IMPORTING THE MODEL LAW: HOW FAR IS TOO FAR?

Sujoy Chatterjee*

 “… The present bill seeks to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules

–          Statement of Objects and Reasons to the Arbitration and Conciliation Act, 1996

“… AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules

–          Preamble to the Arbitration and Conciliation Act, 1996

Most academic papers and articles available online (for example, http://www.kaplegal.com/upload/pdf/arbitration-law-india-critical-analysis.pdf, http://manupatra.com/roundup/326/Articles/Arbitration.pdf and http://globalarbitrationreview.com/reviews/55/sections/194/chapters/2171/india/) characterize India’s arbitration law, i.e., the Arbitration and Conciliation Act, 1996 (ACA) as being ‘based’ or ‘modeled’ on the  UNCITRAL Model Law on International Commercial Arbitration (ML). While the Statement of Objects and Reasons and the Preamble to the ACA leave very little scope for doubt that the underlying premise for enacting the ACA is the ML, would this be tantamount to saying that the provisions of the ML or the interpretation imparted to them can be imported by Indian Courts for interpreting the ACA? The answer turns on how we understand the phrase “taking into account” appearing in the Statement of Objects and Reasons and the Preamble to the ACA. While numerous cases[i] have referred  to and even relied upon the ML while interpreting provisions of the ACA, only a handful have directly addressed the manner and extent to which the ML should play a role in interpreting the ACA.

This question was raised in 1999 before the Delhi High Court in Union of India v. East Coast Boat Builders & Engineers Ltd (http://indiankanoon.org/doc/1559340/) in the context of whether an order passed by an arbitral tribunal under Section 16 of the ACA that the claims in a petition are arbitrable could be treated as an interim award, such that the order could be set aside under Section 34. It was argued that since the ACA had been enacted ‘taking into account’ the ML, Article 16(3) of the ML should come into play while interpreting the nature of an order under Section 16. The High Court rejected the contention that Article 16(3) could be relied upon while determining the nature of an order under Section 16 by stating:

“…it cannot be said that each and every provision of the said Model Law and Rules forms part of the Act. Those Model Law and Rules were in fact taken into account while drafting and enacting the Act but whatever has been enacted is the law on arbitration enforceable in India.”

However, East Coast Boat Builders sought to distinguish between situations where the provisions of the ACA were clear as opposed to situations where the provisions were ambiguous. The High Court noted:

“…had there been a lacunae in the provisions of the Indian Arbitration Act on the point at issue or if it contained such provisions which is capable of two or more different interpretations then of course internal aid of the preamble to the Act could be taken for interpreting such provision and then the relevant provisions of the said Model Law and Rules could be read so as to interpret that provision because while enacting the Indian Act, said Model Law and Rules were taken into account.”

The proposition laid down by East Coast Boat Builders cannot be faulted with, since it reiterates two basic cannons of statutory interpretation:

(i)     A provision is to be interpreted using the ordinary meaning of the language of that provision (i.e., the literal rule of statutory construction); and

(ii)   If the literal meaning of a provision is clear and unambiguous, then the provision must be given effect to in accordance with the language used therein.

Therefore, if a literal reading of a provision of the ACA is unambiguous and leads to a certain conclusion, the Courts are required to give effect to that conclusion irrespective of whether Parliament had contemplated such a conclusion while enacting the provision. However, Courts in India have on countless occasions resorted to the ML for interpreting the ACA.[ii] Whether such reference and/or reliance are justified is not merely an academic discourse. It has far-reaching consequences, the most widely known instance of which is the Supreme Court of India’s 2002 pronouncement in Bhatia International v. Bulk Trading (http://indiankanoon.org/doc/110552/).

