Pranav Rai

This post critically examines the recent Supreme Court judgment in TRF Limited vs. Energo Engineering Private Limited where the court held that a person who is ineligible to be appointed as an arbitrator cannot even nominate an arbitrator. This judgment was in the context of a unilateral arbitration clause (“unilateral clause”) in which one party had control over the appointment of the arbitrator.

The arbitration clause here provided that, any dispute connected to the agreement is to be referred to sole arbitration of one party’s (Respondent’s) Managing Director (subsequently referred to as “official” for apposite appreciation) or his nominee. The official was ineligible to be appointed an arbitrator here in view of the Seventh Schedule (taken and adapted from the Red List of IBA Guidelines and inter alia prescribing ineligibility criteria for a party’s official being appointed arbitrator) of the arbitration statute (“Act”) and this ineligibility was not even contested between the parties.

The question before the court was whether such official was also ineligible to nominate an arbitrator. Relying on the maxim qui facit per alium facit per se (“the Principle”), i.e., what one does through another is done by oneself, or as elaborated by court, what cannot be done directly may not be done indirectly by engaging another outside the prohibited area, the court concluded in the affirmative.

Albeit the case settles the law on such unilateral clauses, I would argue that it raises issues with respect to unilateral clauses in general causing confusion and uncertainty.

General legal principle prevailed over legislative intent. The Act, which is based on UNCITRAL Model Law and also underwent extensive amendments in 2015 to address several issues that plagued the arbitration regime in India, nowhere suggests a legislative intent to make an arbitrator’s appointment/nomination dependent upon his appointer’s/nominator’s eligibility. Sufficient ineligibility criteria for arbitrator were already provided in the Act. For example, to protect against violation of natural justice (that an interested person cannot be an adjudicator), the Act inter alia provided for Fifth Schedule (taken and adapted from the Red and Orange List of IBA Guidelines) and Seventh Schedule. With a self-sufficient Act (at least with respect to arbitrator’s ineligibility) and absence of any legislative intent to add additional ineligibility criteria, the rationale for applying the Principle to arbitrator appointment/nomination is not entirely clear.

In support of the judgment, it can be contended that there was not much occasion for the court to consider the true legislative intent or the sufficiency of the arbitrator ineligibility grounds present in the Act. Since, a) the court applied a general legal principle, so the legislative intent for the Act and the arbitration principles are not relevant in this context; b) neutrality of arbitrator was not even an issue here and the court clarified that it was never its concern that the nominated arbitrator (a retired judge) would not be independent or impartial; and c) its only concern was the legal issue that it was inconceivable that a statutorily ineligible person can nominate a person, so adequacy of the ineligibility grounds in the Act are also not relevant.

The court should have considered the legislative intent regarding the objectives of alternate dispute resolution and principles of party autonomy, the sanctity of arbitration agreement and arbitrator neutrality, and then should have weighed them against any wrong likely to happen if the Principle is not applied here. It is also my argument that since arbitrator neutrality was not a concern here and the appellant was raising the ineligibility argument only as a legal point, the Principle should be applicable only if it can be applied consistently for all other arbitrator appointments (unilateral and mutual). But as has been discussed below, application of the Principle on all kind of arbitrator appointments would result in unintended consequences which makes it all the more important for the court to have considered the legislative intent here before selectively applying the Principle.

Why should the Principle not apply to mutual appointments? The judgment does not clarify why the Principle is not applicable to mutual appointments, where, a) each party appoints its own arbitrator; or b) parties mutually appoint a sole arbitrator, since even in these cases appointments will effectively be made by the (ineligible) official of each party (presuming that the parties are body corporate and thus can only act through its officials). The court distinguished the present unilateral clause from the situation in point a), stating that in such cases authority to nominate cannot be questioned, but it did not expressly distinguish it from point b). Notwithstanding this, it is apparent that the court did not intend to apply the Principle in case of mutual appointments for the obvious (but insufficient) reason that if the Principle is applied even to those cases, then the arbitration mechanism will not be able to function.

The reason for such selective application of the Principle to the present unilateral clause, but not to mutual appointment clauses, may have been the arbitrator’s neutrality aspect (as it would arguably be questionable in the case of unilateral clauses). But since arbitrator neutrality was not a concern for the court here, it is not entirely clear what this selective application of the Principle achieves in this case.

Uncertainty on how far the Principle can be stretched in other unilateral clauses. This was an “either/or” case in which the unilateral clause provided either the official will be the arbitrator, or he can nominate the arbitrator. So, the court had to first consider whether he was eligible to be an arbitrator. Only after this was determined (or in this case agreed by the parties) did the court conclude that ineligibility to be an arbitrator also means ineligibility to nominate one.

It is unclear what the fate is for unilateral clauses that give the official only a power to nominate/appoint (and not be a named arbitrator), as in such event the court will not get an opportunity to decide the official’s ineligibility. Will the courts still apply the Principle in such other unilateral clauses by using the Principle itself as a rationale for its application? In other words, can the courts say that it is immaterial whether or not the official was also a named arbitrator, and that the Principle should be applied even to such cases? Otherwise, it would be akin to allowing the official to do the same thing indirectly what he is not allowed to do directly. Logically, the answer should be “no,” because stretching the Principle so far would mean that all unilateral appointment clauses (or at least the unilateral appointment part therein) are invalid. Nevertheless, a question mark remains on the fate of such other unilateral clauses since there is no clear line drawn by the court on how far the Principle can be stretched vis-à-vis unilateral clauses.

No heed to Competence-Competence doctrine. While authorities were cited by Respondent to establish that authority of arbitration can be challenged only before the arbitrator, the court distinguished them on facts and relied upon another authority postulating that an appointment which is ex facie invalid cannot be raised before the arbitrator. On this basis, the court noted that it is incorrect to say that the arbitration proceedings once initiated cannot be interfered with by the courts while exercising its powers in relation to the appointment of an arbitrator and that a statutory disqualification (such as the one in present case) can be raised before the court.

Setting up of such precedence may result in undesirable consequences for the whole arbitration system. Encouraged by this ruling, several arbitration appointments under unilateral clauses may now be challenged in courts by the party that did not have a say in the appointment and matters that were intended to be arbitrated will now be litigated. Also, the High Courts may rely on this judgment and entertain such challenge applications and determine the eligibility of the appointed arbitrators themselves at the cost of Competence-Competence doctrine.

