CARTAL Announces “The Gary B. Born National Essay Writing Competition on International Arbitration, 2016”

The NLU Jodhpur Centre for Advanced Research and Training in Arbitration Law (CARTAL) is organising the The Gary B. Born National Essay Writing Competition on International Arbitration, 2016.

Themes:
a.The “Born” Bilateral Arbitration Treaty Proposal: The way Forward.
b. Privatisation of “Justice Delivery”: Desirability and Propriety of arbitrating public law claims.
c.The UNCITRAL Model Law : Suggestions for a Second Amendment / 10 Year Review of the UNCITRAL Model Law.

Submission Deadline: July 31, 2016 by 23:55hrs via email at : editors@ijal.in

For further information on rules, prizes etc., click here

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ONE STEP FORWARD, TWO STEPS BACK?

Application of the Arbitration and Conciliation Act, 1996 to foreign seated arbitrations

Sagar Gupta*

[Editor’s Note: With this post, we intend to continue our analysis of the new amendments to the Arbitration and Conciliation Act, 1996; returning to, and reviving the blog after a fairly long hiatus.]

The constant and all pervasive judicial interference in arbitral proceedings, delays and rising costs of arbitration in India have consistently vitiated the object and purpose of the Arbitration and Conciliation Act, 1996 [“the principal Act”]. Therefore, in order to remedy the difficulties faced in the arbitral process, the Arbitration and Conciliation (Amendment) Act, 2015 [“the Act”] was passed by the Parliament on December 23, 2015[1] Based on the 246th Report of the Law Commission of India [“Law Commission Report”][2] the Act sought to make the much-required changes to the principal Act and make India an arbitration-friendly jurisdiction.

The process of amendment is worthy to be mentioned. The amendment was introduced by way of the Arbitration and Conciliation (Amendment) Ordinance, 2015 [“the Ordinance”] promulgated by the President on October 23, 2015. Thereafter, the amendments were introduced and passed by the Parliament.

Among other amendments, the Act added a proviso to sub-section (2) of section 2 of the principal Act. The proviso is reproduced in full below:

“Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.”.

The proviso has far-reaching implications and has undone the progress achieved in a catena of judgments of the Supreme Court of India [“the Supreme Court”] on the implied exclusion of the Indian arbitration law from foreign seated arbitrations.

The author traces the development of the law of implied exclusion and comments on the position of law in the light of the prospective application of the Act.

Implied Exclusion

The issue of implied exclusion of the application of Indian arbitration law to foreign seated arbitrations is one that has been hotly discussed and debated among practitioners and academics alike.[3] Part I of the principal Act contains provisions such as grant of interim measures, appointment of arbitrators, setting-aside of an arbitral awards among others relating to supervisory jurisdiction of courts in an arbitral proceeding.

The judgment of the Supreme Court in Bhatia International v Bulk Trading SA[“Bhatia International”], held that Part I of the principal Act shall apply to arbitrations, irrespective ofwhether the seat lies within or outside India.[4] This flies in the face of the seat theory in international commercial arbitration, but was nonetheless followed as binding precedent by courts in India.[5] This decision was overturned by a larger Bench of the Supreme Court in the case of Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc [“BALCO”],[6] wherein Part I of the principal Act was held to not apply to foreign seated arbitrations. The BALCO judgment applies prospectively to arbitration agreements signed after September 6, 2012.

In a plethora of cases, the courts in India have excluded the applicability of Part I on the basis of implied exclusion. The courts have considered a variety of foreign factors including procedural rules of a foreign arbitral institution,[7] seat of arbitration,[8] and law governing the arbitration agreement[9] in order to exclude the application of Part I of the principal Act.

In a judgment rendered by the Supreme Court on 22 September 2015 in the case of Union of India v Reliance Industries[“Reliance”],[10] the requirement for implied exclusion was watered down to render the principal Act inapplicable on the presence of either a foreign seat or a foreign law governing the arbitration agreement. This was a welcome move for international commercial arbitration in India and was testimony to the judiciary’s commitment to party autonomy.[11]

Matter in controversy

The addition of the proviso to sub-section (2) of section 2 in the Act renders the judgments of the Supreme Court ineffective. The Act requires an agreement expressly excluding the application of Part I of the principal Act, in the absence of which, sections 9 (interim measures by court), 27 (court assistance in taking evidence), 37(1)(a) and 37(3) (appealable orders) will be applicable to international commercial arbitration.

It is germane to note that the proviso uses the word ‘place’ instead of ‘seat’, thereby not solving the Bhatia International-BALCO dichotomy.[12] The rationale of the proviso, as can be understood by the Law Commission Report, was to provide an efficacious remedy to a party where the assets of the opposing party are located in India and the arbitral seat is situated abroad.[13] In order to ensure that the said assets are not disposed-off in the course of the pendency of the arbitration, rendering the party remediless before Indian courts.

The Act significantly dilutes the power of courts to examine the application of Part I of the principal Act to foreign seated arbitrations. This is due to the requirement for an ‘agreement to the contrary’ to exclude application, lack of acceptance of the recommendations of the Law Commission Report and drafting errors.

The requirement of an ‘agreement to the contrary’ is absurd as the holding of the judgments discussed above clearly point towards an implied exclusion of Part I. Such implied exclusion is necessary in the light of the already existing workload of Indian courts which leads to unnecessary and avoidable delay in arbitration.[14]

The Law Commission Report suggested that the word ‘place’ be substituted with ‘seat’ in sub-section (2) of section 2 of the principal Act and the previously omitted word ‘only’ be added after the words ‘shall apply’ giving effect to the “seat centricity” principle in international commercial arbitration.[15] However, the draft of the Ordinance of October 23, 2015 did not make these changes. It seems absurd that the word ‘only’ has not been added in the provision and the ‘place’ has not been replaced with ‘seat’. This drafting oversight may accentuate the multiple problems of application of part I of the principle Act.[16]

Therefore, the courts shall be bound to evaluate the arbitration agreements and in absence of an express stipulation excluding the application, the select provisions shall be made applicable to foreign seated arbitrations. This is not in consonance with the object and purpose of the enactment and shall further cause confusion.

Prospective Application adds to the woes

In addition to the issues discussed above, the proviso shall not apply uniformly to all arbitration agreements. As per the Act, the provisions contained therein shall apply prospectively and shall not extend to pending arbitration proceedings. Although there was wide speculation as to the retrospective applicability of the Ordinance,[17] the following section in the Act lays the controversy to rest:

  1. Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.

It is pertinent to note that the prospective application of the Act is in terms of pending arbitral proceedings, contrary to BALCO, wherein prospective application was expressed in terms of the arbitration agreement. To ensure that the BALCO ratio applied to a relevant agreement, a novation of the agreement was sufficient.

Au contraire, the proviso requiring the express exclusion of Part I of the principal Act shall apply to arbitration agreements when the arbitration proceedings have been commenced after October 23, 2015 and only if arbitration has been commenced before the said date, the rules of implied exclusion, as expounded by the courts, find application.

Back to square one?

Undoubtedly, this provision was required in order to save the interests of parties engaged in foreign seated arbitrations with assets in India and is also in conformity with international practice on the matter. However, the drafting oversight and lack of clarity in the proviso is startling as the Act was meant to simplify the arbitration process in India.

As discussed in the previous section, the Act applies prospectively and not to pending arbitration proceedings. The amendment renders the BALCO ratio otiose. Parties may solve this problem by novation of the arbitration agreements, and specifically ensuring that Part I of the principal Act does not apply.

Further, courts may ensure the uniform application of the proviso through purposive interpretation. The absurd application of the provision may be saved by courts through rejection of certain words from the statute. It is a general rule of statutory interpretation, that a proviso like any other enactment has to be construed upon its own terms.[18] However, the court can correct obvious drafting errors in a statute by adding, omitting and substituting words from a statute.[19] Further, by application of the rule of purposive interpretation,[20] a proviso may be interpreted to give effect to the intention of the Parliament.[21]

In order to ensure that the proviso does not offend the object of the enactment, the courts may read the requirement of an ‘agreement to the contrary’, to include an agreement by implication as well. The basis of this interpretation is the judicial reasoning employed in the 2015 Reliance judgment that “it is only those agreements which stipulate or can be read to stipulate that the law governing the arbitration agreement is Indian law which would continue to be governed by the Bhatia rule”.[22] Therefore, in order to avoid inconvenience to the parties, the statute may be interpreted to include implied exclusion in its ambit.

Therefore, the courts must apply the proviso keeping in mind the object of the statute, the language of the arbitration agreements and the existing precedent on point. It remains to be seen how this provision plays out before courts in India.

_______

*IV Year, B.A., LL.B. (Hons.), NLU Jodhpur. Sagar is also an Associate Editor on the Editorial Board of  the Indian Journal of Arbitration Law, NLU Jodhpur. The views of the author are personal.

[1] It must be underlined that the legislation was passed without debate in the Rajya Sabha. SeeBills on commercial courts, arbitration passed by Parliament, The Hindu (Dec. 23, 2015) http://www.thehindu.com/news/national/bills-on-commercial-courts-arbitration-passed-by-parliament/article8021839.ece; Rajya Sabha clears 4 Bills, blocks 1,The Indian Express (Dec. 24, 2015), http://indianexpress.com/article/india/india-news-india/rajya-sabha-passes-3-bills-without-debate-left-parties-walk-out-in-protest/.

[2] Law Commission of India, Report No. 246 Amendments to the Arbitration and Conciliation Act 1996 (Aug. 2014), http://lawcommissionofindia.nic.in/reports/Report246.pdf.

[3] For a detailed case law analysis on implied exclusion see Ajay Bhargava & Anchit Oswal, Implied exclusion of Part 1 of the Arbitration and Conciliation Act – tips and strategies, Int’l L. Office (June 25, 2015).

[4] (2002) 4 SCC 105. The Court held that “in cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules will not apply.”

[5] For instance, in Venture Global Engineering v Satyam Computer Services Ltd, (2008) 4 SCC 190, the Supreme Court held that Section 34 (setting-aside of arbitral award) was applicable to an award rendered by the London Court of Arbitration (sic). See alsoIndtel Technical Services (P) Ltd v W S Atkins Rail Ltd, (2008) 10 SCC 308 and Citation Infowares Ltd v Equinox Corporation, (2009) 7 SCC 220.

[6](2012) 9 SCC 552.

[7]Yograj Infrastructure Ltd v Ssang Yong Engineering and Construction Company Ltd, (2011) 9 SCC 735, ¶ 38. The application of the SIAC Rules excluded the Indian arbitration law.

[8]Dozco India Private Ltd v Doosan Infracore Co Ltd, (2011) 6 SCC 179, ¶ 20.

[9]Videocon Industries Ltd v Union of India, (2011) 6 SCC 161, ¶ 33. InReliance Industries Ltd v Union of India, (2014) 7 SCC 603, ¶ 60, it was held that the presence of a foreign seat coupled with a foreign law governing the arbitration agreement excludes the applicability of the principal Act. For further analysis on this point see V Niranjan, Reliance v Union of India: Implied Exclusion of Part I of the Arbitration ActIndian Corp. L. Blog (Aug. 14, 2014), http://indiacorplaw.blogspot.in/2014/08/reliance-v-union-of-india-implied.html.

[10]SLP (Civil) No. 11396 of 2015, Judgment dated 22.09.2015 (Supreme Court of India).

[11]Per contra, some practitioners argue that the decision may cause some confusion as the applicability of Part I may not be excluded in cases on whose facts a judgment cannot be reached on the seat of the arbitration as being outside Indiaand whether this refers to the distinction between ‘venue’ and ‘seat’ or the absence of ‘seat’ remains to be seen. See Olga Boltenko & Kartikey Mahajan, How the Reliance saga brought clarity to the applicability of Bhatia InternationalKluwer Arb. Blog (Nov. 30, 2015), http://kluwerarbitrationblog.com/2015/11/30/how-the-reliance-saga-brought-clarity-to-the-applicability-of-bhatia-international/.