Bhatia International required the Supreme Court to interpret, inter alia, Section 2(2) of the ACA to determine whether Part I of the ACA applies to arbitrations taking place outside India. Section 2(2) reads, “This Part shall apply where the place of arbitration is in India” From a plain reading of Section 2(2), there is very little ambiguity that Part I applies to arbitrations taking place in India. However, the Supreme Court created an ambiguity for itself by reading Article 1(2) of the ML, which reads, “The provisions of this Law, except Articles 8, 9, 35 and 36, apply only if the place of arbitration is in the territory of this State.” Emphasizing that the omission of the word ‘only’ in the ACA changed “the whole complexion of the sentence”, Bhatia International ruled that Part I would apply to arbitrations seated in India as well as outside India. While other reasons were also given to substantiate this finding, it is debatable whether the Supreme Court would have concluded so had it limited its scope of analysis to Section 2(2) and not read Article 1(2) along with it.

While Bharat Aluminium v. Kaiser Aluminium (http://www.sci.nic.in/outtoday/ac701905p.pdf) has overruled the ratio of Bhatia International by limiting the applicability of Part I to arbitrations seated in India, a less highlighted facet of the judgment is the apex court’s take on the extent of permeability of the ML into the ACA. After undertaking an elaborate study of the objects and reasons of the ACA and its scheme, which also involved the “taking into account” of the ML, the apex court stated:

The aim and the objective of the Arbitration Act, 1996 is to give effect to the UNCITRAL Model Law.”

The difference between “taking into account” and “give effect to” is not mere semantics – it transposes the role of the ML from that of a base document which was kept in mind while drafting the ACA to that of a legal framework which is being implemented in India through the ACA. Whether this statement in Bharat Aluminium is merely an obiter or an authoritative finding is hard to discern in the absence of reasoning. To further complicate matters, the extent to which the ML plays a role in interpreting the ACA was briefly discussed later in the judgment, with the Supreme Court choosing not to delve deeper into the issue.

The Appellants in Bharat Aluminium had referred to certain observations in Konkan Railway Corporation v. Rani Construction (http://indiankanoon.org/doc/1999671/), where the apex court had held:

“… that the Model Law was only taken into account in the drafting of the said Act is, therefore, patent. The Arbitration Act, 1996 and the Model Law are not identically drafted… The Model Law and judgments and literature thereon are, therefore, not a guide to the interpretation of the Act…”

It was also argued that S.B.P. v Patel Engineering (http://indiankanoon.org/doc/1641452/) , which had overruled Konkan Railway regarding the nature of the Chief Justice’s function under Section 11 of the ACA, had not overruled Konkan Railway on the point of the applicability (or more aptly, the non-applicability) of the ML. However, Bharat Aluminium expresses no opinion on whether it agreed with Konkan Railway on this point or whether S.B.P. had impliedly overruled[iii] even this aspect of Konkan Railway. From an overall reading of Bharat Aluminium, the Supreme Court quoted extensively from the ML. This fact, along with the “give effect to” googly[iv], has perhaps laid the foundation for the ML to be used as a ready reckoner for interpreting the ACA in future cases.

Arbitration aficionados may contend that there is nothing wrong in referring to or relying upon the ML and its associated literature while interpreting the ACA, since it ensures that India’s arbitration law is in sync with arbitral developments in the international arena. While no exception can be taken to India’s gradual movement towards establishing a pro-arbitration legal framework, is this not a policy decision best left to the realm of the legislature? Parliament, in its wisdom, ‘considered’[v] and ‘took into account’[vi] the ML while enacting the ACA in 1996 to “bring it, as much as possible, in harmony with the UNCITRAL Model Law”[vii]. But once the ACA is in place, is it the judiciary’s role to ensure that India’s arbitration framework is in line with international expectations? In fact, Bhatia International is a ripe example of how an Indian Court’s attempt at reading the ACA along with the ML led to an interpretation of the ACA which completely isolated India from the international arbitration community. Of course, it may be argued that Bharat Aluminium overruled Bhatia International on the basis of the territoriality principle which permeates throughout the ML, and therefore this course correction would not have been possible without reference to the ML. However, could we not have celebrated ‘Indian Arbitration Day’ (http://lexarbitri.blogspot.in/2012/09/indian-supreme-courts-landmark.html)  just by reading the relevant provisions of the ACA and giving effect to their  ordinary English meaning sans any reference to the ML and its related literature?