Conclusion. This judgment effectively adds one more ineligibility criterion to the already loaded Seventh Schedule, despite the fact that such criterion is not at all related to arbitrator’s neutrality. Uncertainty regarding enforceability of unilateral clauses (other than the one in the present case) will likely increase and the party challenging unilateral clauses will be armed with one more ground of challenge in the form of the Principle, until the court clarifies the limits to which the Principle can be stretched. A quicker and foolproof solution can be by way of a much-needed legislative intervention clarifying the position on unilateral arbitration clauses.

More from our authors:

Arbitrators as Lawmakers by Dolores Bentolila € 180

The post Ineligible Arbitrator Also Ineligible to Nominate Arbitrator: Indian Supreme Court – Does the Judgment Open Pandora’s Box? appeared first on Kluwer Arbitration Blog.

Sai Anukaran

Non-arbitrability of disputes is a ground for setting aside the arbitral awards under Sections 34(2)(b) and 48(2) of the Arbitration and Conciliation act 1996 (the “Act”), the award is against the public policy of India. Arbitrability, here, refers to the objective arbitrability of the disputes, i.e., whether the national law imposes any restriction on the resolution of the dispute by the arbitral tribunal.  However, in Indian law confusion has arisen as to whether the courts can at a pre-arbitration stage, i.e., at the time of referring parties to arbitration in pursuant to a valid arbitration agreement decide upon the arbitrability of the dispute. The Supreme Court of India in the Case of Booz Allen Hamilton v. SBI Home Finance ((2011) (5) SCC 532), held that:

Where the issue of `arbitrability’ arises in the context of an application under section 8 of the Act in a pending suit, all aspects of arbitrability have to be decided by the court seized of the suit, and cannot be left to the decision of the Arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under section 8 of the Act, to refer the parties to arbitration, if the subject matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal. (Emphasis in italics added).

The Supreme Court further carved out a non-exhaustive list of six disputes that are incapable of being subject to private arbitration:

• Disputes relating to rights and liabilities which give rise to or arise out of criminal offenses;
• Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
• Guardianship matters;
• Insolvency and winding up matters;
• Testamentary matters (grant of probate, letters of administration and succession certificate);
• Eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction.

Further, the Supreme Court in Shri Vimal Kishor Shah v. Jayesh Dinesh Shah & Ors (Civil Appeal No. 8614 of 2016) further carved out a seventh category of dispute that is incapable of being subject to private arbitration: disputes arising out of trust deeds and under the Trust Act.

The 2015 amendment to Section 8 of the Act has, however, created uncertainty with respect to the court’s power to decide upon arbitrability of dispute at the pre-arbitration stage.

The amended Section 8 introduces a non-obstante clause, which reads as follows:

 . . . notwithstanding any judgment, decree or order of the supreme court or any other court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

In contrast, Section 8 of the 2006 UNCITRAL Model Law and Section 45 of the Act provide that:

. . . unless it finds that the agreement is null and void, inoperative and incapable of being performed.

This phrase, however, does not find its place in Section 8 of the Act. Thus, a plain reading of amended Section 8 appears to have rendered nugatory the interpretation of courts regarding the arbitrability of disputes at the stage of Section 8. The amended Section 8 suggests that the courts can only inquire the prima facie existence of a valid arbitration agreement and leave the rest to be determined by the arbitral tribunal by virtue of the principal of Komptenz-Komptenz as enshrined under Section 16 of the Act. The courts only have the power to set aside the arbitral award under Sections 34(2)(b) or 48(2) of the Act on the ground that the subject matter of the dispute is not arbitrable as per the public policy of India

The Supreme Court in the case of Ayyasamy v. A. Paramasivam & ors (Civil Appeal Nos. 8245-8246 of 2016, decided on 04.10.2016), while dealing with a reference with respect to an agreement entered into prior to the 2015 amendment, have held in respect of Section 8 of the Act that

while mere allegation of fraud simplicitor will not confer jurisdiction on the courts to assume jurisdiction, however, in case of serious allegations of fraud the court can sidetrack the arbitration agreement.

Thus, the Supreme Court has imposed a restriction on arbitrability on account of fraud. However, the court in its judgment has not referred to the amended Section 8 and it is not clear whether the judgment was intended to be made applicable to the amended Section 8. If that were the scenario the judgment would be per incuriam in light of the amended Section 8 of the Act.

However, an alternate argument could be that serious fraud and non-arbitrability of the dispute would in itself affect the validity of the arbitration agreement. Even in such a case, it is doubtful if the court can undertake an in-depth analysis into the question of arbitrability (even on account of serious fraud) since the amended Section 8 of the Act restricts the power of the court to undertake only a prima facie view of the validity of the arbitration agreement. Thus, the decision in Ayyasamy is per incuriam, since the court would have to delve into the merits of the dispute to determine the degree of fraud.

The full bench of National Consumer Disputes Redressal Commission (NCDRC) in Aftab Singh v. Emaar MGF Land Limited & Anr. (Consumer Case No. 701 OF 2015, Order Dated 13.17.2017) while rejecting the plea of the respondent-builder to refer consumer dispute to arbitration, reiterated the view of Supreme Court in Booz Allen and Ayyasami that disputes governed by statutory enactments creating special tribunals (such as NCDRC) for a specific public purpose cannot be mandatorily referred to arbitration. The court further held that amendment to Section 8 of the Act does not intend to nullify erstwhile statutory interpretation of the Act by the courts and the sole purpose of the amendment is to curtail wide enquiry by the courts.

The effect of the non-obstante clause on pre-arbitral jurisprudence by the courts is yet to be determined by the Supreme Court. Once the parties to a dispute have agreed to resolve their disputes through binding arbitration, the purpose of arbitration would be defeated and precious time of the parties would be wasted in the determination of the validity of arbitration agreement before the national courts. This apprehension was also taken into account by Chandrachud, J. while delivering the judgment in the case of Ayyasamy v. A. Paramasivam & ors. Therefore, the correct view would be that while non-arbitrable disputes should not be referred to arbitration, the courts under Section 8 have only a limited scope of interference and cannot undertake an in-depth analysis into the merits and arbitrability of disputes at a pre-arbitration stage. Further, a dispute should be categorized as non-arbitrable only on limited grounds, in cases of compelling public interest.