[12]See Aakanksha Kumar, The Arbitration Ordinance, 2015 – Less isn’t always more. [Part-I]Arbiter Dictum Blog (Nov. 5, 2015), https://arbiterdictum.wordpress.com/2015/11/05/the-arbitration-ordinance-2015-less-isnt-always-more-part-i/. The distinction between ‘seat’ and ‘venue’ of arbitration has been further appreciated in Enercon (India) Ltd v Enercon GmbH, (2014) 5 SCC 1, ¶ 114 [“Enercon”].

[13]Law Commission Report, supra note 2 at p. 24, ¶ 41.

[14]For an interesting analysis on the workload of the Supreme Court see Nick Robinson, A Quantitative Analysis of the Indian Supreme Court’s Workload 10(3), J. Empirical Legal Stud. 570 (2013); Alok Prasanna Kumar et al., The Supreme Court of India’s burgeoning backlog problem and regional disparities in access to the Supreme Court (Consultation Paper, Vidhi Centre for Legal Policy).

[15]Law Commission Report, supra note 2 at p. 39, ¶ 1(vi). It is pertinent to note that the principal Act is based on the UNCITRAL Model Law. In drafting the principal Act, the word ‘only’ appearing in Article 1(2) of the Model Law restricting the application to domestic arbitration was omitted. This led to the Bhatia International-BALCO dichotomy.

[16]The problems with respect to prospective application discussed above also arose from the divergence between the Law Commission Report and the Ordinance. The Law Commission had suggested the inclusion of section 85A as a means to introduce transitory provisions so that existing claims before Indian courts are not prejudiced.

[17]Delphi TVS Diesel Systems Ltd v Union of India, WP No. 37355 of 2015, Order dated 24.11.2015 (Madras High Court). See Promod Nair, When good intentions are not good enough: The Arbitration Ordinance in India, Bar & Bench (Nov. 4, 2015), http://barandbench.com/when-good-intentions-are-not-good-enough-the-arbitration-ordinance-in-india/; Naman Joshi, Application of Provisions of the Arbitration and Conciliation (Amendment) Ordinance, 2015 to Existing ArbitrationsLaw Life Beyond (Nov. 5, 2015), https://lawlifebeyond.wordpress.com/2015/11/05/application-of-provisions-of-the-arbitration-and-conciliation-amendment-ordinance-2015-to-existing-arbitrations/. Under the general law of statutory interpretation, it is a principle of construction that every statute dealing with substantive rights is prima facie prospective unless it is expressly or by necessary implication made to have retrospective effect. However, statutes dealing with merely matters of procedure are presumed to be retrospective unless such a construction is textually inadmissible. For analysis on this point see generally,Mithilesh Kumari v Prem Bihari Khare, AIR 1989 SC 1247, 1254; Zile Singh v State of Haryana, (2004) 8 SCC 1, ¶¶ 9, 15; Justice G P Singh, Principles of Statutory Interpretation (12th ed., 2010).

[18]Sundaram Pillai v Pattabiraman, (1985) 1 SCC 591, ¶¶ 43-44.

[19]Inco Europe Ltd. v First Choice Distribution (a firm), (2000) 2 All ER 109, 115 (HL). It must be noted that the present proviso may not be characterized as a drafting error.

[20]In interpreting a statute, a court may have regard to the position of common law before making the Act, the mischief sought to be remedied and the reason for the remedy. The rule, first laid down in Heydon’s case, (1584) 76 ER 637, has been accepted and affirmed by courts in India in various judgments. See Kantilal Sur v Paramnidhi Sadhukhan, AIR 1957 SC 907, 910; Bengal Immunity Co. v State of Bihar, AIR 1955 SC 661, 674.

[21]No-Nail Cases Proprietary Ltd v No-Nail Boxes Ltd, (1944) 1 All ER 528, 529 (per Du Parcq LJ).

[22]Reliance, supra note 10 at ¶ 20.

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The Arbitration Ordinance, 2015 – Less isn’t always more. [Part I]

Aakanksha Kumar*

The President of India promulgated the Arbitration and Conciliation Amendment Ordinance, 2015 (‘Ordinance’) to amend the Arbitration and Conciliation Act 1996 (‘Act’), on October 23, 2015, after the Union Cabinet had given its approval for the same on October 21, 2015. It is interesting though, that the Ordinance was promulgated a little over three weeks before the winter session of the Parliament is scheduled to begin, wherein the Ordinance will have to be tabled before the Houses for their final say.

While the Ordinance is based largely on the 246th Report of the Law Commission, there are some very glaring lacunae that haven’t still been addressed, and are conspicuous in their absence from the amendment.  This post shall attempt to highlight a few of the major changes brought about by the Ordinance and point out the unfortunate shortcomings.

  1. Definition clause and scope of the Act:

While the Law Commission had proposed several amendments to S. 2(1) of the Act, the Ordinance does very little. While some of the proposals might have been considered premature, or may even have been perceived as say, irrelevant in the Indian context (such as that of including an emergency institutional arbitrator within the definition of an arbitral tribunal), the omission of the definition of seat of the arbitration and non inclusion of  “any person claiming through or under such party” to the definition of  “party” under S. 2(1)(h) are a cause of concern. While the Law Commission used the Chloro Controls decision to justify this latter insertion,[1] judicial opinion on this question for Part I of the Act, is not enough of a guideline to identify whether non-signatories could be made parties to domestic arbitrations, and if so, when. Nonetheless, S.8(1) has been amended, such that a judicial authority is empowered to hear an application made by  “a party to an arbitration agreement or any person claiming through or under him.” This does offer some consolation.

As for the former, the constant tussle between the meanings of the words ‘palce’, ‘seat’ and ‘venue’ of arbitration is aggravated due to a multitude of factors. First, due to India’s adaptation of the UNCITRAL Model Law for both domestic as well as international arbitrations, inspite of the Model Law categorically providing that the same applies to ‘international commercial arbitrations’, second, the problem created by the continued existence of  both the Bhatia International and BALCO decisions – the so called ‘implied exlusion’ test, and, third the ‘seat versus venue’ conundrum is only aggravated by diverse court decisions.[2], Thus, a clear provision for  clarifying the same is required within the legislation itself, putting the debate to rest once and for all. Highly unfortunately, this very apparent problem has gone unnoticed in the Ordinance. This omission reflects further on more lacunae still present in other sub-sections of S.2, discussed later in this post.

However, the Ordinance amends S. 2(1)(e) for ‘court’, retaining language from the Act as the meaning applicable to purely domestic arbitration. Sub-clause (ii) creates a somewhat vague provision, such that, if purposively read, the meaning of ‘court’ for Part I of the Act is thus:

  • In purely domestic arbitration – Principal civil court of original jurisdiction, including an HC in exercise of original civil jurisdiction that also would’ve had subject-matter jurisdiction, by virtue of S. 2(1)(e)(i); and also an HC having jurisdiction to hear appeals from decrees of subordinate courts, by virtue of S.2(1)(e)(ii)
  • In domestic international arbitration – HC in exercise of its original civil jurisdiction that would’ve had subject matter jurisdiction, by virtue of S.2(1)(e)(ii)

This amendment doesn’t take into account the Law Commission proposal of defining the court that would have jurisdiction to hear S.9 matters from arbitrations with their seat outside India, considering that the Law Commission had also proposed that S. 2(2) be amended with a proviso to make sections 9, 27, 37(1)(a) and 37(3) applicable to even foreign seated arbitrations.  While this proviso does feature (albeit differently worded due to retention of the word ‘place’ instead of ‘seat’) in the amendment, it is surprising there is no corresponding amendment to the definition of ‘court’. Further, this proviso refers to an arbitral award “enforceable and recognised under the provisions of Part II of this Ordinance”. Obviously this Ordinance does not have a Part II.  It seems as if the drafters did a “Ctrl+F” and then used the “Replace” function to put “Ordinance” wherever the word “Act” had been used – a slip-up we learn to spot as  academics accustomed to grading and evaluating projects and assignments!

Moreover, the proviso makes the Part I provisions available to only ‘international commercial arbitration’ seated outside India. This creates another problem: with there being no distinction between ‘domestic’ and ‘international’ arbitrations for Part II of the Act, inserting such a distinction into this proviso makes the interpretation of Part II even more complicated. The ‘internationality’ of an arbitration is understood in accordance with a corresponding provision in the lex arbitri, which will be the law of arbitration at the seat (the seat theory). So, an arbitration between two Indians seated in Singapore, is an international commercial arbitration under the Singaporean International Arbitration Act, 2012. However, two Indians in an arbitration agreement qualify as purely domestic arbitration if it was seated in India. And after the decisions in Sasan Power and M/s Addhar Mercantile Private Limited v. Shree Jagadamba Agrico Exports Pvt. Ltd., [3], two Indians may chose to seat their arbitration outside India. (see also an earlier ArbiterDictum post by Vinayak Panikkar on this issue here). So, do we use the S.2(1)(f) criteria, from Part I of the Act, to identify whether a Part II arbitration is an ‘international commercial arbitration’? How is that even a workable idea? This question remains unaddressed and unanswered.

The Ordinance also amends the definition of ‘international commercial arbitration’ under S.2(1)(f), in line with the apex court decision in TDM Infrastructure and the corresponding Law Commission Report suggestion. The provision now excludes “a company” from S.2(1)(f)(iii). As Mr. Promod Nair has pointed out, this is not a very desirable change, given the constant criticism that surrounded the said apex court opinion, and present day commercial realities and factors influencing the effective nationality of a company.

The Law Commission had suggested the insertion of sub-section (2A) to deal with the problem of prospective overruling of the Bhatia International decision. This has not been taken into account, as the Ordinance doesn’t further address the Bhatia-BALCO ‘dichotomy’, except that the new proviso to S.2(2). Further S. 2(2) has also not been amended accordingly to otherwise explicitly restrict the applicability of Part I to ONLY where the seat is in India.

  1. Amendment to S. 7 (Arbitration Agreement)

The Ordinance incorporates “electronic means” as an acceptable means to evidence an arbitration agreement in writing, by amending S.7(4)(b).  This was not proposed by the Law Commission report as is, but does somewhat fall in line with Option I of Art.7 of the Model Law as it stood amended after 2006. This was instead proposed by the Law Commission as new sub-sections (3A) and (3B).  This is a welcome change, following that any material that provides a ‘record’ of the agreement in writing should be acceptable as a substantiation that the writing requirement was complied with.

  1. S.8 findings only prima facie.

The Ordinance has amended S.8(1) such that “notwithstanding any judgment, decree or order of the Supreme Court or any court”, the judicial authority shall refer the parties to arbitration “unless it finds that prima facie no valid arbitration agreement exists.” Further, a proviso has been added to S. 8(2) that somewhat falls in line with one of the Law Commission’s proposals, that a party not in possession of the original copy of the arbitration agreement, is to file a S.8 application along with a copy of the arbitration agreement and a petition praying for the court to call upon the other party to produce the original. This discrepancy – usage of the term ‘judicial authority’ in sub-section (1) that is of wider import, than the term ‘court’, as used in the proviso to sub-section (2) evidences legislative over-sight and is just one of the examples of shoddy drafting that this Ordinance is plagued with. Again as Mr. Nair too has pointed out, this is inexplicable and needs, “tidying up”.

The more glaring drafting botch up is in the amended S.8(1). It seems as if the drafters, in their enthusiasm to do away the complexities created by case law decided under both sections 8 and 11 (and S. 45 for Part II of the Act), came up with a provision that they didn’t really, respectfully so, understand.  The Law Commission had categorically explained that,:

Proviso (ii) of the amendment contemplates a two-step process to be adopted by a judicial authority when considering an application seeking the reference of a pending action to arbitration. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void.”[4]

However, the Ordinance reverses this logic via convoluted drafting, that seems to suggest that a finding of invalidity and/or non existence of the arbitration agreement would be prima facie. This leads to absurdity in the working of the provision. The following two situations thus may arise:

  • The judicial authority hearing a S.8 application finds that a valid arbitration agreement does exist. This should ideally be only a prima facie finding, given that S.8(1) now requires a referral to be made, in spite of  any contrary judicial opinion existing on the subject. This should further mean that the question of substantive arbitrability (that is a question of validity of the arbitration agreement), is to only be answered as a prima facie determination, and it is further open for being readdressed at the S.16 stage before the arbitral tribunal, who shall make a final determination. The author has reservations over this really being a desirable change, especially in light of the fact that this amendment essentially nullifies the judgment of the Supreme Court in Radhakrishnan v Maestro Engineers on substantive inarbitrability of allegations of  fraud and also effectively renders the distinctions between arbitrable and inarbitrable subject matter, as highlighted in the Booz Allen decision, redundant.
  • If the language of the amended S.8(1) is literally followed, a finding by the judicial authority hearing a S.8 application that a valid arbitration agreement does not exist, or that the agreement itself is invalid, is also prima facie. That is not how the provision works. As explained by the Law Commission, a negative finding, is not prima facie, as there will not be any referral to an arbitral tribunal for the question to be readdressed. If such a finding is only prima facie, parties will have no recourse available to them via the S.16 route.  The only recourse then lies in appeal made possible by an amendment to S.37(1)(a) that enables an appeal from the order of a judicial authority refusing to refer the parties to arbitration under S.8. This too however, is not a conclusive determination of the issue if the provision is literally interpreted in its current, amended form. Then where do the parties go for getting a final, conclusive determination on the question of validity and existence of their arbitration clause?

