Bombay High Court
Chowgule And Company Private Limited vs Fomento Commodities Pte Ltd on 18 March, 2024
Author: R.I. Chagla
Bench: R.I. Chagla
2024:BHC-OS:5245
12-IAL-30249-23.doc
Sharayu Khot.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION (L) NO.30249 OF 2023
IN
COMMERCIAL ARBITRATION PETITION (L) NO. 29959 OF 2023
Chowgule and Company Private Limited ...Applicant /
Ori. Petitioner
Versus
Fomento Commodities Pte Limited ...Respondent
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Mr. Sharan Jagtiani, Senior Counsel a/w Mr. Chirag Kamdar a/w Ms.
Shalaka Patil, Mr. Ankit Pathak and Ms. Surbhi Shah i/by Trilegal for
the Petitioner.
Mr. Zal Andhyarujina, Senior Counsel a/w Mr. Vishal Sheth Mr.
Bimal Rajasekhar, Mr. Rishi Murarka, Ms. Revati Desai, Mr. Kunal
Naik i/by Bimal Rajasekhar for the Respondent.
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CORAM : R.I. CHAGLA J
DATE : 18 March 2024
ORDER :
1. By this Interim Application, the Applicant/Petitioner has sought stay on the operation and/or execution and/or enforcement of the impugned Award dated 27th July 2023 during the pendency of the Arbitration Petition.
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2. Mr. Jagtiani, the learned Senior Counsel appearing for the Petitioner has taken this Court through the findings of the Arbitral Tribunal and in particular, the findings on costs which have been awarded to the Respondent herein, being the Claimant therein. He has submitted that the costs portion of the Award is challenged on the ground that it is in contravention of public policy including fundamental policy of Indian law under Section 34(2)(b) of the Arbitration and Conciliation Act, 1996 ("The Arbitration Act"). Further, it is challenged on the ground under Section 34(2)(a)(iii) of the Arbitration Act, viz. a party is otherwise unable to present its case.
3. Mr. Jagtiani has submitted that the parties in the present case, under Clause 12 of the Master Long Term Contract dated 18th September 2020 agreed for the seat of arbitration to be Mumbai. Both parties are ad idem on the point that the costs in the present matter are ascertained under Indian law including the Arbitration Act. This would be inspite of the Arbitral Tribunal, who passed the impugned Award being the Singapore International Arbitration Centre ("SIAC"). The SIAC would ordinarily gets the power to award costs under Rules 35 and 37 of the Singapore International 2/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 ::: 12-IAL-30249-23.doc Arbitration Centre Rules, 2016 ("SIAC Rules"). Under Rule 35.1 of the SIAC Rules, the Tribunal shall determine in the Award, the apportionment of the costs of the arbitration among the parties, unless otherwise agreed by the parties. The Tribunal shall have the authority to order in its Award that all or a part of the legal or other costs of a party be paid by another party.
4. Mr. Jagtiani has submitted that the Tribunal although exercising powers to grant costs under the SIAC Rules, will have to exercise such powers in consonance with the extant Indian law, the settled principles of awarding costs and the principles enshrined under Sections 31(8) and 31A of the Arbitration Act. The principles to be kept in mind while awarding costs under Indian law have been reiterated time and again by the Supreme Court of India and one such decision, which is to be noted, is the decision of the Supreme Court in Oil and Natural Gas Corporation Ltd. Vs. Afcons Gunanusa JV1 at paragraphs 103. The Supreme Court has laid down that the standing principle being that costs are typically compensation payable by the losing party to the winning party. 1 2022 SCC OnLine SC 1122 3/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 ::: 12-IAL-30249-23.doc
5. Mr. Jagtiani has submitted that under Section 31A(3)(b), it is provided that in determining costs the Arbitral Tribunal should have regard to whether a party had succeeded partly in a case. Further, the Apex Court has on multiple occasions reiterated that when inflated claims are made, costs should be imposed upon the party making such claims. He has in this context, referred to the decision of the Supreme Court in State of J&K and Anr. Vs. Dev Dutt Pandit2 at paragraph 23.
6. Mr. Jagtiani has submitted that it is also a settled legal principle that costs awarded must be compensatory and not punitive, and that a party's part success and/or failure would guide an Arbitral Tribunal while determining costs. He has in this context relied upon Oil and Natural Gas Corporation Ltd. (supra).