More from our authors:

Arbitrators as Lawmakers by Dolores Bentolila € 180

The post “Notwithstanding the Non-obstante clause” can the Courts refuse to refer Non-Arbitrable Disputes to Arbitration? appeared first on Kluwer Arbitration Blog.

Nishanth Vasanth and Rishabh Raheja

Young ICCA

The decision of the Singapore Court of Appeal in Wilson Taylor Asia Pacific Pte Ltd v. Dyna-Jet Pte Ltd ([2017] SGCA 32) added another chapter to the debate on the validity of unilateral option clauses (or ‘sole option clauses’) in contracts. The Singapore Court of Appeal reaffirmed the Singapore High Court’s decision to uphold the validity of a unilateral option clause, thus adding to the varying decisions on this question across jurisdictions since 2010. During this period, courts in the UK, Italy and Spain have upheld such clauses as valid, while those in France, Russia, Bulgaria, Dubai and Poland have struck down such clauses. In this context, the authors consider the challenges faced by unilateral option clauses in various Indian courts.

What are unilateral option clauses and why are they controversial?

A unilateral option clause is a dispute resolution clause which confers an exclusive right to elect a specific dispute resolution method, i.e., it provides the option of resorting to arbitration or litigation; however, this option is conferred upon only one party. Courts have had to consider whether they should uphold such clauses in the interest of party autonomy or intervene due to public policy considerations.

In the Clifford Chance Unilateral Option Clauses – 2017 Survey, it is noted that courts in the UK and several other Common Law jurisdictions have upheld unilateral option clauses as they represent the bargain of the parties, irrespective of the advantage the clause confers on one side. On the other hand, some jurisdictions such as Russia and Poland have found such clauses to violate the parties’ equality of arms and procedural rights, reading these as ‘bilateral’ and not ‘unilateral’ option clauses. There have been other jurisdictions such as Bulgaria, China, and some US State courts, where these clauses have been wholly invalidated on public policy grounds of ‘morality’, ‘good faith’, ‘fairness’ and ‘unconscionability’. Some other grounds include the absence of a potestative condition, legal uncertainty, and lack of consideration.

Position in India:

Decisions on the validity of unilateral option clauses have been few and far between in India, with the only notable decisions being rendered by the Delhi and Madras High Courts (HC):

1. In Bhartia Cutler Hammer v. AVN Tubes (1995 (33) DRJ 672), the Delhi HC held that a party could not have an exclusive right to initiate arbitration as the Indian Arbitration and Conciliation Act, 1996, presupposed that there must be a mutual arbitration agreement between the parties, and an opportunity for bilateral invocation. Notwithstanding parties’ express consent to such a clause, it would not be deemed a valid arbitration agreement.

2. In Emmsons International Ltd. v. Metal Distributors (2005 (80) DRJ 256), the Delhi HC arrived at the same conclusion as in Bhartia Cutler, based on different reasoning. The court observed that unilateral option clauses were void as they restrained one party’s recourse to legal proceedings, in contravention of Section 28 of the Indian Contract Act, 1872. The court noted additionally (without substantiation) that a unilateral clause would be void for being contrary to the public policy of India.

3. In Lucent Technology v. ICICI Bank (2009 SCC OnLine Del 3213), the Delhi HC again held a unilateral option clause to be invalid. The court relied on both Bhartia Cutler and Emmsons International and invoked Section 28 of the Indian Contract Act, 1872, implying that the party’s right to recourse through legal proceedings had been infringed.

4. The Madras HC decided to go against the tide in Castrol India Ltd. v. Apex Tooling Solutions ((2015) 1 LW 961 (DB)) and did not dispute the general principle that arbitration clauses need not necessarily have mutuality. However, on the facts, the court held that the party seeking to invoke arbitration through its sole option could not do so, having failed to object, and having even participated during the preliminary stages of litigation.

5. In a slight deviation from its previous decisions, the Delhi HC in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. (MANU/DE/3204/2009), upheld the validity of a unilateral option clause. However, the impact of this decision on the position of the court is unclear, as the clause was upheld not under Indian law, but under applicable English law.

From the above decisions it would appear that the three grounds upon which unilateral clauses have been successfully challenged before the courts in India are – lack of mutuality, public policy, and restraint of a party’s right to legal proceedings. However, the Madras HC’s decision to uphold these clauses calls for closer scrutiny of these grounds. Should the Supreme Court of India examine the validity of unilateral option clauses under Indian law, some of the counter-grounds it could consider include:

1. The absence of an explicit requirement for mutuality in the Indian Arbitration and Conciliation Act, 1996. Section 7 of the Act lists out the requirements for a valid arbitration agreement and does not include the mutuality of invocation of the arbitration clause among these. At the most, the stipulation under Section 7 for there to be an ‘agreement by the parties’ requires mutuality of consent, and not mutuality of invocation or consideration. While the Madras HC relied on this lack of an explicit requirement for mutuality to uphold unilateral option clauses, the Delhi HC invalidated unilateral option clauses even when the presence of mutual consent was proven. The Delhi HC’s insistence on mutuality of consideration appears to stem from Section 25 of the Indian Contract Act, which invalidates agreements lacking consideration. This raises interesting questions of separability of the arbitration agreement— whether the consideration for the main agreement is sufficient for and coextensive with the arbitration agreement, or whether the arbitration agreement requires separate consideration through mutual rights of invocation? Adopting the latter approach could lead to an intriguing situation where the mutuality of consideration and invocation takes priority over the mutuality of consent to such a clause. The latter approach would also not account for a situation where the consideration for the unilateral option clause is present in the main agreement, through a substantive concession or benefit provided to the party without the unilateral option. These complex questions of Indian contract and arbitration law merit the careful consideration of the Supreme Court.

