Publication

In M/S Schindler India Pvt. Ltd. vs. Parnika Commercial & Estates Pvt. Ltd., the Delhi High Court dismissed Schindler’s plea to restrain Parnika from invoking two bank guarantees related to a lift and escalator installation contract. The court held that the Advance Bank Guarantee was unconditional and must be honored, as no fraud or special equity was shown. The Performance Bank Guarantee, though conditional, was based on alleged non-performance, which must be assessed by an arbitral tribunal. Emphasizing that performance disputes are not for interim adjudication, the court allowed Parnika to encash both guarantees and vacated its earlier interim stay.

The Appellant filed appeals under Section 37 of the Arbitration and Conciliation Act, 1996, challenging a judgment that set aside arbitral awards rejecting excise duty reimbursement. The High Court held the awards were patently illegal, as the contract terms clearly allowed reimbursement without requiring direct tax authority payment. The Appellant argued that the Single Judge overstepped the limited scope of interference under Section 34 by re-evaluating evidence and contract terms, while the Respondent countered that the arbitral award misinterpreted an unambiguous clause. The Court clarified that appellate review under Section 37 must ensure Section 34 jurisdiction was lawfully exercised.

The petitioner challenged a 2019 arbitral award under Section 34 of the Arbitration and Conciliation Act, which held it jointly liable with another party to pay ?6.56 crore plus 38.85% interest to Respondent No. 1, stemming from a coal handling project. Though not an original signatory, the petitioner was found liable under the “Group of Companies” doctrine due to its active role, including issuing work orders and payments. It argued lack of jurisdiction under the MSMED Act and absence of privity of contract. The court rejected these claims, noting the petitioner’s participation and holding the petition time-barred and procedurally flawed.

In a strong and detailed dissent, Justice K.V. Viswanathan disagreed with the majority on most substantive points. According to him, Section 34 of the Arbitration Act does not permit modification of arbitral awards, and courts should not assume such powers unless explicitly provided by statute.

He asserted that Section 34 provides only one remedy: setting aside an award. Allowing modification would mean that courts are re-writing the arbitral award, which strikes at the very ethos of arbitration—that is, party autonomy, finality of the award, and minimal court intervention.

Justice Viswanathan also rejected the argument that courts can modify awards by invoking Article 142 or Section 151 of the Civil Procedure Code. He emphasized that:

• Article 142 cannot override substantive statutory provisions.
• Section 151 CPC (inherent powers of the court) does not empower courts to modify awards, as this would go against the express language of Section 34.
• The doctrine of implied powers cannot be invoked to read into Section 34 what is not explicitly stated.

He warned that recognizing such powers would result in uncertainty, particularly in the enforcement of foreign arbitral awards, and dilute India’s reputation as an arbitration-friendly jurisdiction. He agreed only on the point that clerical or typographical mistakes could be corrected under Section 34. Justice Viswanathan concluded that set-aside and modification are distinct remedies and one cannot be read into the other.

The Supreme Court, while dismissing appeals by Larsen and Toubro (L&T) and Puri Construction Limited (PCL), expressed concern over unnecessarily long oral and bulky written submissions in arbitration cases. Emphasizing the limited jurisdiction under Sections 34 and 37 of the Arbitration Act, the Court criticized the tendency of lawyers to argue as if in regular civil appeals and overload hearings with irrelevant citations. The Bench stressed the need for time limits on arguments to ensure efficiency and fairness. The Court upheld the termination of the development agreement between L&T and PCL and called for introspection by the legal community.