While it is well settled that that normally the courts will have to follow the rule of literal construction which rule enjoins the court to take the words as used by the legislature and to give it the meaning which naturally implies, however, there are exceptions to this rule. Benion, in his book on Statutory Interpretation (5th Ed., 2008) calls this the ‘Construction Against Absurdity’, that while engaging in legislative interpretation, the court presumes that the Parliament does not intend ‘absurd’ consequences to flow from the application of its Act.  He further mentions that this presumption is meant to avoid a construction that is unlikely to have been the object, and thus courts are enabled to include within this absurdity, any result that is unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless etc. In India, the apex court has also pointed out this exception to the rule of literal interpretation. In Molar Mal v. Kay Iron Works (P) Ltd., the Supreme Court  reiterated that that courts will have to follow the rule of literal construction. However, the court further held that:

“…exception comes into play when application of literal construction of the words in the statute leads to absurdity, inconsistency or when it is shown that the legal context in which the words are used or by reading the statute as a whole, it requires a different meaning.”

Here too, the courts will have to proffer an interpretation to the provision, that does away with the absurdity that arises from a literal interpretation, and give effect to the “two-step process” as clarified by the Law Commission.

  1. Interim Measures – S.17 powers expanded, S.9 powers reduced.
  • If a S.9 remedy was sought before commencement of the arbitration, an arbitration must be commenced within 90 days from the date of the S.9 order. However, this 90 day period is a minimum standard, and this can be extended further by the Court. This is a deviation from the Law Commission proposal of a 60 day minimum leeway. However, it does provide a definitive legislative guideline to an otherwise vague guideline of ‘within reasonable time’ laid down by the apex court.
  • Further, in keeping with the Law Commission proposal, an application filed after commencement of arbitration, shall be entertained by the court only if it is convinced that the arbitration tribunal will be unable to provide effective relief under S.17.
  • S. 17 on the other hand has been amended in line with the Law Commission’s proposals, and powers of the arbitral tribunal have been expanded to coincide with those given to a court under S.9 of the Act. However, as Mr. Nair very succinctly points out in his comment, the power under S. 17 remains available even after the making of the award, thus creating another exception to the functus officio doctrine that brings the life of an arbitral tribunal to an end once the award is made, by virtue of S.32 of the Act, which doesn’t feature a corresponding amendment. Generally the exceptions to the functus officio rule are only when clerical errors are to be corrected, or when additional awards are requested for, or when the court itself sends the award back to the tribunal during the pendency of a S.34 proceeding, if it is felt that the infirmities that may render an award open for being set aside, can be removed by the tribunal itself. It is, interesting, to say the least, that the drafters envisaged a situation where-in a tribunal can now be ‘revived’ for a post award interim measure.
  1. Appointment of arbitrators and scope of enquiry under S. 11

The following significant changes have been made to S. 11

  • The usage of the words “Chief Justice or any person or institution designated by him” has been done away with. Instead, the words “the Supreme Court, or as the case may be, the High Court or any person or institution designated by such court” have been inserted, thus doing away with the complications that arose from having to identify the true nature of the order of the Chief Justice under S. 11.
  • Further, it has been clarified that the designation of any person or institution doesn’t mean judicial power exercised while appointing an arbitrator, has been delegated.
  • A new sub-section (6A) has been inserted that restricts the S.11 enquiry to a mere ‘existence’ of arbitration agreement finding, unlike the broader S.8 enquiry that looks at both – the existence as well as validity questions. This falls in line with the distinction created between the scope of enquiry under sections 8 and 11 by the apex court, through its decisions in SBP, Booz Allen, Boghara Polyfab and Arasmeta Mr. Nair in his comment has pointed out that – “providing for different standards of judicial review in complementary sections is incongruous.” I beg to differ here. By their very nature, S. 8 and S. 11 are inherently different. The remedy sought by both applications is also different. Hence the scope of enquiry conducted at both stages can remain different. Nonetheless, the ‘nature’ of these determinations should be prima facie only if there is a positive determination of existence of the arbitration clasue.
  • The court in S. 11 shall seek a disclosure from the arbitrator so appointed, in accordance with S. 12(1)
  • Applications under S.11 shall be disposed off within 60 days from the date of service of notice on the other party
  • A Fourth Schedule has been inserted, which is the guideline for determination of fees payable to the arbitral tribunal. The court making the appointment under S. 11 of the Act, may look to this schedule. However, this provision does not apply to international commercial arbitrations.
  • As regards the Fourth Schedule, a new S.11A has been inserted, that empowers the Central Government to amend the schedule if it is satisfied that it is necessary and expedient to do so.

[More on this shall be updated by next week.]

* The author is an Assistant Professor at NLU Jodhpur, and Executive Director of  CARTAL, NLU Jodhpur

The inputs of Dr. Ajay Sharma, Assistant Professor, NLU Jodhpur are greatly appreciated.

[1] The author believes that this reasoning too was flawed, considering that the said decision explains S. 45 of the Act, which follows Art. II of the New York Convention and is thus in Part II of the Act, and it in itself contains a specific reference to “a party or any person claiming through or under him”, thus being of little relevance for interpretation of Part I

[2] Enercon (India) Ltd. and Ors.v. Enercon GMBH and Anr. AIR 2014 SC 3152; Reliance Industries Ltd. v. Union of India AIR 2014 SC 3218; Carzonrent India Pvt Ltd v Hertz International Ltd , Delhi HC decision of 30 June, 2015

[3] Arbitration Application 197/14 along with Arbitration Petition No. 910/13, 12.06.15, High Court of Judicature at Bombay.

[4] Report 246 at pp. 42-43.

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Guest Post: High Courts attempt to solve the problem of Indians having a foreign seated arbitration, TDM diluted.

Vinayak Panikkar*

Can two Indian parties have a foreign seated arbitration? This familiar question has till date remained unsettled, and is perplexing in light of conflicting decisions of the Supreme Court and High Courts. The recent decisions of the Madhya Pradesh High Court in Sasan Power Ltd. v. North American Coal Corporation India Pvt. Ltd. (Sasan),[1] and the Bombay High Court in M/s Addhar Mercantile Private Limited v. Shree Jagadamba Agrico Exports Pvt. Ltd.,(Addhar)[2], may appear to be contradictory, yet, seem to point towards an answer.

Sasan

Sasan was heard as an appeal to a Section 45 application where the district judge had dismissed the suit between the two Indian Parties on the ground that it was not maintainable, and referred them to a foreign seated arbitration.It was argued in this appeal, that the district judge erred in referring the parties to arbitration under Section 45 since the arbitration agreement was null, void and inoperative on the ground that two Indian parties could not agree for an arbitration in a foreign country according to the laws of that country. The Appellants argued that referring two Indian parties to a foreign seated arbitration would be in violation of Section 23 of the Indian Contract Act, and in violation of the Supreme Court’s decision in TDM.[3] The Respondent argued that TDM was not applicable and relied on Atlas,[4] to convince the Court that two Indian parties could enter into an arbitration agreement choosing to have the seat in a foreign country.

The Court noted the observation of the Supreme Court in TDM that “the intention of the legislature appears to be clear that Indian nationals should not be permitted to derogate from Indian Law. This is part of the public policy of the country.[5] However, the Court chose to counter the applicability of TDM on two points. First, that Supreme Court had itself cautioned that its observations and findings were only for the purpose of determining the jurisdiction of the Court under Section 11 and not for any other purpose. Second, that Atlas, which was a larger bench than TDM and thus a binding precedent, considered the applicability of Section 23 and 28 of the Contract Act and held that merely because the arbitrators are situated in a foreign country would not by itself be enough to nullify the arbitration agreement when the parties have with their eyes open, willingly entered into the agreement.

Addhar

Addhar was heard as an application filed under Section 11(6) for the appointment of an arbitrator with an application under Section 9 for interim measures. The arbitration agreement mentioned in Clause 23 stipulated for “arbitration in India or Singapore and English law to be apply.”

The relevant paragraphs from Addhar have been extracted below:

8. It is not in dispute that both parties are from India. A perusal of clause 23 clearly indicates that intention of both parties is clear that the arbitration shall be either in India or in Singapore. If the seat of the arbitration would have be at Singapore, certainly English law will have to be applied. Supreme Court in case of TDM Infrastructure Private Limited has held that the intention of the legislature would be clear that Indian nationals should not be permitted to derogate from Indian law. This is part of the public policy of the country.

9. Insofar as submission of the learned counsel for the respondent that if such provision is interpreted in the manner in which it is canvassed by the learned counsel for the applicant, it would be in violation of section 28(1) (a) is concerned, since I am of the view that the arbitration has to be conducted in India, under section 28(1) (a), the arbitral tribunal will have to decide the disputes in accordance with the substantive law for the time being in force in India. In my view the said agreement which provides for arbitration in India thus does not violate section 28(1) (a) as canvassed by the learned counsel for the respondent.”

On this the Court did not hold that the arbitration agreement was null, void or inoperative. Rather, the court held that the arbitration agreement existed, and held that the application under Section 11 was maintainable.

The arbitration agreement was prima facie vague because it did not specify whether the place/seat of arbitration is India or Singapore. Moreover, since English Law was specified as the substantive law, the clause should have been declared null, void and inoperative, due to the reason that TDM prohibits two Indian parties to have a foreign law as the substantive law. (see analysis of TDM below).

However, in its zeal to make the arbitration agreement workable, the court assumed in paragraph 8 extracted above,that if Singapore was decided as the seat of arbitration, then English Law would be applicable as the substantive law (the Court implicitly interpreted, that Singapore as the seat and English Law as the substantive law would go hand in hand).After making this assumption, it observed that since TDM prohibits two Indian parties from having a foreign substantive law, it concluded that since English Law could not be the substantive law, Singapore could not be the seat of arbitration, and thus as per the arbitration agreement, India would be the seat of arbitration. And by virtue of Section 28(1)(a) if India would be the seat of arbitration, then Indian substantive law would be applicable.

Comments

The relevant paragraphs of TDM have been extracted below:

18. Chapter VI of the 1996 Act dealing with making of an arbitral award and termination of proceedings in this behalf plays an important role. In respect of `international commercial arbitration’, clause (b) of Sub-section (1) of Section 28 of the 1996 Act would apply, whereas in respect of any other dispute where the place of arbitration is situated in India, clause (a) of Sub-section (1) thereof shall apply.

19.When, thus, both the companies are incorporated in India, in my opinion, clause (ii) of Section 2(1)(f) will apply and not the clause (iii) thereof.

 20. Section 28 of the 1996 Act is imperative in character in view of Section 2(6) thereof, which excludes the same from those provisions which parties derogate from (if so provided by the Act). The intention of the legislature appears to be clear that Indian nationals should not be permitted to derogate from Indian law. This is part of the public policy of the country.”

In paragraph 20 of TDM, as extracted above, the Supreme Court has held that “the intention of the legislature appears to be clear that Indian nationals should not be permitted to derogate from Indian lawby solely relying on Section 28 of the 1996 Act. Section 28 of the 1996 Act is titled “Rules applicable to the substance of the dispute” and is applicable to the substantive law (also known as the governing law of the contract). Section 28 has nothing to do with the seat or law of arbitration (also known as the lex arbitri). Thus, the judgment, reasoning and rationale in TDM is confined to stating that two Indian Parties cannot have an arbitration where Indian substantive law does not apply. In other words, if two Indian parties were allowed to contract out of the substantive laws of India, that would be contrary to the public policy of India. Thus, in conclusion, TDM does not prohibit two Indian parties to have an arbitration which is foreign seated, the lex arbitri is a foreign law, as long as the substantive law applicable between the parties is Indian law.