2. The 2015 Amendment to the Indian Arbitration and Conciliation Act, 1996, and its pro-arbitration tenor could also have an impact on the Supreme Court’s approach to unilateral option clauses. Specifically, the scope of ‘public policy’ as a ground for challenge of awards has been defined explicitly and enumerated exhaustively under the 2015 Amendment. The Delhi HC’s decisions invalidating unilateral option clauses on grounds of ‘public policy’ were pronounced prior to the Amendment. Thus, a re-evaluation of whether such clauses violate the recently revised ambit of public policy will be necessary. Moreover, the increasing commercial acceptance of unilateral clauses could also be a consideration under a public policy challenge in this new regime.

3. Section 28 of the Indian Contract Act, 1872, invalidates agreements in restraint of legal proceedings. The provision, however is attracted only when there is an absolute and not a partial restraint on legal proceedings. In this light, the mere provision of an option to one party does not necessarily and absolutely undermine the other party’s right to approach the default forum for dispute settlement. Thus, Indian courts may have to deal with this question on a case-by-case and clause-by-clause basis, preventing misuse, delay, and equivocation from the party with the unilateral option of forum.

4. In addition to determining whether the clause in question is an absolute restraint in the terms of Section 28, another question demanding scrutiny is the stated exception to Section 28. Exception 1 to Section 28 permits an agreement to refer to arbitration – it would not be considered invalid for restraint of a party’s right to pursue legal proceedings. None of the Delhi HC decisions cited above considered either the requirement for an absolute restraint, or this exception to Section 28, in invalidating unilateral option clauses. This thus calls for clarification by the Supreme Court.

Given the above considerations, the authors are optimistic that unilateral option clauses will be held valid under Indian law. The fact that the Delhi HC — which had consistently invalidated these clauses — has taken a step towards accepting these clauses in Fuerst Day Lawson is indicative of a positive shift of stance. Moreover, the Delhi HC’s recent reluctance to allow public policy challenges to awards in two of its decisions following the Amendment weakens the likelihood of a successful public policy challenge to unilateral option clauses. Despite these positive developments, it would be prudent for parties to avoid the incorporation of unilateral option clauses when there is a possibility that Indian courts may be involved. In the meantime, one can only hope that the Supreme Court thoroughly tests the above three grounds for challenge and arrives at a position best representative of Indian law, and most beneficial to parties.

The authors would like to thank Clifford Chance LLP and AZB & Partners for sharing detailed material with the authors on the validity of unilateral option clauses in several jurisdictions, including India.

More from our authors:

Arbitrators as Lawmakers by Dolores Bentolila € 180

The post Examining the Validity of Unilateral Option Clauses in India: A Brief Overview appeared first on Kluwer Arbitration Blog.

Shivani Khandekar and Divyansh Singh

It is a fundamental principle in international arbitration that every arbitrator must be and remain independent and impartial of the parties and the dispute

The issue of arbitrator independence, impartiality and neutrality has been a frequent source of contention in India. It is particularly rampant in disputes arising out of contracts executed before the amendment of the Arbitration and Conciliation Act, 1996 (‘the Act’). Pre-amendment, there was no bar on any category of person from being appointed as arbitrator and parties could (and often would) sign arbitration agreements that provided for one of their employees to be appointed as arbitrator. Contracts with government agencies, in particular, were rife with arbitration agreements specifying one of their own as arbitrator. The 2015 amendments to the Act, which came into effect on 23.10.2015, have been pro neutrality, independence and impartiality with the addition of Section 12(5) that renders any person who falls within any of the categories in Schedule 7 of the Act ineligible to act as arbitrator and Schedule 5 that lists grounds which shall guide in determining whether there exist justifiable doubts as to the independence or impartiality of an arbitrator. However, given that these amendments are only applicable prospectively, many disputes currently in the courts are governed by the pre-amendment Act.

One such recent dispute viz. Aravali Power Company Pvt. Ltd. v. M/s. Era Infra Engineering Ltd.¹⁾Civil Appeal Nos. 12627-12628 of 2017 was decided by the Supreme Court recently wherein the Apex Court has, relying on its previous decisions in Indian Oil Corporation Ltd. and Others v. Raja Transport Private Ltd.²⁾(2009) 8 SCC 520 and Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Ltd.³⁾(2008) 10 SCC 240, upheld the eligibility of the CEO of the appellant company to arbitrate the dispute. With the current trend of pro arbitration judgments by the Indian Courts, this prima facie appears to be a set-back and contrary to the principle of arbitrator neutrality. However, in order to understand and critique the judgment in Aravali (supra) properly, it is important to take a look the factual matrix.

Aravali Power Company Pvt. Ltd. (‘the Appellant’) awarded a contract for the construction of a permanent township package for the Indira Gandhi Super Thermal Power Plant to M/s Era Infra Engineering(‘the Respondent’). A contract consisting of General Conditions of Contract (GCC) and Special Conditions of Contract (SCC)was signed between the parties. Clause 56 of the GCC stipulated arbitration between the parties and specified that any dispute would be referred to the sole arbitration of the project in-charge.

The scheduled date of completion of work was 19.05.2011. However, the progress of the work was quite slow and the Appellant cancelled remaining work. Aggrieved by such cancellation, arbitration was invoked by the Respondent on 29.07.2015 with the notice being received by the Appellant shortly thereafter, thus making the pre-amendment Act applicable to the proceedings. It is pertinent to note that in the letter invoking arbitration, the Respondent, on the basis of nemo judex in causa sua, suggested that a retired judge of the High Court be appointed as Sole Arbitrator or a panel of independent arbitrators be made available to choose from.

The Appellant, however, placing reliance on Clause 56 of the GCC, declined the Respondent’s request and proceeded to appoint its own Chief Executive Officer as the Sole Arbitrator on 19.08.2015. The first arbitration hearing was fixed on 07.10.2015 and was attended by both parties. As per the record of the proceedings, no objection was raised by the Respondent regarding the constitution of the Arbitral Tribunal.

In fact, it was only after the amendment of the Act that the Respondent sought to challenge the appointment of the Arbitrator on 12.01.2016. This challenge was rejected by the Arbitral Tribunal on the ground that the Respondent had already participated in the arbitration proceedings without contesting the constitution of the Arbitral Tribunal. Aggrieved by the order of the Arbitral Tribunal, the Respondent approached the High Court of Delhi under Section 14 of the Arbitration Act seeking termination of mandate of the Arbitrator and under Section 11(6) for the appointment of an independent Arbitral Tribunal. The Appellant contended that the petition under Section 14 of the 1996 Act was not maintainable as the Arbitrator was appointed as per the terms of the Arbitration Agreement and the Respondent took no steps to contest such appointment in the manner prescribed under the pre-amendment Act.

