The Supreme Court states that an arbitral tribunal can require a party that caused unnecessary harassment to the other party to pay for the arbitration costs.
The Supreme Court ruled that an arbitral tribunal can require a party that misuses the legal process and causes unnecessary trouble to the other party to pay for the arbitration costs. The Court approved a petition under Section 11(6) and Section 11(12)(a) of the Arbitration and Conciliation Act, 1996, which sought the appointment of an arbitrator to resolve disputes related to a Shareholders Agreement between the petitioner and the respondents. The Bench, including Chief Justice D.Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra, noted that some parties might exploit the limited judicial oversight of referral courts, forcing others into lengthy and expensive arbitration. This could happen in cases where claims are clearly time-barred, settled through “accord and satisfaction,” or when a non-signatory to the arbitration agreement is involved. To protect parties from being unfairly drawn into arbitration, the tribunal can order that the costs be paid by the party found to have misused the legal process and caused unnecessary distress to the other party.
According to the agreement, the petitioner was given 400,000 equity shares of ASAP Fluids Pvt. Ltd., with the respondents recognizing his role in management. The petitioner claimed that despite multiple requests, the respondents failed to provide share certificates, which hindered his ability to exercise his rights under the agreement.The petitioner sent an Arbitration Notice to the respondents, asking for either share certificates or their equivalent value. The Bombay High Court first dismissed the application, stating it was an international arbitration because the petitioner lived in Dubai. Later, the petitioner went to the Supreme Court to request the formation of an arbitral tribunal to handle the claims under the Shareholders Agreement.
The Supreme Court emphasized that, during a Section 11 application, the referral Courts only need to check if an arbitration agreement exists—nothing more. “This method respects the parties’ intention to resolve all disputes through arbitration,” the Bench explained. The Bench added, “When considering the issue of limitation under Section 11(6) of the Act, 1996, the referral court should only perform a limited review to see if the application was filed within the three-year limitation period. At this point, it is not appropriate for the referral court to engage in a detailed examination of whether the petitioner’s claims are time barred. That decision should be left to the arbitrator.”
The Court noted that the main argument from the respondents was that the petitioner’s claims were clearly time barred and could not be sent to arbitration. The Court stated, “This Court cannot perform a detailed examination to determine when the cause of action arose and whether the petitioner’s claim is time barred. This must be decided by the arbitral tribunal.” As a result, the Supreme Court approved the petition.
Cause Title: Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr. (Neutral Citation: 2024 INSC 849)
Appearance:
Appellants: AOR Kunal Cheema; Advocate Vilas Giri
Respondents: AOR Jasmine Damkewala; Advocate Vaishali Sharma