7. Mr. Jagtiani has submitted that the Supreme Court has on multiple occasions discussed the concept of public policy under Indian law. He has in this context relied upon the decision of the Supreme Court in Vijay Karia & Ors. Vs. Prysmian Cavi E Sistemi SRL 2 (1999) 7 SCC 339 4/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 ::: 12-IAL-30249-23.doc & Ors.3 at paragraph 88. The Supreme Court has held that the "Fundamental Policy" refers to the core values of India's public policy as a nation, which may find expression not only in statutes but also time-honoured, hallowed principles which are followed by the Courts.
8. Mr. Jagtiani has also relied upon the decisions of the Supreme Court in Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India (NHAI) 4 at paragraphs 34 - 36 and Associate Builders v. Delhi Development Authority5 at paragraphs 18 and 27, in the context of challenge to the Award on the ground of public policy.
9. Mr. Jagtiani has submitted that in construing the expression "public policy" in the context of a foreign award, the Supreme Court has considered that an Award which is contrary to:
(i) the fundamental policy of Indian law, (ii) the interest of India and
(iii) Justice or morality, would be set aside on the ground that it would be in contravention of the fundamental policy of Indian law.
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10. Mr. Jagtiani has submitted that the costs awarded by the Arbitral Tribunal in the present case is disproportionate to the amount awarded; punitive and contrary to the provisions of the Arbitration Act. He has submitted that out of the total claim made by the Claimant i.e., USD 10,840,262 (10 million), only a sum of USD 1,098,187.20 (1 million) i.e., 10% has been awarded by the Tribunal. However, the costs awarded is disproportionate and in terrorem. He has submitted that the general principle as encapsulated in Section 31A(2)(a) of the Arbitration Act is that the unsuccessful party shall be ordered to pay costs of the successful party, i.e., that "costs follow the event". Although in the present case, the Petitioner was labelled as the "losing party" in this arbitration, the Petitioner succeeded in defending its case on quantum of damages as borne out from the impugned Award. This in light of the fact that only 10% of the Claimant's claim was awarded to it. However, the Tribunal has failed to apply the binding principles laid down by the Indian Courts by proportionately reducing the amount of costs determined.
11. Mr. Jagtiani has submitted that the Award does not adhere to the Indian law on costs and is contrary to lex arbitri. He has submitted that the Tribunal has not considered costs from the 6/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 ::: 12-IAL-30249-23.doc Indian Law perspective and ignored judgments of the Supreme Court and thus, the impugned Award is in violation of the fundamental policy of India law.
12. Mr. Jagtiani has submitted that the Arbitral Tribunal ought to have considered the conduct of the Claimant who had applied for multiple amendments to the claim. He has submitted that the Claimant had made claims which were made up and inflated and these should have been considered, in imposing costs, particularly, when the Arbitral Tribunal had rejected 90% of the Claimant's claims.
13. Mr. Jagtiani has made submissions with regard to the merits of the impugned Award which are not relevant at this stage to be considered and will be best considered at the admission of the Petition.
14. Mr. Andhyarujina, the learned Senior Counsel appearing for the Respondent has made submissions in support of his contention that there should be a 100% deposit of the awarded amount which includes the costs awarded by the Tribunal. 7/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 :::
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15. Mr. Andhyarujina has submitted that it is a well settled principle laid down by the Supreme Court in Renusagar Power Co.Ltd. Vs. General Electric Co.6 that the enforcement of a Foreign Award cannot be objected to on the ground that the costs awarded by the arbitrators are excessive and unconscionable. This is not a ground for refusal of enforcement of the Foreign Award under Section 7(1)(b)(ii) of the Foreign Awards Act. He has submitted that this principle will also apply to an International Commercial Arbitration Award as in the present case.
16. Mr. Andhyarujina has submitted that the Delhi High Court in Xstrata Coal Marketing AG Vs. Dalmia Bharat (Cement) Ltd.7, had occasion to consider the defence to costs awarded. In that case as in the present case, the measure of damages, which the Claimant had claimed had been rejected by the Arbitral Tribunal and a much lesser amount was awarded than that claimed. This was a case of enforcement of a Foreign Award and the Delhi High Court considered the law laid down by the Supreme Court in Renusagar Power Co.Ltd. (supra). Further, the Court relied upon Oil 6 1994 Supp (1) SCC 644 7 2016 SCC OnLine Del 5861 8/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 ::: 12-IAL-30249-23.doc and Natural Gas Corporation Ltd. Vs. Western Geco International Ltd.8, wherein the Supreme Court examined the expression "fundamental policy of Indian law" in the context of Section 34(2)(b)
(ii) of the Arbitration Act and set down three principles that would be included in the fundamental policy of Indian law. These principles being (i) Judicial approach; (ii) principles of natural justice; and (iii) rationality and reasonableness - on the touchstone of Wednesbury's principle of reasonableness. The Delhi High Court considered the contention of the losing party that damages awarded in favour of the winning party viz. Xstrata were substantially less than the amount claimed by Xstrata and, therefore, the costs should be allocated proportionately. The Court held this is inconsiderable. There is no mathematical formula for splitting the costs in the ratio of the amount claimed and the amount awarded. The discretion exercised by the Arbitral Tribunal in awarding costs does not militate against the fundamental policy of Indian law.