The High Court allowed the applications under Sections 14 and 11(6) and set aside the appointment of the Arbitrator and further directed the Appellant to provide a panel of three independent arbitrators for the Respondent to choose from. This was done keeping in mind the objective of the 2015 amendment and the underlying principle of impartiality, independence and neutrality. Aggrieved by this order of the High Court, the Appellant approached the Supreme Court of India.

The Supreme Court set aside the High Court’s decision on the following grounds:

• The appointment of the arbitrator was not invalid or unenforceable as a result of his being an employee of one of the parties as per the provisions of the pre-amendment Act, which was admittedly applicable to this case. Reliance was placed on the observations of the Supreme Court in the case of Indian Oil Corporation Ltd. and Ors. v. Raja Transport Pvt. Ltd.⁴⁾(2009)8 SCC 520 in this regard.
• As per the law laid down in Northern Railway Administration, Ministry of Railway, New Delhi V. Patel Engineering Co. Ltd.⁵⁾(2008) 10 SCC 240 and the provisions of the pre-amendment act, the terms of the arbitration agreement ought to be adhered to/given effect as closely as possible and jurisdiction of the court under Section 11(6) would arise only if the conditions specified in clauses (a),(b) and (c) of Section 11(6) are satisfied.
• The Respondent did not contend that the provisions of Section 12 in its unamended form stood violated nor did it challenge the constitution of the Arbitral Tribunal within the prescribed time frame as per the provisions under Section 13 of the Act. Further, the Respondent participated in the arbitration proceedings.

This judgment is technically sound to the extent that under the old Arbitration Act of 1996, the Respondent only had recourse to Sections 12 and 13 after constitution of the Arbitral Tribunal and failed to take advantage of the same within the prescribed time limit.

Section 12 provided that an arbitrator may only be challenged on the following two grounds:

• the existence of circumstances that give rise to justifiable doubts as to his independence or impartiality, or
• he does not possess qualifications agreed to by the parties.

Section 12 further provided that a party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

Section 13 provided the challenge procedure and stated that any challenge to an arbitrator must be brought within 15 days of becoming aware of the constitution of the arbitral tribunal or 15 days after becoming aware of any circumstance referred to in Section 12. However, failure to make such challenge within the specified time period may be tantamount to deemed waiver under Section 4 of the Arbitration Act.

Further, the Court can be approached by way of a Section 14 petition to terminate the mandate of an arbitrator only in the following circumstances:

• if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
• he withdraws from his office or the parties agree to the termination of his mandate.

In the present case, the Arbitrator was neither de jure nor de facto unable to perform his functions since, under the pre-amendment act there was no bar to an employee being appointed as arbitrator. In fact, in the Case of Indian Oil Corporation (supra), the Indian Supreme Court had held that being an employee of a party to an arbitration did not ipso facto raise a presumption that the arbitrator was biased, partial or lacked independence.

However, there are certain issues that remain unaddressed by this decision. To begin with, there is no clarity on the issue of maintainability of the petitions filed by the Respondent under Section 11(6) and 14 of the Act. The Supreme Court has held that no petition under Section 11(6) would lie unless the conditions specified in Clauses (a), (b) and (c) of the Section are satisfied. There is, however, no clear discussion on the Section 11(6) application not being maintainable after the arbitral tribunal enters upon reference.

The case of Northern Railway Administration (supra) was limited to the scope and ambit of Section 11(6) with respect to the appointment procedure in the arbitration agreement. There was no discussion on the stage of filing the Section 11 application and whether such an application could be filed after a tribunal has entered upon reference. Given the recent judgments of the Supreme Court in TRF v. Energo Engineering Projects⁶⁾2017 SCC OnLine SC 692 and in HRD Corporation (Marcus Oil and Chemical Division) v. GAIL(India) Ltd.⁷⁾Civil Appeal No. 11126 of 2017, there needs to be greater clarity on the maintainability of a Section 11 application after constitution of an arbitral tribunal. This is especially in light of the fact that kompetenz-kompetenz and minimal interference of the courts are fundamental principles of international commercial arbitration.

In addition, greater clarity might have been required on the issue of the Section 14 application not being maintainable as the Arbitrator was neither de jure nor de facto unable to perform his functions under the pre-amendment Act. It is only after the amendment, as stated in the case of HRD (supra), that an employee-arbitrator is de jure unable to perform his functions as a result of his ineligibility under Section 12(5) and thus, lacks the jurisdiction to adjudicate his own competence.

Finally, coming to the issue of neutrality, it can be contended that after the amendment of the Act, the approach of the Courts must change to keep disputes in consonance with the basic object of the amendments and the fundamental principles of international arbitration despite the procedures prescribed in the old Act.

The choice of the persons who compose the arbitral tribunal is vital and often the most decisive step in an arbitration. It has rightly been said that arbitration is only as good as the arbitrators⁸⁾Lalive, ‘Mélanges en l’honneur de Nicolas Valticos’ in Droit et Justice (1989), 289. The Supreme Court may have to reconsider its stand in the case of Indian Oil Corporation (supra) and Aravali (supra). It is only then that India will truly be recognized as a pro-arbitration jurisdiction.

More from our authors:

Arbitrators as Lawmakers by Dolores Bentolila € 180

The post Independence and Impartiality of Arbitrators: Are We There Yet? appeared first on Kluwer Arbitration Blog.

Smaran Sitaram Shetty

In India, the Arbitration and Conciliation Act, 1996 does not address the question of which categories of disputes are capable of resolution by arbitration, and those that are not. Instead, this question has arisen before and been decided by Indian courts, in a variety of different contexts. In recent times, Courts have determined arbitrability claims in the context of fraud (see here and here), disputes arising out of and implicating trusts and disputes concerning shareholder and intellectual property litigation. Despite the consistent attention the issue of arbitrability in India has generally received, there has been little commentary on the specific issue of whether labor and industrial disputes are arbitrable under the Arbitration and Conciliation Act, 1996. This issue warrants specific commentary for two reasons. First, two High Courts have been faced with this very question and have independently arrived at the conclusion that industrial and labor disputes are not arbitrable. Second, these judgements call into question the rising practice of inserting arbitration clauses in employment agreements and are therefore instructive for practitioners.

