an award. The Respondent furthered its stance citing estoppel, res-judicata and the following provisions of Rule 2, Order II of the Civil Procedure Code, 1908 (CPC):

2. Suit to include the whole claim

    (1) Every suit shall include the whole of the claim which the plaintiff is entitled to make in respect of the cause of action; but a plaintiff may relinquish any portion of his claim in order to bring the suit within the jurisdiction of any Court.

    (2) Relinquishment of part of claim- Where a plaintiff omits to sue in respect of, or internationally relinquishes, any portion of his claim, he shall not afterwards sue in respect of the portion so omitted or relinquished.

    (3) Omission to sue for one of several reliefs- A person entitled to more than one relief in respect of the same cause of action may sue for all or any of such reliefs; but if he omits, except with the leave of the Court, to sue for all such reliefs, he shall not afterwards sue for any relief so omitted.

Explanation- For the purposes of this rule an obligation and a collateral security for its performance and successive claims arising under the same obligation shall be deemed respectively to constitute but one cause of action.”

While the Petitioner admitted the existence and conclusion of previous arbitration, the Petitioner asserted that it had expressly reserved the right in the previous arbitration to agitate the present claim in separate arbitral proceedings. Besides, the arbitral tribunal had not rendered any finding in relation to the present claim its award thereunder, thereby reserving the Petitioner’s right to raise it in separate proceedings.

The Ratio

Justice Navin Chawla, sitting singly, acknowledged that the arbitration clause in the Agreement had indeed been invoked on more than one occasion. That said, clarified the Hon’ble Judge, the grounds of res-judicata or estoppel were questions on the merit of the parties’ respective claims. Accordingly, it they were required to be determined by the Arbitral Tribunal alone on the basis of the pleadings/evidence led by the parties on the issues.

Given that the existence of the arbitration agreement was undisputed, the Hon’ble Judge observed that the arbitration agreement does not cease to exist merely due to a prior invocation. In this regard, Chawla J relied on Dolphin Drilling v. ONGC (2010), where the Apex Court observed that the arbitration clause in question was not a one-time measure and “it cannot be held that once the arbitration clause is invoked the remedy of arbitration is no longer available in regard to other dispute[s] that might arise in the future”. The Court also relied on the Supreme Court’s judgment in Indian Oil Corporation v. SPS Engineering (2011) to find that matters of res-judicata are not to be decided by the Court in its Section 11 jurisdiction. The Supreme Court’s key findings from Indian Oil Corporation are as follows:

“13. The question whether a claim is barred by res judicata, does not arise for consideration in a proceedings (sic) under section 11 of the Act. Such an issue will have to be examined by the arbitral tribunal. A decision on res judicata requires consideration of the pleadings as also the claims/issues/points and the award in the first round of arbitration, in juxtaposition with the pleadings and the issues/points/claims in the second arbitration. The limited scope of section 11 of the Act does not permit such examination of the maintainability or tenability of a claim either on facts or in law. It is for the arbitral tribunal to examine and decide whether the claim was barred by res judicata. There can be no threshold consideration and rejection of a claim on the ground of res judicata, while considering an application under section 11 of the Act.”

Additionally, Section 11(6A)[2] of the amended Arbitration Act expressly restricts the Court’s jurisdiction to determine the existence of an arbitration agreement when requested to appoint an arbitrator. Mindful of this statutory mandate, the Hon’ble Judge allowed the Petitioner’s request and appointed a retired Supreme Court Justice as the Respondent’s nominee arbitrator. The issues of re-judicata and estoppel were left open for the Arbitral Tribunal to decide.

Comment

A broad range of commercial transactions today, especially in the infrastructure and real estate sector, create continuing reciprocal obligations subsisting over a long period of time, stretching even to decades. Contracting parties are bound to enter into disputes at irregular intervals whilst nevertheless intending to achieve fruition of their ultimate commercial goals. Exhaustion of the arbitration clause on its first invocation would likely upset the continuity and stability of such transactions.

In the circumstances, Chawla J’s judgment in Parsvnath Developers is indeed a progressive development insofar it clarifies the non-exhaustibility and survival of an arbitration clause even after its first invocation the appropriate factual matrix. Incidentally, the Hon’ble Court’s restrictive application of Section 11(6A) is also in line with the Supreme Court’s recent decision in Duro Fulguera v. Gangavaram Port Limited (2017).[3] That said, the Respondent remains entitled to reagitate the questions of res-judicata and estoppel, although the arbitral tribunal will not be bound[4] by the provisions of the CPC in its examination of these issues.

This post was originally published here on the Indian Arbitration Blog. 

[1] ARB. P. 724/2018, decided on 31 October 2018.

[2] Section 11(6A)

The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.

[3] The Supreme Court’s reasoning and analysis of Section 11(6A) is problematic for other reasons, which I have previously covered here.

[4] Section 19, Arbitration Act

Determination of rules of procedure.—(1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872).

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