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ONGC v. Sime Darby: A Twisted Tale of Appeals, Amendments & Arbitration

Amishi Aggarwal and Tejas Vijay Raghav[i]


 

In its recent decision in ONGC v. Sime Darby, the Bombay High Court held that an order rejecting amendments to a set aside petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“The Act”) cannot be appealed under Section 37(1)(c). Section 34 lays down the grounds for setting aside an award. During the pendency of a Section 34 petition, parties are generally free to amend the petition as long as the amendment does not add new grounds to the petition and is filed within the limitation period under Section 34(3). Section 37(1)(c) allows appeals against orders setting aside or refusing to set aside an award under Section 34. While the scope of Section 37(1)(c) has been recently extended to include appeals against orders refusing to condone delay in filing Section 34 petitions, it was unclear whether the same logic can be extended to orders refusing to allow amendments to a Section 34 petition. It is this ambiguity that the High Court has addressed in the case of ONGC v. Sime Darby.


Accordingly, this post strives to critically analyze the aforementioned judgement. To facilitate the analysis, it begins with a concise discussion of the contentions of the parties and the decision of the Court. The next part of the post critiques the judgement, and argues firstly, that the High Court’s decision to disallow appeals against orders refusing amendments to Section 34 applications is in conformity with the spirit of India’s Arbitration Act. Secondly, it argues that the decision strikes a perfect balance between the rights of the parties aggrieved by the refusal of amendment and the interests of efficiency.


Brief Summary of the Case


The primary question before the Court was whether an appeal, filed against a prior order rejecting amendments to a set aside petition, is maintainable under Section 37(1)(c) of the Act. Sime Darby (“Respondent”) relied on the Supreme Court’s ruling in BGS Soma to argue that for an appeal against an order to be maintainable under Section 37(1)(c), the order must refuse to set aside an arbitral award after the grounds laid out in Section 34 have been applied to the award. This means that the impugned order must adjudicate under the grounds set out in Section 34, and the refusal to set aside cannot be due to any other procedural grounds.


ONGC (“Appellant”) based its primary argument on the ‘Effect Test’ propounded in Chintels India. In that case, the Supreme Court had allowed an appeal against the refusal to condone the delay in filing the set aside petition under Section 37(1)(c). The Court reasoned that the effect of the refusal to condone delay was that the set aside petition comes to an end. This effectively means that the set aside petition is rejected, thereby making the order appealable under Section 37(1)(c). Similarly, in ONGC v. Sime Darby, the Appellant argued that the effect of the rejection of the amendment is that the challenge to the award is foreclosed with respect to the grounds the amendment intended to introduce. Thus, the rejection of the amendments is in effect a refusal to set aside the award to that extent, which falls under the ambit of appealable orders under Section 37(1)(c).


The Bombay High Court held that the Appellant could not rely on the Effect Test to maintain an appeal under Section 37(1)(c) of the Act. The Court noted that under Section 34, an arbitral award must be set aside or refused to be set aside for an order to be appealable under Section 37(1)(c). The rejection of the amendment application would not result in a rejection of the Section 34 petition itself, rendering the Effect Test inapplicable. When an amendment application is rejected, the original set aside petition still subsists and does not come to an end. The Court also noted that allowing appeals to rejection of amendment would further delay the enforcement of the award. Further, the Court observed that the Appellant is not left remediless by the dismissal of the appeal.


Conformity to the Spirit of the Act


An appreciable point of the judgement is that it forwards the objective of the Arbitration Act, and is in full conformity with the spirit of the Act. Firstly, the judgement gives full effect to the wording of Section 37, and secondly, it forwards the objects of efficiency and minimum court intervention, in line with Section 5.


(1) Effective application of Section 37


Before proceeding with the analysis with respect to Section 37 of the 1996 Act, it is pertinent to set out the context behind the provision. While the Arbitration Act, 1996 is based on the UNCITRAL Model Law, it retained some of the provisions of the Arbitration Act of 1940. Section 37 of the 1996 Act is one such provision, which is a modified version of Section 39 of the 1940 Act. Section 39(1)(vi) of the 1940 Act allowed appeals against orders “setting aside or refusing to set aside an award.” Section 37(1)(c) of the 1996 Act allows appeals against orders “setting aside or refusing to set aside an arbitral award under Section 34.” The discernible difference between these two provisions is the addition of the words “under Section 34.” Section 37(1)(c) of the 1996 Act, therefore, restricts the scope of orders that can be appealed to those which have been set aside or refused to be set aside specifically under Section 34 and not through any other means.