In this post I first begin by discussing the cases that have dealt with and decided the arbitrability of labor disputes. I argue that these cases reach the right conclusion. I also address the potential these cases have for theorizing about arbitrability, that departs from the dominant paradigm currently used to address that question.

1. Captain Prithvi Malhotra and Rajesh Korat

The arbitrability of labor disputes first arose in Kingfisher Airlines v. Captain Prithvi Malhotra and others (“Captain Prithvi Malhotra”). This case arose out of various labor recovery proceedings instituted by pilots and other staff members of the now defunct Kingfisher Airlines. The proceedings were instituted before the specially empowered labor courts for recovery of unpaid wages and other salary benefits. In these proceedings, Kingfisher Airlines contested the jurisdiction of the labor court by relying on the arbitration clause in the employment agreements. To that end, Kingfisher filed an application invoking Section 8 of the Arbitration and Conciliation seeking reference to arbitration in terms of the employment agreements. The labor court rejected the application and retained jurisdiction over the proceedings.

Kingfisher thereafter moved the Bombay High Court to challenge the correctness of the order passed by the labor court. The Bombay High Court affirmed the order of the labor court and held that labor disputes were not arbitrable under the Arbitration and Conciliation Act, 1996. The Court holds that the inquiry is not solely whether the claim being urged is in personem or in rem (as was held by the Supreme Court in Booz Allen & Hamilton v. SBI Home Finance), but whether the resolution of the claim has been exclusively reserved for adjudication by a particular court or tribunal for public policy reasons. The Court holds that the resolution of labor and industrial disputes has been reserved for resolution before the judicial fora constituted under the Industrial Disputes Act, 1947. By drawing upon the preamble of the Act as well as the scheme of resolution of labor disputes, the Court holds that strong public policy reasons support such a conclusion.

The Court in Captain Prithvi Malhotra also goes further than merely determining the arbitrability of labor disputes. It examines the scheme of the Industrial Disputes Act, 1947 and concludes that the Act provides for a unique process for arbitration of collective labor claims. It therefore concludes that if there were to be adjudication of labor and industrial claims outside of the courts and tribunals constituted under the Act, the reference to and resolution by arbitration would have to be governed by the specific provisions of the Industrial Disputes Act, 1947 (and the attendant rules made thereunder) and not the Arbitration and Conciliation Act, 1996. The Court therefore concludes two crucial issues: claims under the Industrial Disputes Act, 1947 are not arbitrable under Arbitration and Conciliation Act, 1996 and by extension, where it is arbitrable, it must be in conformity with the requirements and procedure under the Industrial Disputes Act. It is therefore important to remember that labor and industrial claims are not per se non-arbitrable, but are instead only arbitrable in the manner and to the extent permitted by the Industrial Disputes Act, 1947.

A similar question arose five years later in Rajesh Korat v. Innoviti (“Rajesh Korat”) before the Karnataka High Court. In this case, when an application for reference to arbitration was made before the labor courts, the application was allowed and parties were referred to arbitration in terms of the arbitration agreement (in contrast to Captain Prithvi Malhotra where the labor court rejected the application and retained jurisdiction).

The reasoning in Rajesh Korat greatly resembles the reasoning in Captain Prithvi Malhotra. The Court concludes that there are strong and compelling public policy reasons to ensure that labor and industrial disputes are exclusively resolved by courts and tribunals under the Industrial Disputes Act. In Rajesh Korat, the Court goes slightly further in concluding that the Industrial Disputes Act is a self-contained code, and to that extent the Arbitration and Conciliation Act, does not have any application to matters governed by the Industrial Disputes Act. Although it does not expressly address this question, Rajesh Korat impliedly endorses the proposition that any arbitration of labor disputes would have to be in conformity with the procedure under the Industrial Disputes Act, 1947 and not the Arbitration and Conciliation Act, 1996.

1. Evaluating Captain Prithvi Malhotra and Rajesh Korat

Captain Prithvi Malhotra and Rajesh Korat are both decided correctly and they independently reach the right conclusion. Both decisions examine the nature and larger scheme of the Industrial Disputes Act and pay close attention to the various categories of judicial and quazi-judicial fora established under the Act. After undertaking this analysis both decisions correctly conclude that labor and industrial claims are non-arbitrable under the Arbitration and Conciliation Act, 1996, and where they can be submitted to arbitration, such reference and resolution must be in compliance with the procedure under the Industrial Disputes Act.

Importantly, both decisions are attentive to the asymmetry in bargaining power inherent in labor disputes. In large part the Industrial Disputes Act (and labor legislation generally in India), are meant to address this issue. Part of this remedial function is achieved through the creation of specialized courts and tribunals under the Industrial Disputes Act, 1947. A closer reading of both Captain Prithvi Malhotra and Rajesh Korat would reveal that the Court was persuaded in large part by the consequences of relegating labor disputes to private arbitral tribunals.

If these cases were decided the other way and labor disputes were held to be arbitrable, it would mean that individual and collective labor disputes would have to be resolved by way of private arbitration where employers would potentially have the sole authority to appoint arbitrators, employers could refuse to participate in the appointment process forcing employees to follow the procedure under Section 11 of the Act and/or could also have the power to designate arbitral institutions, which would beyond the reach and means of industrial workers. In sum, the Courts seem convinced that holding labor disputes to be arbitrable would place undue burdens on aggrieved workers in accessing and thereafter participating in private arbitral proceedings under the Arbitration and Conciliation Act, 1996. The public policy arguments for holding these categories of disputes non-arbitrable, is then both compelling and on the face of it, accurate.

Beyond the correctness of these decisions, lie important lessons for practitioners. Increasingly, employment agreements are being reduced into writing and have arbitration clauses for settlement of disputes that arise out of the employment relationship. These decisions should then educate practitioners about the perils of such a trend and the reality that these agreements are unlikely to be enforced if the employers seek to compel arbitration.