In both Sasan and Addhar, the arbitration clauses reflect that the parties intended that both, the lex arbitri and the substantive law will be foreign laws (and not Indian laws). The prohibition in TDM, would only apply if the substantive law is a foreign law. Thus, in both Sasan and Addhar, TDM played a role. However, the arguments raised in making TDM applicable to the lex arbitri were  irrelevant.

The reasoning in Sasan points to the conclusion that the prohibition that TDM casts, only applies to Section 11 applications and nothing more, and for cases which are not under Section 11, two Indian parties could have an arbitration where the lex arbitri is foreign, the seat is foreign and the substantive law is also foreign.

It is thus possible to reconcile Sasan with AddharSince, Addhar was a Section 11 application, it came under the prohibition cast by TDM. In light of TDMit can be said that the Bombay High Court was bound to decide that the substantive law could not be English Law and thus, the seat of arbitration could not be outside India. Thus, Sasan and Addhar are not contrary to each other.

In conclusion, the position of law as clarified by Sasan and Addhar is as follows:

  1. General Rule: Foreign seated arbitrations with a foreign lex arbitri and a foreign substantive law are permissible.
  2. Exception: Foreign seated arbitrations with a foreign lex arbitri are not permissible in a situation where a Court is faced with a Section 11 application and the substantive law is not Indian.

_______

*Vinayak Panikkar is an Advocate practicing in New Delhi and an alumnus of the National Law University, Jodhpur.

 

[1]First Appeal No. 310/15, 11.09.15, High Court of Madhya Pradesh at Jabalpur.

[2]Arbitration Application 197/14 along with Arbitration Petition No. 910/13, 12.06.15, High Court of Judicature at Bombay.

[3]TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd., (2008)14 SCC 271

[4]Atlas Exports Industries v. Kotak & Company, (1997) 7 SCC 61.

[5]TDM, Supra note 3 at para 20.

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When the Enrica Lexie conundrum sets its sail overseas: Some thoughts on the UNCLOS dispute between Italy and India

Harisankar K S*

More than two years ago, I had an opportunity to reflect on the two significant legal issues of coastal state jurisdiction and sovereign functional immunity surrounding the Enrica Lexie incident, somewhere else. As India insisted on the prosecution of Italian marines for an offense committed in its contiguous zone and/or Exclusive Economic Zone, under the domestic law, Italy continued to protest India’s criminal jurisdiction on the basis of international law as the incident occurred in international waters and wanted the marines to be tried under Italian law. After almost three and half years of legal battle, Italy has decided to take India to an international forum. In this post, I intend to look at some of the major developments that followed the judicial process in India, which remained unsettled and had,therefore,lead to an international arbitration. A recap of the important milestones of this ocean conflict is inevitable before starting a discussion on the ongoing UNCLOS dispute settlement process.

The story thus far

The incident happened approximately 20.5 nautical miles off the coast of Kerala (an Indian state) on 15 February 2012 when two marines deployed on an anti-piracy mission onboard an Italian-flagged oil tanker MV Enrica Lexie allegedly shot dead two fishermen onboard an Indian fishing vessel St. Antony. The marines were arrested by the Kerala police and charged with murder under the Indian criminal law. The High Court of Kerala, while dismissing a writ petition filed by the Republic of Italy along with its marines, asserted that India has exclusive jurisdiction over the matter and rejected the plea of sovereign immunity. On appeal, the Supreme Court affirmed the jurisdiction of India, however, held that courts in Kerala are not empowered to exercise this jurisdiction, and directed the government to set up a special court in Delhi. Later, the case was handed over afresh to the National Investigation Agency (NIA). International organizations including the UN and EU voiced their concern over the dubious legal proceedings and demanded a speedy settlement of dispute in international level. In the meanwhile, NIA, despite the non-corporation of Italy and its Marines, has completed the investigation and submitted its report to the government of India. However, acceding to repeat applications made by the Italian side, the Supreme Court precluded the filing of a formal charge-sheet by NIA, resulting in the abeyance of any prosecution by the special court. At present, Sergeant Lattore is in Italy for a medical treatment and Sergeant Girone lives in the Italian embassy in New Delhi.

Beginning of the international legal process

Both India and Italy, being contracting parties to the 1982 United Nations Convention on the Law of the Sea (UNCLOS), are bound by the dispute settlement procedure stipulated in the convention. The Convention offers a range of mandatory dispute resolution procedures including adjudication and arbitration, from within and outside convention’s framework. Yet it requires the States to settle their disputes through peaceful means before resorting to any of the compulsory procedures entailing binding decisions. Exchange of views (Negotiation) and Conciliation under Annex V are regarded as part of the “General Obligations” of the State parties involved in a dispute concerning the interpretation or application of the Convention. The exchange of views through political and diplomatic channels between the governments of Italy and India are sufficient to indicate that the general obligation have been satisfied in this case.

Italy, by a notification dated 26 June 2015, instituted arbitration under Annex VII of the UNCLOS. In its statement of claim, Italy contends that, among other things, India’s exercise of criminal jurisdiction violates the Convention. There are couple of questions that might strike at the first instance. First, why did Italy choose for Annex VII arbitration, when their UNCLOS declaration provides something else? It is a matter of choice for the States to select a suitable forum from an array of dispute resolution models, at the time of signing, ratifying or acceding to the Convention, or anytime thereafter. State parties are provided with a choice between two courts, namely, the International Court of Justice (ICJ) and the International Tribunal for Law of the Sea (ITLOS). Additionally, Arbitration (under Annex VII) and Special Arbitration (under Annex VIII) are available as an alternative to international adjudication. Italy at the time of ratification selected ITLOS and ICJ, without specifying that one have precedence over the other. Whereas, India reserved its right to make at the appropriate time the declarations concerning the settlement of disputes. In such a situation, Annex VII arbitration operates as a default method. Means, disputant states would have to resort to arbitration when a State has not specifically opted for a procedure, and/or, states in dispute have accepted different procedures for settlement. So, Italy had no other option but to initiate Annex VII arbitration in the present case. However, a more baffling question is why did Italy wait for nearly three and half years since the incident occurred? It is an undeniable fact that, while contesting the jurisdiction of Indian courts, Italy ‘played the game’ rigorously until a point when the chances of getting the ball to their court became extremely difficult. At the end of the day, a lawyer must ensure that ‘the most convenient forum’ hears his/her client’s case. The exercise of forum shopping is not a matter of law. May be of ethics?

Secondly, could India turn down the arbitration notification, legitimately?  The answer would be in the negative. All states that are involved in a dispute do not need to consent to the reference of the dispute to the court or tribunal. In other words, a unilateral action is sufficient to vest the court or tribunal with jurisdiction, and that court or tribunal may render a decision whether or not the other State participates in the process. Therefore, technically, India had no option than to accept the offer of arbitration. However, on the other hand, by deciding to take part in an international arbitration, India went against its earlier stance on the issue. At all levels of the judicial process, India maintained that it has exclusive jurisdiction under Indian law and UNCLOS is not applicable to the matter. In so doing, the court(s) rejected Italy’s main contention based on Article 97 of the Convention, which states that, “in the event of a collision or any other incident of navigation concerning a ship on the high seas only the flag state of that ship has the jurisdiction to launch penal proceedings.The judicial opinion in India asserted that a ‘shoot and kill’ incident could not be treated as any other incident of navigation. Before the ITLOS, while blaming Italy for their delaying tactics, India emphasized on the humane and flexible behavior of Indian courts towards Italian marines. The written observations submitted by India says, “on various occasions, the High Court and the Supreme Court acted in a highly sympathetic manner and responded favorably to the requests of the marines with regard to the relaxation of their bail conditions”. The relevant question here is, does India’s criminal justice system permit such an attitude from the courts? Or in other words, will the Indian court(s) afford the same manner of treatment to a national who is charged with murder?

ITLOS Provisional Measures

Following the arbitration notification addressed to India, on 21 July 2015 Italy requested the ITLOS to prescribe two provisional measures pending the constitution of an Annex VII tribunal. They wanted the court to lay down the following measures:

(a) India shall refrain from taking or enforcing any judicial or administrative measures against the marines in connection with the Enrica Lexie Incident, and from exercising any other form of jurisdiction over the Enrica Lexie Incident; and,

(b) India shall take all measures necessary to ensure that restrictions on the liberty, security and movement of the Marines be immediately lifted to enable Sergeant Girone to travel to and remain in Italy and Sergeant Latorre to remain in Italy throughout the duration of the proceedings before the Annex VII Tribunal.

This action of Italy is evidently justified under the Convention. According to Article 290 (5):

         Pending the constitution of an arbitral tribunal to which a dispute is being submitted under this section, any court or tribunal agreed upon by the parties or, failing such agreement within two weeks from the date of the request for provisional measures, the International Tribunal for the Law of the Sea or, with respect to activities in the Area, the Seabed Disputes Chamber, may prescribe, modify or revoke provisional measures in accordance with this article if it considers that prima facie the tribunal which is to be constituted would have jurisdiction and that the urgency of the situation so requires.

The Tribunal on 24 August 2015, by a majority of 15:6 ordered that, “Italy and India shall both suspend all court proceedings and shall refrain from initiating new ones which might aggravate or extend the dispute submitted to the Annex VII arbitral tribunal or might jeopardize or prejudice the carrying out of any decision which the arbitral tribunal may render”. However, on the question of the release of the marines from the official custody of India, the tribunal concluded “the question of their status relates to the issue of jurisdiction and cannot therefore be decided by the Tribunal at the stage of provisional measures” [Para. 113]. Interestingly, the tribunal considered that the two provisional measures requested by Italy, “if accepted, will not equally preserve the respective rights of both Parties until the constitution of the Annex VII arbitral tribunal”[Para. 126]. They justified this action by Article 89 (5) of the ITLOS Rules, which says, “the tribunal may prescribe measures different in whole or in part from those requested.”

Turning to the requirements under Article 290 (5); first, the threshold of finding a prima facie jurisdiction is a low one. In the ICJ case of Interhandel (Switzerland v. United States) Judge Lauterpacht opined that the requirement is to assure that the jurisdiction of the tribunal to be constituted is not obviously excluded from deciding the merits. Similarly, while ordering the provisional measures in the case of MOX Plant (Ireland v. United Kingdom), ITLOS held that the prescription of provisional measures is usually allowed if the absence of jurisdiction is not manifest. It is possible that the finding of ITLOS on prima facie jurisdiction may prove wrong; for instance, when the arbitral tribunal later constituted under Annex VII in the case of South Bluefin Tuna concluded that it did not have jurisdiction to adjudicate on the merits of the case. The second criterion of ‘urgency of the situation’ is often linked to the gravity of the harm sought to be avoided by the request of provisional measures. In a situation where ITLOS is not seized of the merits, and there exists an uncertainty as to when an Annex VII tribunal would be in a position to adjudicate the case, the tribunal may, as a matter of urgency, prescribe provisional measures. Here, the main argument of India against the prescription of provisional measures revolved around the total absence of urgency, which the tribunal did not accept.Further, the language of the Convention indicates that the provisional measures ordered in UNCLOS disputes are binding as a matter of law [Article 290(6)]. Accordingly, Indian Supreme Court suspended all the pending judicial proceedings and set January 13, 2016 as the date for the next hearing.

Comments

What do this order and the imminent international arbitration mean to India? In the domestic political circle, it is perceived as a setback to the Indian legal system. Although before the ITLOS India accused Italy, rightly or wrongly, for their delaying tactics and judicial strategy,the order exposes the inordinate delays and inconsistencies of the Indian courts once again. Nevertheless, the decision to participate in Annex VII arbitration and the subsequent appearance before the ITLOS tribunal would be hailed internationally. Perhaps, the Indian Supreme Court is wary of the situation because of an earlier experience when the country was held liable for its judicial delays in the form of an international arbitration award. However, I believe that, India should have agreed to submit the subject matter to the ITLOS or ICJ, at the ‘appropriate’ time and in accordance with declaration made by Italy, instead of agreeing for an international arbitral process. By doing so, the government would have saved the time, energy and a tremendous amount of expenditure that is otherwise required in establishing an arbitral tribunal and subsequent running of the process. The significance of such an action could be proved shortly, as it is less likely that the matter will come back to an Indian court.