According to Section 34, an award may be set aside “only if” the award or the arbitral process violated one of the grounds listed therein. These grounds clearly do not include rejection of an amendment application. Therefore, rejection of the set aside petition in this case would not be after the application of the grounds specifically provided in Section 34, as required by Section 37 for the set aside to be appealable. Hence, apart from the Court’s observation that the set aside application is not rejected merely by rejection of the amendment application, the appeal would in any case not have been maintainable under Section 37.


In essence, this is what justifies the Respondent’s argument as well. The specific inclusion of the words “under Section 34” in the 1996 Act underlies the Supreme Court’s decision in BGS Soma, where it held that the rejection of a set aside application is appealable under Section 37(1)(c) only after the “Court applies its mind to Section 34 of the Arbitration Act, 1996, as against preliminary orders like condonation of delay.”


The Appellant had relied on the Effect Test propounded in Chintels India to counter the rationale of BGS Soma. This was the first time that the Effect Test was relied on to argue for the maintainability of an appeal against the rejection of an amendment to a set aside application. However, the Effect Test is not only inapplicable due to the subsistence of the set aside application but has independent defects of its own. The Effect Test conflates the difference between Section 39(1)(vi) of the 1940 Act and Section 34(1)(c) of the 1996 Act. The Court attempted to interpret Section 37(1)(c) of the 1996 Act relying on the scheme and intent behind Section 39(1)(vi) of the 1940 Act. However, this conflation leads to ignorance of the fact that the inspirations and objectives of the 1940 and the 1996 Act are inherently different. While the 1940 Act was manifestly suspicious towards a private dispute resolution mechanism, the 1996 Act was intended to be a progressive legislation based on the UNCITRAL Model Law. Therefore, any provision of the 1996 Act cannot be interpreted using the provisions 1940 Act. The decision in ONGC v. Sime Darby steers clear of any such conflation, and in fact, interprets the 1996 Act independently.


(2) Efficiency and Minimum Court Intervention


The judgement notes that arbitration proceedings “have to be concluded with expeditiousness and the challenges to be kept minimum.” If an appeal against the rejection of amendments were allowed, the award-debtor could keep filing applications for amendment and on rejection, file an appeal against the same, delaying the proceedings endlessly. Section 5 of the 1996 Act clearly provides that “(…) no judicial authority shall intervene except where so provided in this Part.” This embodies the cardinal principle of efficiency and minimum court intervention, which is one of the main objectives of commercial arbitration. This has also been explicitly acknowledged in the Statement of Objects and Reasons for the 1996 Act. The judgement unequivocally emphasizes on the importance of efficiency in arbitration and supports its reasoning on the same principle.


Balancing Rights of Aggrieved Parties with Interests of Efficiency


The Court recognized that while an appeal against an order rejecting amendments cannot be maintained under Section 37, the parties cannot be rendered remediless altogether. Therefore, the Court suggested that a party could bring up the issue pertaining to rejection of amendments in the appeal under Section 37, after an arbitral award has been set aside.


As recognized earlier in Raghuvir Cotton Ginning v. Messrs. Vijay Cotton and Fibre Co, not allowing appeals against orders rejecting amendments, especially those which are linked to the root of the matter, could result in a situation of hardship and injustice for the appellant party. However, efficiency is also an important consideration. If appeals against rejection of amendments were allowed, an award-debtor with dilatory intentions could continuously file appeals and cause an indefinite delay in the proceedings. The remedy proposed by the Bombay High Court is appreciable as it takes a perfect middle path between protecting the rights and interests of parties and ensuring expeditiousness in the arbitration process.


Conclusion


ONGC v. Sime Darby marks a positive development for arbitration in India. The arbitration regime in India has been criticized largely due to the attitude of suspicion and intervention adopted by Courts, coupled by recent legislative amendments which discernibly increase the time between the making of an award and its enforcement. However, this decision positively sticks to the original intent of the 1996 Act and attempts to ensure quicker decisions on set aside.


 

Amishi Aggarwal and Tejas Vijay Raghav are third year students at NALSAR University, Hyderabad. They have a keen interest in commercial laws. For any discussion related to the article, they can be contacted via mail at amishi.117@nalsar.ac.in and at tejas.raghav@nalsar.ac.in




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