1. Theorizing arbitrability

In view of the Arbitration and Conciliation Act’s silence as to the issue of which disputes are capable of private arbitration, it is helpful to think through a possible theory of arbitrability. This is especially useful in the Indian context where the legal and regulatory landscape continues to develop, and question of whether certain kinds of disputes and claims are arbitrable are likely to continue to arise well into the foreseeable future.

In light of the Supreme Court’s decision in Booz Allen & Hamilton, the primary paradigm of thinking about arbitrability has been the characterization of claims involved. Simply put, Booz Allen & Hamilton tells us that where the claim is in the nature of a right in rem, such claims are not amenable to arbitration under the Arbitration and Conciliation Act, 1996. However, where the claim is characterized as a right in personem, such a claim may be arbitrable. Although this formulation is helpful starting point (and has in fact been used by subsequent judgements to decide arbitrability claims), it does not help us develop a robust understanding of arbitrability.

It is for this reason that the decisions in Captain Prithvi Malhotra and Rajesh Korat are helpful. They collectively advance the proposition that even where the claim in question is a right in personem, it would be still rendered non-arbitrable in view of public policy reasons expressed in the statute that otherwise regulate the exercise of the claimed right whether it be in personem or in rem. This is an interesting and compelling understanding of arbitrability, one that focusses our attention not only on the nature of the claims or the relationship between the parties, but also the consequences for allowing private arbitration. It allows us to examine whether the statutory framework of legislation either exhibits or has inherent within it, certain limitations to private arbitrations and potential reasons for such legislative policy choices.

To be sure, I do not argue that these decisions present a holistic and comprehensive theory of arbitrability. Instead, they help only partly in diversifying our understanding of arbitrability and pushing our understanding from the holding in Booz Allen & Hamilton. In fact, a complete and exhaustive theory of arbitrability may be both illusive and undesirable.

[Disclosure – the author was involved in the Rajesh Korat v. Innoviti case. Any views expressed here are solely personal and do not reflect the views of the counsel or the parties to the case.]

More from our authors:

Arbitrators as Lawmakers by Dolores Bentolila € 180

The post Arbitration of Labor Disputes in India: Towards a Public Policy Theory of Arbitrability. appeared first on Kluwer Arbitration Blog.

Anchit Oswal

Multi-party arbitrations arising out of multiple agreements between multiple parties containing different arbitration clauses give rise to complex issues to be answered by arbitral tribunals and Courts. While negotiating an agreement, parties rarely take into consideration the impact on the dispute resolution mechanism because of subsequent agreements with new parties. In a multi-party multi-agreement scenario, parties often seek a composite reference of all the disputes arguably arising out of a single transaction. Request for joinder of parties is also often made to avoid multiplicity of proceedings and to keep costs of arbitration under control.  In the absence of an express agreement allowing consolidation,  the tribunals and courts are called upon to decipher the intention of the parties and the permissibility of such consolidation under the applicable law before ruling on the possibility of consolidation.

This post endeavours to analyse the Indian position on consolidation of arbitrations.

Typically, three scenarios may be envisaged:

1. Multi-contract, multi-party international arbitration;
2. Multi-contract, multi-party domestic arbitration; and
3. Multi-contract, multi-party having some contracts between a foreign party and a domestic party and others between two domestic parties bringing it under the domain of both – international arbitration as well as domestic arbitration.

The above three scenarios could further fall into three sub-categories:

1. Agreements with same/ similar arbitration clauses;
2. Agreements with substantially different arbitration clauses; and
3. Agreements with arbitration clauses in only some of the agreements.

Indian Supreme Court has answered issues around joinder/consolidation of arbitrations in a few cases. The question of consolidation of disputes and a common reference to arbitration in the context of multiple domestic parties arose before the SC in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya; (2003) 5 SCC 531 (Sukanya Holdings). In Sukanya Holdings, the SC held that when the subject matter of dispute may be covered under arbitration as well as a suit and if there are non-signatory parties involved in the list, the Court cannot bifurcate the cause of action and therefore cannot make a partial reference to arbitration.  Before the 2015 amendments to the 1996 Act, the SC has held that a civil court exercising such power cannot refer a suit to arbitration, unless all the parties to the suit agree for such reference (See Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd, (2010) 8 SCC 24).

In P.R Shah, Shares and Stock Brokers Private Limited v. B.H.H Securities Private Limited and Others; (2012) 1 SCC 594 (PR Shah), the question arose whether a single arbitration is permissible in respect of member and non-member under the bye-laws and regulations of the Bombay Stock Exchange. SC, interestingly, held that if A had a claim against B and C and if A had an arbitration agreement with B and A also had a separate arbitration agreement with C, there is no reason why A cannot have a joint arbitration against B and C. The SC further observed that when A has a claim jointly against B and C, and when there are provisions for arbitration in respect of both B and C, there can be a single arbitration.

In the case of Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.; (2013) 1 SCC 641 (Chloro Controls), the Indian counterpart filed a suit and sought an injunction against two non-signatories. The Indian counterpart inter alia relied on Sukanya Holdings to contest that parties ought not to be referred to arbitration since there are non-signatory parties involved in the dispute.

The SC held that shareholders’ agreement is the mother agreement and all other agreements were to facilitate implementation of the mother agreement and that multiple agreements are part of one composite transaction. Further, the SC observed that signatories to these multiple agreements are all related companies and the interests of these companies are not averse to the interest of the joint venture company.  The Court held that even a non-signatory party can be referred to arbitration subject to proving that it is claiming through or under the party signatory to the arbitration.

Recently in M/s Duro Felguera S.A. v. M/s Gangavaram Port Limited (GPL) (2017 SCC OnLine SC 1233) (Duro), the SC was called upon to rule in cases of multi-contract, multi-party having some contracts between a foreign party and a domestic party and some contract between two domestic parties bringing the disputes under the domain of international arbitration as well as domestic arbitration. Duro, argued that each agreement is a sperate agreement containing a standalone arbitration clause and the parties had no intention to consolidate arbitrations. It resisted consolidation by arguing that if a holistic reference is made it would amount to clubbing of international and domestic arbitration and in such a case, FGI, the Indian subsidiary of Duro may lose the opportunity of challenging the award under Section 34(2A) of the 1996 Act, arguably a wider provision, available only in a domestic arbitration.