17. Mr. Andhyarujina has submitted that the Singapore High Court in VV and Another Vs. VW9 has also considered 8 (2014) 9 SCC 263 9 [2008] SGHC 11 9/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 ::: 12-IAL-30249-23.doc the challenge to the costs awarded on public policy grounds. The Singapore High Court has held that it is not part of the public policy of Singapore to ensure that the costs incurred by parties to private litigation outside the Court system e.g. arbitration whether the same is domestic or international, are assessed on the basis of any particular principle including the proportionality principle. There are no public policy implications connected with that procedure. Such litigation sets no precedents and binds no one apart from the immediate parties. The immediate parties are parties to the arbitration because they had a pre-existing contractual relationship by which they had decided that disputes arising under the contract were to be settled in this way outside the judicial system. The Singapore High Court has accordingly, held that the prevailing public policy being that substantive arbitral awards are inviolable notwithstanding mistakes of fact or law, it would be odd for the Courts to be able to justify interfering with the quantum of costs awarded by an arbitrator by invoking public policy. The Court held that the Plaintiffs in that case has no basis to challenge the Costs Award on public policy grounds.
18. Mr. Andhyarujina has further relied upon the 10/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 ::: 12-IAL-30249-23.doc decision of the Delhi High Court in Delhi State Industrial and Infrastructure Vs. Bawana Infra Development Pvt.Ltd. 10 wherein the Court considered the issue of costs of arbitration and the objection taken to the award of costs as being harsh and unjustified. The Delhi High Court has held that the Arbitral Tribunal in awarding costs exercises discretion and the Courts cannot question the Arbitrator's decision unless it is shown to be perverse. Under Section 31A(2)(a) of the Arbitration Act, the general principle of awarding costs is 'winner takes all'. It is based on the principle that the party has been compelled by the conduct of the other party to come to Court in order to vindicate his legal rights. Accordingly, there will be a casual nexus between the fact that costs have been incurred and the underlying merits of the legal claim.
19. Mr. Andhyarujina has submitted that in the present case there has been a careful analysis of the conduct of the parties including that of the Petitioner. He has referred to the findings on costs in paragraphs 205 to 216 of the Arbitral Award. He has submitted that the Tribunal has considered the conduct of the Petitioner in paragraph 208 of the Award and based on such conduct 10 2023 SCC OnLine Del 1570 11/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 ::: 12-IAL-30249-23.doc found it fair and appropriate for the Claimant to make fulsome recovery of the costs. The Tribunal has also considered that the Claimant was obliged to bring these proceedings in order to achieve any finding or recognition of liability on the part of the Petitioner and conformation that it is entitled to damages or its losses. In paragraph 206 of the Award, the Tribunal has held that the Claimant is the successful party in the arbitration and that the Petitioner had breached the contract in failing to make any shipment in accordance with its terms and also committed repudiatory breach in indicating that it did not consider itself under any obligation to make shipments even while the contract subsisted. Accordingly, the Petitioner herein was unsuccessful on both these issues.
20. Mr. Andhyarujina has submitted that the awarded costs are on actuals and given the extant law, the challenge to the costs awarded does not come within the purview of valid grounds of challenge to an Award under Section 34 of the Arbitration Act. It cannot be contended that the Award of costs is in violation of the fundamental policy of the Indian Law as sought to be contended by the Petitioner. He has submitted that the costs awarded is governed by the costs regime under Section 31A of the Arbitration Act and 12/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 ::: 12-IAL-30249-23.doc proportionality principle has no place therein.
21. Mr. Andhyarujina has accordingly, submitted that for stay of the impugned Award, the Petitioner is required to deposit of 100% of the awarded amount, and liberty be granted to the Respondent to apply for withdrawal of the amount as and when deposited.