My limited objection with regard to Indian Courts utilizing the ML while interpreting the ACA can be crystallized through a simple analogy. The exercise of interpreting a provision of law, in my opinion, is similar to driving on a highway. The legislature has paved the way for the judiciary to drive on by enacting the ACA. The ML is at best a road-sign or a map-based ‘app’,[viii] i.e., an aid which comes into play only if the highway bifurcates or has a crossroads. However, i.e., if Parliament has paved a straight highway without any digressions, should Indian Courts have the flexibility to:

(i)                 choose whether they want to drive on that highway?; and

(ii)               use the road-sign or the ML ‘app’ to go off-road?

East Coast Boat Builders had limited the circumstances in which the ML should be resorted to for interpreting the ACA, while Konkan Railways shut out the ML en masse. However, it seems that in our hurry to showcase India as a ‘hub’ of international arbitration (see, http://www.legalweek.com/legal-week/analysis/2164470/delhi-dawn-india-global-arbitration-hub, http://www.dnaindia.com/india/report-india-can-be-lucrative-global-hub-of-arbitration-says-veerappa-moily-1561790 and http://www.ficci-arbitration.com/htm/news-clipping/news.htm#4), Bharat Aluminium has set the tone for the ML to replace the ACA as the primer for resolving arbitration cases in India.


* Advocate, New Delhi. Alumnus, National Law University, Jodhpur 13

[ii] Ibid

[iii] See the following statement in S.B.P.:

It is common ground that the Act has adopted the UNCITRAL Model Law on International Commercial Arbitration, but at the same time, it has made some departures from the Model Law

[iv] A passing reference regarding the ACA “giving effect to” the ML was also made in DM Infrastructure v. UE Development India, (2008) 14 SCC 271

[v] Statement of Objects and Reasons, ACA; Preamble, ACA

[vi] Ibid

[viii] Depending on which side of the “taking into account” debate you are on, the ML can be treated either as a road-sign laid by Parliament along the highway (i.e., an internal aid) or a map-based mobile application (i.e., an external aid) for determining which route to take if there are multiple roads ahead. Either ways, the ML is merely an aid which should come into play only when there is an ambiguity in the provisions of the ACA.

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2 Comments

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2 responses to “IMPORTING THE MODEL LAW: HOW FAR IS TOO FAR?

  1. Akansha Dubey

    Though I agree with you that this distinction is not purely semantic do you feel that a strict adherence to the literal interpretation of the ACA (even at times in cases where the ambiguity is not very apparent) would result in a more nationalistic or narrow view of arbitration practice. As a law arbitration to a great extent desires and thrives on international practice/recognition (unlike other national laws) and this is what the ML symbolises. Hence maybe ‘giving effect to’ is going too far but the strong influence of the ML on the general interpretation and application of the ACA cannot be denied I guess.

    • Sujoy Chatterjee

      Thanks for your insights, Akansha. I take your point that there are scenarios where the pre-eminent role of international standards should not be denied – for example, while determining the scope of “public policy” for the purpose of enforcement of a foreign award. However, this is a scenario which satisfies my criteria for ‘ambiguity’ in the provision and your views on maintaining consistency with international practice. I feel that the ACA in its present form has ‘literally’ captured most of the internationally acceptable positions – it is only in the application of the ACA that Indian Courts have (or should I now say ‘had’?) created a somewhat nationalistic regime. There is of course scope for improvement, such as making interim measures available to arbitrations outside India. That is where the proposed amendments to the ACA will come into play. To borrow from some political jargon, I do not foresee any risk of the ACA standing in ‘majestic isolation’ merely because the ML has been kept on the back-burner!

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