* Doctoral Candidate, Faculty of Law, National University of Singapore.

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Indian athlete’s persistence culminates into a landmark Court of Arbitration for Sport interim award

 

Aakanksha Kumar* & Kartikey Mahajan*

Recently, an Indian female sprinter has been at the forefront in limiting the role played by the allegedly “performance enhancing androgen” – testosterone hormone levels as a relevant factor in distinguishing male and female athletes. The female sprinter is Dutee Chand, who holds the National under-18 record in the girls’ 100m category. She was barred from competing due to naturally high levels of testosterone in her body, which were in excess of the IAAF Hyperandrogenism Regulations. This post tries to throw light on some of the issues concerning the CAS interim award that she obtained, which suspends these regulations.

The IAAF Guidelines

The International Association of Athletics Federation (“IAAF”) is the governing body of track and field sport, as recognized by the International Olympic Committee (“IOC”). Gender has always been an issue of controversy in track and field sports. Readers may recall the case of Caster Semenya (a South African runner), which gathered a lot of publicity.[1] In order to resolve issues relating to gender, the IAAF in 2011 established guidelines requiring female athletes to have testosterone levels below 10 nanomoles per liter, the lower end of the male range.[2] These guidelines are known as The IAAF Regulations Governing Eligibility of Females with Hyperandrogenism to Compete in Women’s Competitions (“IAAF Hyperandrogenism Regulations”), which were later adopted by the IOC. This was, and has continued to be the relevant criteria for distinguishing male and female athletes in track and field sports. The women who exceeded the criteria in these regulations were left with two options: either to undergo treatment to normalize their androgen levels, or cease competing.

Brief Factual Background of the Case

The Sports Authority of India (“SAI”) is the primordial body dealing with sports in India under the aegis of Ministry of Youth Affairs and Sports. SAI is not affiliated to IAAF and is not subject to IAAF’s regulatory jurisdiction. The Athletics Federation of India (“AFI”), on the other hand, is the apex body for running and managing athletics in India and affiliated to the IAAF, Asian Athletics Association and Indian Olympic Association.

On July 16, 2014, SAI released a statement confirming that Indian athlete Dutee, would be “not eligible to compete in the female category”, following a test that was conducted to check the level of androgen in her body. This was admittedly done pursuant to a letter from the AFI, seeking investigation into Dutee’s suspected high male hormone levels. Following representations and exchanges between Dutee’s medical representatives, SAI and AFI, the AFI issued its “Decision Letter” on August 31, 2014 notifying Dutee of her provisional suspension from any athletics competitions thereafter. Dutee wrote back to AFI on September 28, 2014 seeking a reconsideration of the aforesaid decision, while SAI maintained that in case AFI chose to not revoke its decision, SAI would continue to support Dutee’s plea to the CAS for reinstatement, as well as against the IAAF Hyperandrogenism Regulations.The IAAF initially ruled that Dutee could return to competitions, but only if she had significantly lowered her testosterone levels through certain drugs or surgery that limit the production of testosterone.[3] Dutee, in the meantime had already filed her appeal with the CAS court on September 26, 2014, challenging the IAAF Hyperandrogenism Regulations inter-alia on the basis that they discriminate unlawfully against female athletes and are based on flawed factual assumptions about the relationship between testosterone levels and athletic performance.

Jurisdiction of the CAS over the issue and power to grant provisional relief

The AFI is a member of the IAAF under Article 4 of the IAAF Constitution, and thus, as mentioned, is affiliated to and governed by the IAAF Regulations. Under Art. XXIV(1) of the AFI Constitution, the AFI committee has the power to suspend any athlete from National and International Competitions. This, read with Art. XXX(C) and (D) recognises that the AFI takes into account the IAAF Anti-Doping and other Technical Rules for ensuring compliance and as well as while taking decisions related to suspension. Articles 14.1(f) read with 14.7(f) of the IAAF Constitution further enable the IAAF Congress and the IAAF Council, respectively, “to exclude a Member’s athletes from any one or more of the types of International Meeting defined in the Rules.” Such a decision, “of the Council whether to suspend a Member under Article 14.7(a) or to issue any other sanction under Article 14.7 shall be subject to an appeal before the Court of Arbitration for Sport (CAS).[4]

The CAS derives its jurisdiction from Art.15 of the IAAF Constitution which provides that :

“ARTICLE 15

Disputes

  1. All disputes arising under this Constitution shall, in accordance with its provisions, be subject to an appeal to the Court of Arbitration for Sport in Lausanne (CAS).
  2. The CAS appeal shall be in accordance with the rules of CAS currently in force, provided always that the CAS Panel shall be bound to apply the Articles of this Constitution and the appellant shall file its statement of appeal within sixty days of the date of communication in writing of the decision that is to be appealed.

The CAS Appeal process is governed by the Statutes of the Bodies Working for the Settlement of Sports-Related Disputes, (“CAS Code”). Part C(3), Rule S20(b) provides for the creation of the “Appeals Arbitration Division, (that) constitutes Panels, whose responsibility is to resolve disputes concerning the decisions of federations, associations or other sports-related bodies insofar as the statutes or regulations of the said sports-related bodies or a specific agreement so provide….”.

The Procedural Rules begin at Recital R27, and these “apply whenever the parties have agreed to refer a sports-related dispute to CAS. Such reference may arise out of an arbitration clause contained in a contract or regulations or by reason of a later arbitration agreement (ordinary arbitration proceedings) or may involve an appeal against a decision rendered by a federation, association or sports-related body where the statutes or regulations of such bodies, or a specific agreement provide for an appeal to CAS(appeal arbitration proceedings)…Such disputes may involve matters of principle relating to sport or matters of pecuniary or other interests relating to the practice or the development of sport and may include, more generally, any activity or matter related or connected to sport.” Rules R47- R59 detail the Special Rules applicable to the Appellate Arbitration Process. Hence, it is the CAS that had jurisdiction over the claim in this matter, as it involved a challenge to an IAAF – AFI decision, along with a challenge to the rules themselves under which the decision was taken

It is interesting to note here that the appeal claimed that it ‘raises important issues of public interest and general application” and thus the arbitration proceedings, except her medical records, need not be kept confidential. However, since IAAF and AFI didn’t agree to a public hearing, a request for the same was denied by the CAS under R44.2 read with R57 of the CAS Code.

On November 25, 2014, provisional measures were sought on Dutee’s behalf, seeking permission for her to participate in athletics events during pendency of the arbitration proceedings, claiming that in light of her suspension, she was “under significant pressue from her major sponsor to undergo medical intervention”, and that continued absence from the tracks was increasing the pressure on her to seriously consider treatment. Thus, non-grant of interim remedies would lead to “irreparable harm”[5]. These measures were granted in two phases – First, a response from IAAF regarding Dutee’s plea for provisional measures was received on December 3, 2014, wherein the IAAF did not object to Dutee continuing to compete at national events. CAS thus confirmed on the same day that Dutee shall be allowed to compete at all national events, pending the pronoucement of a Final Award in the proceedings; Second, on March 26, 2015 the CAS Arbitral Panel directed that Dutee was also permitted to compete at the Asian Athletics Championsips that were to be held from June 3-7, 2015.

Decision

As stated above, the IAAF regulations in essence were aimed at determining how much testosterone can a female body possess which can lead to competitive advantage over other females? On July 24, 2015, the CAS handed down an interim arbitral award in Dutee Chand v AFI & IAAF. The CAS has effectively said that the existing evidence is insufficient to determine an exact level of testosterone, which can serve as a distinguishing criteria between males and females. The award suspends the IAAF Hyperandrogenism Regulations, “for a maximum period of two years in order to give the IAAF the opportunity to provide the CAS with scientific evidence about the quantitative relationship between enhanced testosterone levels and improved athletic performance in hyperandrogenic athletes.”

The CAS Interim Award is such, so that the IAAF is enabled to, in the two years at its disposal, submit further written evidence concerning the Hyperandrogenism Regulations that stand suspended, “in particular, the actual degree of athlectic performance advantage sustained by hyperandrogenic female athlestes compared to non hyperandrogenic female athletes, by reason of their high levels of testosterone”. The award also mandates that “…in the event no evidence is filed…or in the event that the IAAF confirms in writing to the CAS Court Office that it does not intend to file any such evidence, the Hyperandrogenism regulations shall be declared void.”

Nature of Interim Award by CAS

By virtue of R28 of the CAS Code, “The seat of CAS and of each Arbitration Panel (Panel) is Lausanne, Switzerland.” The concept that an arbitration is governed by the law of the place in which it is held, which is the ‘seat’ (or ‘forum’ or ‘locus arbitri’) of the arbitration, is well established in both the theory and practice of international arbitration.[6] The Swiss Federal Statute on Private International Law at Chapter 12 deals with international arbitration. Art. 176 provides that “The provisions of this chapter shall apply to all arbitrations if the seat of the arbitral tribunal is in Switzerland and if, at the time of the conclusion of the arbitration agreement, at least one of the parties had its domicile nor its habitual residence in Switzerland.”

It is understood that the power of an arbitral tribunal to issue partial or interim awards may derive from the arbitration agreement or from the applicable law.[7] Art. 188 of the Swiss Statute provides that “Unless the parties otherwise agree, the arbitral tribunal may render partial awards.”

The CAS Award of July 24, 2015 is an interim award that is to remain in force for a period of two years. While upon issuance of a final award an arbitral tribunal becomes functus officio, however, with respect to the interim award, the tribunal is functus officio only to the extent of the finality of the determination made in the interim award.[8] An interim award is nonetheless final in that it is open to challenge under Art. 190 of the Swiss Statute.

Concluding remarks

The IAAF has responded to the CAS Award via press release on July 27, 2015, mentioning that while it is happy that the CAS Panel acknowledged that “the IAAF and its experts have ‘acted with conspicuous diligence and good faith’, seeking ‘to create a system of rules that are fair, objective and founded on the best available science’, and that those rules ‘have been administered in confidence and with care and compassion’”, it intends to utilise the time given, recognising “that more evidence is required as to the precise degree of performance advantage that hyperandrogenic female athletes enjoy over athletes with normal testosterone levels, and its directive that the Regulations should be suspended for two years while that evidence is gathered….The IAAF will now meet as soon as possible with its experts and with the IOC and its experts to discuss how best to address this interim ruling by the CAS.”

Amongst other things, one specific question which the award leaves open is – if not testosterone levels, then what exactly aids in distinguishing male athletes from female athletes? The IAAF will either have to provide the relevant evidence in the two year span which the award permits or it would have to devise a new mechanism of identifying the dividing line between male and female athletes. The basis chosen for differentiating has to ultimately be reasonable and proportionate to the objective sought to be achieved.

* Aakanksha Kumar is an Assistant Professor at NLU Jodhpur and heads the Centre for Advanced Research and Training in Arbitration Law (CARTAL).

* Advocate, Supreme Court of India; LLM, Harvard Law School.

[1]For details on Caster Semenya and the IAAF Proceedings see Athlete Caster Semenya free to compete, BBC News, July 6, 2010, available at http://news.bbc.co.uk/sport2/hi/athletics/8793668.stm. (last visited August 31, 2015) See also John Branch, Dutee Chand, Female Sprinter With High Testosterone Level, Wins Right to Compete, NY Times, JULY 27, 2015 available at http://www.nytimes.com/2015/07/28/sports/international/dutee-chand-female-sprinter-with-high-male-hormone-level-wins-right-to-compete.html  (last visited August 31, 2015).

[2] IAAF Hyperandrogenism Regulations, Regulation 6.5 available at http://www.iaaf.org/download/download?filename=58438613-aaa7-4bcd-b730-70296abab70c.pdf&urlslug=IAAF%20Regulations%20Governing%20Eligibility%20of%20Females%20with%20Hyperandrogenism%20to%20Compete%20in%20Women%E2%80%99s%20Competition%20-%20In%20force%20as%25 (last visited August 20, 2015).