22. Having considered the above submissions, it is required to be noted that Mr. Jagtiani has very fairly stated at the outset that without prejudice to the Petitioner's rights and contentions, the Petitioner is willing to deposit the principle amount awarded by the Tribunal as damages and nominal damages. However, in so far as the costs awarded, his contention is that there should be an unconditional stay of that part of the Award.
23. The challenge to the costs awarded by the Arbitral Tribunal has been considered in the aforementioned decisions cited by the Counsel. However, it is relevant to note that the present Award under challenge is an International Commercial Arbitration Award passed in an SIAC Arbitration.
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24. Thus, any challenge to the Award on the ground of it suffering from perversity will not arise and what is required to be considered, prima facie at this stage, is whether the Award of costs is in any manner contrary to the fundamental public policy of Indian law.
25. In Renusagar Power Co. Ltd. (supra), the Supreme Court has considered the public policy grounds for refusal of enforcement of a foreign Award under Section 7(1)(b)(ii) of the Foreign Awards Act and held that the costs awarded by an Arbitrator, which are challenged as being excessive and unconscionable are not the grounds for refusal of enforcement of the Award. Further, in the decision of the Delhi High Court in Xstrata Coal Marketing AG (supra), the Delhi High Court had considered a case, where like in the present case, the measure of damages was held against the Claimant and a much lesser claim had been awarded to the Claimant. The Delhi High Court in considering Renusagar Power Co.Ltd. (supra) and Oil and Natural Gas Corporation Ltd. Vs. Western Geco International Ltd. (supra) has held that challenge to awarding of costs on ground of proportionately i.e. damages awarded being substantially less than the amount claimed, cost should be allocated 14/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 ::: 12-IAL-30249-23.doc proportionately, cannot be considered, given that there is no mathematical formula for splitting the costs in the ratio of the amount claimed and the amount awarded. The awarded costs is within the discretion of the Arbitral Tribunal.
26. The decision of the Supreme Court in Vijay Karia & Ors. (supra), which has been relied upon by Mr. Jagtiani on fundamental policy of Indian law has considered the decision of the Supreme Court in Renusagar Power Co.Ltd. (supra) and not departed from the principle laid down therein. The Supreme Court in Vijay Karia & Ors. (supra) has held that the fundamental policy of Indian law must amount to breach for some principle or legislature which is so basic to Indian Law that it is not susceptible of being compromised. "Fundamental Policy" refers to core values of India's public policy as a nation, which may find expression not only in statute, but also time-honoured, hallowed principles which are followed by the Courts.
27. I have considered the findings of the Arbitral Tribunal in the present case and I am of the view that the Tribunal in awarding costs has considered the conduct of the parties including 15/17 ::: Uploaded on - 27/03/2024 ::: Downloaded on - 01/04/2024 01:26:53 ::: 12-IAL-30249-23.doc the Petitioner herein and has held in those circumstances, it was fair and appropriate for the Claimant to make a fulsome recovery of its costs. Prima facie I find that the Arbitral Tribunal has given due regard to the regime of costs under Section 31A of the Arbitration Act. The Tribunal has further considered that the Claimant is a successful party in the arbitration and that the Petitioner has breached the contract. There is an observation of the Tribunal that the Petitioner herein has throughout the proceedings disputed its liability to the Claimant and/or liability to pay damages. The Claimant was thus, obliged to being these proceedings in order to achieve any finding or recognition of any liability on the part of the Petitioner herein. In doing so the Claimant was obliged to pay all the costs of the arbitration after the Petitioner herein defaulted on its payment obligations to SIAC.
28. Further, I prima facie find that the costs awarded are on actuals. I prima facie do not find any merit in the submission of Mr. Jagtiani that in awarding of costs the Tribunal has at all penalised the Petitioner. This given my prima facie finding that the Arbitral Tribunal has held in conformity with the cost regime under Section 31(A) of the Arbitration Act.
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29. Accordingly, I find it appropriate to direct the Petitioner to deposit the principle awarded amount of USD 1,098,187.20 as damages and USD 3.00 as nominal damages as well as costs awarded in the sums of (i) SGD528,630.19; (ii) GBP63,440.00; and (iii) INR387,339.00, which shall be the condition for stay on the operation and/or execution and/or enforcement of the impugned Award dated 27th July 2023. The Petitioner shall deposit the aforementioned amounts within a period of six weeks from the date of this order.
30. The Respondent is granted liberty to make an application for withdrawal of the aforementioned amounts as and when deposited and which application shall be considered on its own merit.
31. Interim Application is accordingly, disposed of.
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