[3]IAAF Hyperandrogenism Regulations Explanatory Note, May 2011 available at http://www.iaaf.org/download/download?filename=fd073e9a-e217-431f-b06b-73e5349bd874.pdf&urlslug=IAAF%20Hyperandrogenism%20Regulations%20-%20Explanatory%20Notes%20-%20In%20force%20as%20from%201st%20May%202011 (last visited August 31, 2015).

[4] Art. 14.11, IAAF Constitution.

[5] R37, CAS Code, “…When deciding whether to award preliminary relief, the President of the Division or the Panel, as the case may be, shall consider whether the relief is necessary to protect the applicant from irreparable harm, the likelihood of success on the merits of the claim, and whether the interests of the Applicant outweigh those of the Respondent(s)….”

[6] Nigel Blackaby , Constantine Partasides , et al., Redfern and Hunter on International Arbitration, 179 (5th Ed., Oxford University Press, 2009).

[7]Id at p.519.

[8] See further Kempinski Hotels SA v PT Prima International Development, [2011] SGHC 171 at ¶¶30-32.

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The Arbitration and Conciliation (Amendment) Bill, 2015

Prithvij Beniwal *

The 2015 Budget Session of the Houses of Parliament commenced on 23rd February. The legislative agenda for the session includes a number of bills including the Arbitration and Conciliation (Amendment) Bill, 2015 (“Bill”). In December, the union cabinet approved an ordinance regarding the amendment of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) but, the same was withdrawn before it received presidential assent, and was instead decided that it would be tabled before Parliament. The contents of the Bill or that of the Ordinance have not been revealed to the public as of yet, and the specifics of its contents remain unknown. It stands that the Bill should reflect the recommendations made by the Law Commission in its 246th Report, however, since it is futile to proceed with an analysis on the assumption that it definitely will, an in-depth analysis of the Bill’s effect must wait. Still, the Law and Justice Minister (“Law Minister”), Mr. D.V. Sadananda Gowda, has alluded to the Bills’ contents viz. the time bound disposal of matters, the imposition of a verdict based fee structure as opposed to the prevalent hearing based one, and a cap on the overall fees (perhaps to incentivize speedy disposal of matters).

The Government aims for the amendments to the Arbitration Act to function in conjunction with other legislations and policies, namely, a national litigation policy focussing on transparency and, the setting up of specialised commercial courts and benches. However, both of these are still just proposed by the Law Minister. The policy is yet to be formulated and, the legislative agenda of the current session of Parliament does not contain any specific legislation to set up the specialised courts.

The motivation of the Government in amending the Arbitration Act, and in bringing adjacent changes thereto, is to make India a more attractive destination for commercial arbitration, as well as to compete with the likes of Singapore and London as hubs of international commercial hub. The other causa proxima for the amendment is India’s abysmal ranking in the World Bank’s Ease of Doing Business Index released in 2014 (142 out of 189 countries) and the Prime Minister’s effort to better it.

The current status of the Bill is that it hasn’t even been discussed due to the turmoil created by the tabling of the Land Acquisition Bill. Whether the Bill will bring about substantial change or will be whittled down to a pale reflection of what it ought to be by the rigours of parliamentary debate remains to be seen. But, rest assured we will be there to analyse the developments as and when they take place.

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* Prithvij is a 4th year student at National Law University, Jodhpur. He is also a Managing Editor of IJAL.

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Krishna-Godavari Basin Gas Row – Why India needs Institutional Arbitration – Part II

Bharatendu Agarwal*

 

This post is a continuation of the previous Krishna-Godavari basin gas row post which talks about the dispute between the Union of India (the ‘Government’) and Reliance Industries Ltd (‘RIL’) (collectively referred to as the ‘Parties’) arising from the Production Sharing Contract (the ‘PSC’) entered into in April 2000. While the previous post detailed the timeline of the case, this post focuses on the players involved, their conduct and its implications. It concludes by highlighting what role an arbitral institution could have played in the case and its benefits.

Introduction

One of the many benefits of arbitration is that it is a mode of resolving disputes expeditiously. However, the sequence of events that have transpired in the Krishna-Godavari basin gas row do not merely challenge the previous statement’s veracity rather they laugh in its face! The preliminary aspect of constituting the tribunal took a total time of over three years (23 November 2011 to 11 December 2014). This means that a period of more than three years elapsed even before the beginning of the dispute resolution process. This calculation, moreover, is based on the assumption that there will not be further recusals, withdrawals, resignations or challenges to/by the arbitrators in the panel.

 

The case has witnessed significant mud-slinging by the Parties accusing each other of delaying the arbitration or obstructing the proceedings. However, a closer observation of the facts indicates that the delay can be attributed to both Parties, the arbitrators appointed and even the Supreme Court. The approach of the Parties, either due to incompetency or as a matter of strategy, evidences that rather than strictly focussing on dispute resolution strong emphasis was placed on making a mockery of the situation. The indecision of party appointed arbitrators made the situation worse. Adding salt to injury the Supreme Court dealt with the matter in an inefficient manner.

 

Below is a list of instances of how and where the Parties, the arbitrators and the Supreme Court have collectively contributed in delaying the matter.

 

Informal approach/Communication by improper channels

Any arbitration practitioner will advice that when arbitrating, all communication with the other party should be stopped after serving the arbitration notice. Then, immediately after the expiry of the timelines in the notice, the appropriate authority (either the court or the arbitral institution) should be approached to seek assistance in ensuring the tribunal’s constitution and continuation of the proceedings.

 

Here, however, despite having served the Government with an arbitration notice (the ‘Notice’) on 23 November 2011, RIL continued to indulge in communication with the Government constantly. RIL approached the Supreme Court only on 16 April 2012, approximately five months after serving the Notice.

 

Tactful postponement while appointing the arbitrator

The topmost priority of a party who is on the receiving end of an arbitration notice is ensuring the nomination and eventual appointment an arbitrator of its own choice. No party would, on account of delay, want to lose this right and leave this task in the hands of some other authority. In complex disputes, the choice of arbitrator may make a difference on winning or losing, if not the entire arbitration, the contentious issues involved.

 

Here, the Government very tactfully kept RIL engaged in communication and tried everything in its capacity to postpone the appointment of its arbitrator. The Government appointed Justice Khare as its arbitrator on 8 June 2012 (approximately seven months after receiving the Notice and one and a half months after RIL’s petition) only when they realised that the matter was soon to be heard in the Supreme Court. This was because the Government knew that if the matter is heard in the Supreme Court they would lose their right to appoint their arbitrator as the timeline prescribed in Article 33.5 of the PSC had expired.

 

Failure of party appointed arbitrators to reach consensus

Once parties appoint their arbitrators, in circumstances where party appointed arbitrators choose the presiding arbitrator, the decision as to who shall preside is fairly simple and less time consuming. Only rarely does it happen that party appointed arbitrators are unable to reach a consensus. This is primarily because inability to reach a common decision reflects poorly on the tribunal members:-

  1. First, it indicates incompatibility between the tribunal members even before the arbitration proceedings begin; and
  2. Second, it can be construed as situation where the appointed arbitrators are not acting impartially and are rather advocating for their respective parties.

 

Here, even one year subsequent to the appointment of respective arbitrators (17 July 2012 to 11 July 2013) no decision regarding the presiding arbitrator was made. In fact, no communication on the issue was received from Justice Khare and Bharucha. It was only when RIL wrote to them that a communication was received on 1 August 2013 which not only lacked the presiding arbitrator’s name but also clearly reflected poor communication between the two arbitrators. Moreover, the communication contained language which could be insinuated to be legal advice, something which the arbitrators are forbidden from.

 

Voluntary disregard of timelines in the arbitration agreement

National arbitration legislations, institutional rules and decently drafted arbitration agreements provide specific timelines for appointment of arbitrators. Inability to make the appointment within the timeline deprives the defaulting party of its rights and opens up an alternative route for appointment. The rationale behind providing specific timelines is to ensure that the arbitration process continues by the non-defaulting party’s timely pursuance of the matter.

 

Here, Article 33.6 of the PSC clearly provided that the appointment of the presiding arbitrator would be made as per the Arbitration & Conciliation Act, 1996 if, after appointment of the second arbitrator, party appointed arbitrators were unable to agree on the presiding arbitrator within a period of 30 days. This means that both Parties, after 8 July 2012 (as Justice Khare was appointed on 8 June 2012), were at liberty to approach the court to request appointment of the presiding arbitrator. Regardless, RIL filed an appointment petition in the Supreme Court only on 8 August 2013, i.e. 13 months after the opportunity first became available.

 

Full-fledged litigation before arbitration

When an appointing authority receives request for appointment of arbitrator, generally, the decision is simple and straight-forward. The appointing authority makes the appointment after considering the specifics mentioned in the arbitration agreement along with any guidelines mentioned in the rules/law governing the appointing authority. Also, it is accepted practice not to appoint arbitrator(s) belonging to the nationality of any party involved if the arbitrating parties belong to different nationalities.

 

Here, pursuant to Article 33.6 of the PSC the Supreme Court had the simple task of appointing the presiding arbitrator. However, the Parties motivation to fight tooth and nail converted this simple issue of appointment into a full-fledged litigation. The Supreme Court needed to issue an 83 paragraph judgement in which more than half the paragraphs discussed the internationally settled issue of arbitrator’s nationality.

 

Supreme Court goofs-up

Whenever any judgement is passed, it is expected to have been made after due consideration of the facts and circumstances involved. This particular expectation is stronger when the judgement is passed by the highest judicial body of the country.

 

Here, on one hand, Justice Nijjar had said that his understanding of the case warranted the appointment of an individual not suggested by the Parties while, on the other hand, he ended up appointing Mr Spigelman who was on top of RIL’s list of prospective arbitrators!

 

Supreme Court goofs-up again

When an arbitrator is chosen either by the party, its lawyers or by the appointing authority, it is common practice to establish communication with the said arbitrator so as to enquire of his/her availability. This is not only a practical requirement but is also fundamental in ensuring that the arbitrator has adequate time to devote to the arbitration and facilitate its timely resolution.

 

Here, Justice Nijjar appointed Mr McHugh without establishing any prior communication with him. This eventually led to a fiasco because Mr McHugh was already pre-occupied and was under the impression that an award was need soon, which he could not commit to.

 

Moreover, despite the past turn of events, Justice Khehar repeated the same thing by appointing Mr Kirby without establishing any communication. Rather than taking a pragmatic approach Justice Khehar in the judgement said that the consent of Mr Kirby was not obtained because the appointment was made under the belief that Mr Kirby would not disappoint the parties!

 

Analysisa

The instances noted above have cumulatively contributed to the delay in constitution of the tribunal. All of the above instances are classical examples of why arbitration gets a bad name and why arbitration in India has not gained the same level of popularity as in other countries. Interestingly, these issues are precisely the ones which arbitral institutions are designed to deal with and remedy.

 

As reflected in Article 33 of the PSC the Krishna-Godavari Basin arbitration is an ad-hoc arbitration, which means that there is no other body which facilitates the process of arbitration. There is no intermediary between the parties and the arbitrators/tribunal. The parties are themselves responsible for sending the notice, following up on timelines in the notice, appointing arbitrator(s), establishing the tribunal, organising hearing rooms, facilitating arbitrator’s travel, managing costs etc.

 

If the present case had been administered by an institution the situation would have been entirely different. Hypothetically speaking:-

 

  • At the outset, the information that RIL has started arbitration against the Government would not have even come in the public domain;
  • RIL would have sent the Notice to the institution which would have in-turn served it on the Government clearly indicating that if the Government did not appoint its arbitrator within 30 days, the institution would go ahead and appoint the arbitrator on its behalf;
  • in the event the Government did not respond or failed to make the appointment, the institution would have after the expiry of 30 days immediately appointed an arbitrator after performing the necessary conflict of interests check and ensuring his availability;
  • after confirmation of the second arbitrator, the institution would have indicated to the two arbitrators that they have to appoint the presiding arbitrator and in case they fail to reach a consensus within 30 days, the institution would take upon itself the responsibility of appointment; and
  • in the event consent could not be reached, the institution would have within a reasonable time (between 30 to 60 days depending on the institutional rules) appointed the presiding arbitrator, once again after performing a conflict of interests check and ensuring his availability, giving due regard to the nationality requirement.

 

The entire process rather than three years would have taken merely four to six months at the most. This is because there would have been no issues such as withdrawal of arbitrator due to busy schedule or recusal due to allegations of possible bias/conflict of interest or questions regarding rendering of legal advice by the arbitrator. The procedures and mechanisms adopted by institutions eliminate these risks.

 

Current Approach & Way Forward

For quite some time now there has been persistent talk about making India, like Singapore and Hong Kong, an arbitration hub. It is however pertinent to note that other than having arbitration friendly regimes both these countries have well reputed arbitral institutions (SIAC and HKIAC) which have been instrumental in attracting the arbitration business. Therefore, developing an Indian arbitral institution on similar lines can be a first step towards realizing the arbitration hub dream.

 

India in the past has seen strong resistance towards institutional arbitration. One major reason for this has been the culture of only preferring retired judges as arbitrators, who in turn do not like their fee to be regulated by an institution. The other reason has been the misconception that involving an arbitral institution in the scheme of things merely increases the costs involved and is not beneficial. (Practice indicates that institutional arbitration ensures resolution of disputes within a given timeframe, which as a consequence significantly reduces the legal fee involved, thereby drastically containing the total arbitration cost.)

 

That being said, of late, not only private parties but even courts have acknowledged the benefits of institutional arbitration. For example, the Delhi High Court came out in clear support of institutional arbitration by way of two recent cases (discussion on them can be found here). Also, the Law Commission out-rightly acknowledged the need for institutional arbitration in its 20 August 2014 report of proposed amendments to the Act (Chapter II, paragraphs 5 to 9). These positive developments indicate that a certain section has realized that India needs institutional arbitration and not situations akin to the Krishna-Godavari basin gas row. One can only hope that the trend catches on!

 

P.S. – On 22 December 2014 the Economic Times reported further developments in the case. A follow up post in the series can be expected when significant developments have transpired.

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* Bharatendu did his B.B.A. LL.B. (International Law Hons.) from NLU, Jodhpur and LL.M. (International Commercial Arbitration Law) from Stockholm University. He is currently interning at SIAC.

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Krishna-Godavari Basin Gas Row – Why India needs Institutional Arbitration – Part I

Bharatendu Agarwal*

The Petroleum and Natural Gas Ministry has been embroiled in a gas dispute with Reliance Industries Ltd (‘RIL’) concerning the Krishna-Godavari Basin for almost a period of four years. Over this period of time newspapers have, in bits and pieces, reported on its developments which are not only eventful but also involve several arbitration issues.

This post chronologically lists the case developments supported with, wherever possible, relevant links and information. The next post in this series will discuss the case in the context of institutional arbitration.

Timeline of the Case

12 April 2000 – A Production Sharing Contract (the ‘PSC’) was executed between the Union of India (the ‘Government’) and RIL (collectively referred to as the ‘Parties’). The PSC was executed in pursuance of RIL winning a joint bid for exploration, development and production in one block of hydrocarbon reserves located in the Krishna-Godavari Basin, i.e. Block KG-DWN-98/3 (‘KG-D6’). The PSC contained an arbitration agreement in Article 33, the relevant parts of the agreement are as follows:-

33.3 Subject to the provisions of this Contract, the Parties hereby agree that any controversy, difference, disagreement or claim for damages, compensation or otherwise (hereinafter in this Clause referred to as a “dispute”) arising between the Parties, which cannot be settled amicably within ninety (90) days after the dispute arises, may (except for those referred to in Article 33.2, which may be referred to a sole expert) be submitted to an arbitral tribunal for final decision as hereinafter provided.

33.4 The arbitral tribunal shall consist of three arbitrators. Each Party to the dispute shall appoint one arbitrator and the Party or Parties shall so advise the other Parties. The two arbitrators appointed by the Parties shall appoint the third arbitrator.

33.5 Any Party may, after appointing an arbitrator, request the other Party(ies) in writing to appoint the second arbitrator. If such other Party fails to appoint an arbitrator within thirty (30) days of receipt of the written request to do so, such arbitrator may, at the request of the first Party, be appointed by the Chief Justice of India or by a person authorised by him within thirty (30) days of the date of receipt of such request, from amongst persons who are not nationals of the country of any of the Parties to the arbitration proceedings.

33.6 If the two arbitrators appointed by or on behalf of the Parties fail to agree on the appointment of the third arbitrator within thirty (30) days of the appointment of the second arbitrator and if the Parties do not otherwise agree, at the request of either Party, the third arbitrator shall be appointed in accordance with Arbitration and Conciliation Act, 1996.

Additionally, in Article 33.9 the PSC adopted the UNCITRAL Rules (at the time of signing the PSC the UNCITRAL Rules, 1976 were in force).

2010 to 2011 – Differences of opinions arose regarding the interpretation and scope of the provisions of the PSC, particularly during the time when the Comptroller & Auditor General of India (the ‘CAG’) was conducting a special performance audit of the hydrocarbon blocks allocated in the year 2000. (Observations of this audit were published in Report No. 19 of 2011-12.) The fact that differences of opinions existed between the Parties could be evidenced by the fact that RIL, on 8 September and 9 September, issued press statements in anticipation and regarding the CAG’s findings. [The most recent report on Hydrocarbon Production Sharing Contracts (report No. 24 of the year 2014 covering period 2008-09 to 2011-12) was placed in the Parliament on 28 November 2014 (summary of its observations can be found here and here). RIL immediately issued a press release disputing the report’s observations.]

23 November 2011 – RIL, in accordance with Article 33 of the PSC, served the Government with an arbitration notice (the ‘Notice’). In its notice RIL nominated former Chief Justice of India, Justice S.P. Bharucha as its arbitrator and urged the Government to nominate its arbitrator. RIL soon issued a press release indicating the same on its website.

21 December 2011 – The Government, by way of a letter, wrote to RIL that the matter was under consideration and it would respond by 31 January 2012.

2 January 2012 – In response to the Government’s letter RIL wrote back, highlighting that the PSC, the UNCITRAL Rules and the Indian Arbitration and Conciliation Act, 1996 (the ‘Act’) fixed a maximum time limit for appointing an arbitrators as thirty days, nevertheless, as a matter of good faith, it was willing to grant extension until 31 January 2012.

25 January 2012 – The Government, backed with opinion from the Solicitor-General and the Law and Justice Ministry, asked RIL to withdraw its Notice stating that the Notice was premature as no dispute existed between the Parties.

2 February 2012 – Disregarding the Government’s position, RIL maintained that a dispute regarding the limiting of rights to recover contract costs existed and the Government’s response indicated that it failed to appoint an arbitrator.

17 February 2012 – The Government reiterated its position and again asked for withdrawal of the Notice.

9 March 2012 – RIL sent a non-exhaustive list of eleven issues to the Government, which according to RIL had already arisen between the Parties.

16 April 2012 – RIL, in accordance with Article 33.5 of the PSC, petitioned to the Supreme Court to nominate an arbitrator on the Government’s behalf. RIL also issued an official press release.

17 April to 7 June 2012 – A series of lengthy and heated correspondence was exchanged between the Parties.

8 June 2012 – Pursuant to the correspondence, Government nominated former Chief Justice of India, Justice V.N. Khare as its arbitrator.

16 July 2012 – RIL withdrew its petition dated 16 April 2012.

17 July 2012 to 11 July 2013 – No developments reported. It can be assumed that during this time period the two party appointed arbitrators, Justice Bharucha and Justice Khare, were deliberating as to who could be appointed as the third (and presiding) arbitrator.

12 July 2013 – RIL wrote to both arbitrators requesting them to nominate the third (and presiding) arbitrator at the earliest.

1 August 2013 – Justice Bharucha wrote a letter to RIL stating:-

Undoubtedly, there has been a delay in the appointment of a third arbitrator. I had made a suggestion to my fellow arbitrator, which was not acceptable to him. I asked him to make a counter suggestion which he said he would do. I have not heard any counter suggestion as yet.

In the circumstances, you must consider whether the court should be approached for the appointment of a third arbitrator.

8 August 2013 – RIL, this time in accordance with Article 33.6 of the PSC, petitioned to the Supreme Court to nominate the third (and presiding) arbitrator.

6 September, 30 September, 11 November 2013 and 7 January 2014 – Counsels for respective Parties presented arguments before the Supreme Court.

31 March 2014 – The Supreme Court, after requesting from Parties a list of individuals who could be appointed as the presiding arbitrator, stated that considering the peculiar facts of the case it was of the opinion that it would be appropriate to appoint an individual not named by the Parties. Justice Surinder Singh Nijjar went on to state that ‘I have discretely conducted a survey to find a suitable third arbitrator who is not a National of any of the parties involved in the dispute’ and appointed former Chief Justice and Lieutenant Governor of New South Wales, Australia, Honourable James Spigelman AC QC to act as the presiding arbitrator.

 

During the case’s hearing, besides appointment of the presiding arbitrator, questions regarding arbitrator’s nationality and operator’s right to invoke arbitrator were argued in detail. The decision of the Supreme Court can be accessed here and a succinct discussion on the issues can be found here.

2 April 2014 – The Supreme Court withdrew it decision appointing Mr Spigelman after the Government pointed out that his name was, in fact, in RIL’s list of prospective arbitrators. Reports indicate that not only was Mr Spigelman’s name in RIL’s list, it was, surprisingly, the first name on the list. This probably explains RIL’s press release celebrating Mr Spigelman’s appointment.

29 April 2014 – The Supreme Court appointed former Australian High Court Judge, Honourable Michael Hudson McHugh AC QC as Mr Spigelman’s replacement.

25 May 2014 – Mr McHugh emailed the Parties indicating that he cannot confirm his ability to preside the arbitration as he’s busy until 15 September and an award, according to the Supreme Court, was expected quickly.

29 May 2014 – Mr McHugh, after receiving clarification from RIL lawyers that the case was expected to take some time, indicated that he would be able to take up the position.

June 2014 – The Government objected and took the position that Mr McHugh, by way of email dated 25 May 2014, had withdrawn and he could not reappoint himself. The Government wrote to Mr McHugh asking him not to take any action until he hears further.

8 July 2014 – Mr McHugh sent an email to the Parties, Justice Bharucha and Justice Khare clarifying that his email of 25 May 2014 cannot be construed as a withdrawal because a withdrawal from an office pre-supposes a prior acceptance of the office, which did not exist in the present case.

20 July 2014 – Mr McHugh sent an email expressing his withdrawal from the arbitration and stating that his decision was irreversible.

21 July to 22 September 2014 – RIL accused the Government of violating the spirit of arbitration and provoking Mr McHugh not to accept the appointment. An interlocutory application was filed in the Supreme Court for appointment of someone else in place of Mr McHugh.

23 September 2014 – The Supreme Court appointed former Justice of the Australian High Court, Honourable Michael Kirby AC CMG to preside over the arbitration, who according to RIL lawyer Harish Salve is a ‘great friend of India’. Justice J.S. Khehar in the order also states that ‘Keeping in view the urgency of the matter, prior consent of the third arbitrator was not obtained. The nomination has been made under the belief that third arbitrator, nominated hereinabove, shall not disappoint the parties, by declining to accept the responsibility vested in him.

5 December 2014 – Justice S.P. Bharucha recued himself from the arbitration on account of the Government’s objection regarding inadequate disclosure of his previous links with RIL.

11 December 2014 – RIL nominated former UK judge, Sir Bernard Rix as their replacement arbitrator.

Closing Remarks

Other than providing disputants the right to choose the process and decision maker of their own choice (party autonomy), speedy resolution of disputes is a fundamental benefit of arbitration. The sequences of events here, however, indicate that significant time has passed between the issuing of the arbitration notice and the constitution of the tribunal. That being said, it can’t be guaranteed that there will not be further delay on account of challenges to the arbitrators or other reasons.

The next post in this series will go on to discuss who is accountable for the delay, reasons for such delay and how they could have been mitigated. The post will shed light on how institutional arbitration is the solution to the problem and its benefits.

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* Bharatendu did his B.B.A. LL.B. (International Law Hons.) from NLU, Jodhpur and LL.M. (International Commercial Arbitration Law) from Stockholm University. He is currently interning at SIAC

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Arbitration in India – Finding its way?

S.N. Chidambara Sastry^ & Puloma Mukherjee*

 

The historical roots of arbitration in India run deeper than most countries which are considered the new world arbitration havens, such as London and Singapore, and can be traced back to far before India’s independence in 1947. Arbitral tribunals existed since ancient times in the form of the Panchayat system, where village elders informally decided matters brought before them, on issues ranging from property and torts to even murder and rape.[i] A more formal system of arbitration was established by various laws passed by the British, such as the Bengal Regulations 1772, which provided for reference by a court to arbitration on civil claims such as contractual matters among others.[ii]

Post-independence, the Government of India enacted a number of laws to formally govern arbitration in India; the Arbitration (Protocol and Convention) Act, 1937, the Indian Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961. The Indian Arbitration Act, 1940 was the primary law governing arbitration in India along the lines of the English Arbitration Act of 1934. In 1996, the Government enacted the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Indian Arbitration Act) to replace the 1940 arbitration act and to reflect the provisions of the UNCITRAL Model Law. The new act included various sections which echoed the Indian Legislature’s attempts to provide for an expeditious dispute resolution system, minimizing the intervention of courts. Flexibility in the procedure and the submission of evidence, freedom of the parties in the selection of the arbitral tribunal and of the tribunals themselves in making decisions were other provisions of the Act which showcased arbitration as a viable alternative to litigation in Indian courts.

Other than the above, the Constitution of India and a number of other legislations in our country reflect the essential features of arbitration. Article 262 of the Indian Constitution – adjudication of disputes relating to waters of inter-state rivers or river valleys, which finds its genesis in sections 130 to 134 of the Government of India Act, 1935, provides that the Parliament may, by law (in this case the Interstate River Water Disputes Act, 1956), exclude the jurisdiction of any court including the Supreme Court in matters that fall within the purview of this Article. Section 4 of the Interstate River Water Disputes Act, 1956 states that dispute resolution under the Act will be by way of the establishment of a tribunal. This very express exclusion of the Indian courts reflects one of the fundamental elements of an arbitral system. The final and binding nature of the decisions of these tribunals, wherein they are treated at par with an order of a court in India and the time bound nature of the adjudication by the Tribunal expressly stating that in no case would an adjudication exceed two years, are further evidence of essential techniques of arbitration being embedded in the Indian legislative system. Similarly, the River Boards Act of 1956 provids for arbitration as a means of dispute resolution and expressly excludes the 1940 arbitration Act from the purview of this section, providing the parties and the arbitrators with complete freedom and a wide berth in the matter of procedure and conduct of the arbitration.

Despite its early start however, somewhere along the path of establishing an alternative dispute resolution mechanism as a viable alternative to litigation, it would seem perhaps that India lost its way. While public dispute resolution mechanisms remained largely ad hoc, in the private sector, most corporate houses preferred their arbitration to be conducted in jurisdictions such as Singapore and London and under the law in those countries, even in cases of domestic disputes. The absence of an institutionalized procedure, time, cost, and most importantly judicial intervention seemed to be the primary reasons why arbitration in India did not develop the way it should have given our historical background in this area.[iii]

The cost of prolonged arbitration is largely due to the fact that the Indian Arbitration Act has very few if any provisions at all setting down any timelines. On the other hand, the SIAC (Singapore International Arbitration Centre) Rules for instance, have provisions for expedited procedure, which require that the entire arbitration process be completed within a period of six months. Further, provisions relating to challenge and correction of an award, finality of an award and intervention of the judiciary (or in this case the tribunal), are drafted in a manner that ensures the entire arbitration process rarely exceeds a period of two years.

While cost and time are obviously interlinked, the intervention of the Indian judiciary is a further deterrent to an expedited alternative dispute resolution mechanism in India. The implementation of the Indian Arbitration Act, and the varied case laws on the manner of exercise of Section 9, 34 and 48 by the judiciary has shown, that the judiciary in our country is not yet ready, even after all these years, to formally pass on the mantel of adjudication of certain disputes to tribunals established beyond their purview.

Fortunately, in the last few years, the Supreme Court and the High Courts have passed a number of judgements which have sought, to an extent, to reduce the stagnating effect of the arbitration jurisprudence in the country as affected by the Indian Judiciary all these years. Foremost among these is the case of Bharat Aluminium v. Kaiser Aluminium,[iv] where the decisions of the Supreme Court in the Bhatia International[v] and Venture Global judgments[vi] were overruled in favour of non-intervention by the Indian Judiciary in case of arbitrations seated outside the country, including, for the purposes of granting interim relief. With regard to the enforcement of foreign awards, the Delhi High Court in Penn Racquet Sports v. Mayor International Ltd.,[vii] dismissed a challenge regarding the enforcement of a foreign arbitral award, ruling that the ground of ‘public policy’ under Section 48 of the Indian Arbitration Act, should be narrowly interpreted when refusing enforcement of foreign awards. In Chloro Controls (I) P Ltd. v. Severn Trent Water Purification,[viii] the Supreme Court ruled that, a judicial authority has limited scope in making a reference to arbitration in case of multiple multiparty agreements and for non-signatories, which would be limited only to exceptional circumstances. These cases indicate that, the Indian Judiciary has taken a positive step towards reducing judicial interference in arbitrations conducted outside India. However, similar (albeit less drastic) measures are still needed with respect to international commercial arbitration conducted in India.

The Indian executive has not been very far behind. The LCIA (London Court of International Arbitration) and the SIAC opened chapters in India in 2009 and 2013 respectively. On June 17, 2014, the Indian Merchant Chambers inaugurated the International arbitration centre in Mumbai. This centre aims at providing an institutionalised system of arbitration along the lines of the SIAC and the LCIA.[ix]

Despite the above developments however, what is surprising is the limited scope of arbitration in areas outside of private commercial dealings. As constitutional provisions relating to adjudication of inter-state water disputes, legislations such as the Interstate River Water Disputes Act, 1956 and the River Boards Act of 1956 and the Electricity Act, 2003 indicate, India has, since many decades understood the essentials of an arbitration process. Such understanding was not limited to the private sector alone, and alternative dispute resolution in the public sector has been explored as a viable means of settling disputes in the public sector. In 1989, the Government of India set up the Permanent Machinery of Arbitrators (PMA) in order to regulate alternative dispute resolutions between the Government and public sector enterprises (PSEs) and among the PSEs themselves.[x] In 2005, the Government issued further guidelines refining the PMA with respect to settlement of disputes between two public sector enterprises or banks and between a public sector enterprise or bank and a Government department. These guidelines were reworked in 2013, when the Department of Public Enterprises released a memorandum revising the existing guidelines.[xi] However, the revised guidelines themselves offer but little in terms of a formal and institutionalized process of arbitration and almost nothing in terms of procedure.

Falling outside the purview of the Indian Arbitration Act, development of public-public and public-private arbitration has therefore remained stagnant. Unfortunately, while in areas of public sector disputes such as labour disputes, there is a distinct inclination towards litigation, the absence of a sound public sector dispute resolution mechanism, has had a largely negative effect on public private partnerships in India and foreign investment in that sector.[xii] In the third quarter of 2013, the Planning Commission was tasked with drafting a bill on dispute resolution in public contracts to specifically target public private partnerships.[xiii] Though this has come into some difficulty due to differences in the approach as perceived by the Planning Commission on the one hand and the Finance Ministry on the other,[xiv] the draft bill itself seems to be a step in the right direction.

It can therefore be safely concluded, that India may not have after all completely lost its way. Despite the long periods of stagnation over the years, the Indian Judiciary, Executive and the Legislature, have in small measures taken steps to improve the arbitration mechanism in India, though most of such improvements may be attributed to the last few years. Given the state of international commercial arbitration following the Bhatia International decision[xv], it is of course not expected that India would take steps, towards improving the state of alternative dispute resolution mechanism in the country, all at once. However, the above-mentioned developments are indicative of the conscious efforts that are now being made to ensure that alternative dispute resolution mechanism develops as a legitimately viable alternative to the traditional dispute resolution system in India.

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^  B.B.A. LL.B (Business Law Hons.) National Law University, Jodhpur

* B.A. LL.B (International Trade and Investment Law Hons), National Law University, Jodhpur

[i]See B. K. Tiwari, ADR System- Its Role In Promoting Justice, 1.1 Res. Directions 1 (July 2013), available at http://researchdirection.org/UploadArticle/1.pdf

[ii]The Bengal Regulation Act, 1772 (India) provided that, in all cases of  disputed accounts etc., it shall be recommended to the parties to submit the decision of the cause to arbitration, the award of which shall become a decree of Court

[iii]Zulfiquar Memon, Sherbir Panag & Akash Karmakar, Challenges of Arbitration in India, Corp. Disp. 62 (Oct. – Dec. 2013), available at http://static.squarespace.com/static/520c8182e4b04f935ef41dbc/t/52f5118ee4b087ee088167c0/1391792526477/CD_Oct13_cd2310r7991.pdf

[iv]Bharat Aluminium Co. Ltd. v. Kaiser Aluminium Technical Service Inc., (2012) 9 S.C.C. 649 (India).

[v]Bhatia International v. Bulk Trading S.A., (2002) 4 S.C.C. 105 (India) [hereinafter Bhatia International case]

[vi]Venture Global v.Satyam Computer Services Ltd., (2008) 4 S.C.C. 190 (India).

[vii]Penn Racquet Sports v Mayor International Ltd., 2011 (1) Arb. L. Rep. (Del.) 244 (India).

[viii]Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 S.C.C. 641 (India)

[ix]Swati Deshpande, Mumbai gets its first International Arbitration Centre at the Indian Merchants’ Chamber, The Times of India (June 17, 2014, 7:34 PM), http://timesofindia.indiatimes.com/city/mumbai/Mumbai-gets-its-first-International-Arbitration-Centre-at-the-Indian-Merchants-Chamber/articleshow/36721035.cms.

[x]Permanent Machinery of Arbitration – reg. (DPE D.O. No.15(9)/86-BPE(Fin) dated 29th March, 1989), Department of Public Enterprises (Ministry of Heavy Industries & Public Enterprises),  http://dpe.nic.in/e_documents/archives/Guidelines/volume2/part2ch2/v2p24.

[xi]Revised Guidelines of the Department of Public Enterprises – Settlement of Commercial disputes between PSEs inter-se and Public Sector Enterprise(s) and Government(s) through Permanent Machinery of Arbitrators (PMA) in Department of Public Enterprises, Bharat Sanchar Nigam Ltd. (July 22, 2013), available at http://www.sneatn.com/files/business%20corner/Misc/Settlement%20of%20commercial%20disputes%20between%20PSE%20and%20Govt%20Dept%20through%20PMA%20in%20DPE%2022-07-13.pdf .

[xii]See Ronald J. Bettauer, India and International Arbitration: The Dabhol Experience, 41.2 The Geo. Wash. Int’l L. Rev. 381–87 (2010), http://docs.law.gwu.edu/stdg/gwilr/PDFs/41- 2/41-2-BETTAUER.pdf; also see Amit Kapur, Contracts in Public Private Partnerships for Infrastructure Development: A Legal Perspective, in Govt. Of India: Ministry of Finance (Department of Economic Affairs), Criticality of Legal Issues & Contracts for Public Private Partnerships 7–76 (2008), available at www.pppinindia.com/pdf/dea_ppp_criticality_legal.pdf.

[xiii]PPP projects: PMO asks Plan panel to draft Bill on dispute resolution, The Hindu: Business Line (May 16, 2013), http://www.thehindubusinessline.com/economy/ppp-projects-pmo-asks-plan-panel-to-draft-bill-on-dispute-resolution/article4721379.ece.

[xiv]Sanjeeb Mukherjee & Vrishti Beniwal, FinMin, PlanCom differ over PPP dispute resolution mechanism, Business Standard (Oct. 7, 2013), http://www.business-standard.com/article/eco nomy-policy/finmin-plancom-differ-over-ppp-dispute-resolution-mechanism-113100700038_1.html .

[xv]Bhatia International case, supra note5.

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