The SC distinguished Chloro Controls judgment on facts holding that in the said judgment the words “under and in connection with” appearing in the arbitration clause in the principal agreement was broad to cover the third parties under the arbitration agreement contained in the mother agreement. SC did not refer to PR Shah in the Duro case.

The SC held that since there a mix of domestic as well as international arbitrations, a ‘composite reference’ of disputes will not be proper. The SC constituted six separate arbitral tribunals with common arbitrators. Out of the six, two tribunals to arbitrate disputes under as international arbitral tribunals and other four as domestic arbitral tribunals.

The judicial block created by Sukanya Judgement in referring non-signatories to arbitration has been done away with by the 2015 Amendments to 1996 Act. Post-2015 Amendments, in a domestic arbitration, even a non-signatory party, who is claiming through or under the signatory party can seek reference of disputes to arbitration. However, what remains to be tested is the scenario wherein a non-signatory moves the court/arbitral tribunal to be impleaded as a party on the strength of 2015 Amendments. Such a non-signatory may argue that if a non-party can seek reference of disputes to arbitration, it can also be a part of the arbitration as a necessary party, subject to satisfying the “through and under” test. The reverse proposition, i.e., compelling a non-signatory in a domestic arbitration, to take part in arbitration and its impact on enforcement of the resultant award, post the 2015 amendments remains to be tested.  Further, the issue of allowing/ refusing a non-signatory party to an arbitration if decided by a Court may operate as res judicata and may therefore not impact enforcement of the resultant award. However, if such a determination is done by an arbitral award, it is likely that the Court deciding the enforcement/ objection to the resultant award may take a contrary view to that taken by the arbitral tribunal. The issue of whether two Indian parties can opt for a foreign-seated arbitration may arise and will be required to be answered by the SC in view of the conflicting judgments of High Courts on the issue.

The adjudicating authority dealing with the request to consolidate arbitrations may be called to answer multiple side issues before ruling on the such a request. Questions that may arise are:

1. Whether there is an express clause permitting consolidation?
2. Whether there is an implied consent of parties for consolidation?
3. The permissibility of request to consolidate would be decided as per which law?
4. Whether all the disputes are covered under the arbitration agreement?
5. Who would be a ‘party’ to arbitration?
6. Whether all the parties are signatories to the arbitration agreement?
7. Whether the arbitration clause is incorporated by reference into another agreement?
8. Whether non-signatories can be compelled to arbitrate?
9. Is there a novation of the original agreement due to subsequent agreements?
10. Whether the disputes are categorised as a domestic arbitration or an international arbitration or both?
11. Whether the interests of all the parties, including the right to confidentially, cost sharing, etc., would be protected if consolidation is ordered?
12. Whether consolidation would be against the public policy of India?

Further, consolidation of arbitrations may not bode with other concepts like confidentiality, party autonomy, and consensuality. Therefore, the forum adjudicating the request to consolidate arbitrations may have to answer some of the above questions before allowing a party to be joined in an arbitration or refusing to consolidate arbitral proceedings. The best shot for a party seeking consolidation will be by establishing express or implied agreement for the same. Alternatively, if the party can satisfy the court with respect to the test laid down in PR Shah, consolidation may be possible. Insofar as cases where there is a mix of domestic and international arbitration, consolidation may be difficult as has been held in the Duro case. However, where there are multiple agreements, all in the domain of international arbitration, essentially flowing from a main/ mother agreement, parties can seek consolidation on the strength of Chloro Controls judgment.

The views expressed are those of the author only.

More from our authors:

Compendium of International Commercial Arbitration Forms by Sigvard Jarvin & Corinne Nguyen € 195

The post Consolidation Of Arbitrations – Where Is India Headed? appeared first on Kluwer Arbitration Blog.

Wasiq Abass Dar

On 1 November 2017, a division bench of the Supreme Court of India (hereinafter SCI) referred the matter between Venture Global Engineering LLC and Tech Mahindra Ltd. to a larger bench, in view of the diverging opinions emerging from the division bench. In substance, the SCI was looking at the legality of the order of the High Court, which reversed the Trial Court’s decision to set-aside the award on grounds of violation of public policy of India.

Facts:

Venture Global Engineering LLC (hereinafter VGE), a company incorporated under the U.S. laws; and Tech Mahindra Ltd., formerly known as Satyam Computers Pvt. Ltd (hereinafter Satyam), an Indian Company, entered into a joint venture and shareholder agreement in Oct 1999. Section 8 of the Agreement defined ‘events of default’, and the rights and obligations of parties upon the occurrence of the ‘event of default’. One of the clauses in Section 8 of the Agreement provided that, within 30 days after becoming aware of the occurrence of the ‘event of default’, the non-defaulting party shall have the option to either purchase the defaulting shareholder’s shares at the book value or cause the immediate dissolution and liquidation of the joint venture company.

Between March 2003 and May 2004, 21 members of the Group of Companies, of which the VGE was a member, filed for bankruptcy and were declared bankrupt. Bankruptcy, as per Section 8 of the Agreement, was categorized as ‘event of default’. Consequently, disputes arose between the parties, and Satyam invoked the arbitration clause that provided for LCIA arbitration, with laws of State Michigan, United States, as the governing law of the agreement. The clause also provided for compliance with the relevant laws of India.

The award was delivered in April 2006, where the arbitrator rejected claims of VGE, and inter alia, directed VGE to sell their 50% shares to Satyam at book value. This was followed by litigations both in the U.S. and India.

VGE filed a civil suit in India before the City Civil Court in Secunderabad – where it sought a “declaration that the award is illegal and without jurisdiction”, and “a decree for granting of permanent injunction” against Satyam from getting the award enforced. The court granted an ex parte injunction order, restraining Satyam from enforcing the award. Satyam challenged the order before the High Court of Andhra Pradesh, where the said appeal was allowed, and the City Civil Court was directed to adjudicate afresh on merits.

Satyam’s prayer before the City Civil Court for rejection of the plaint and dismissal of the suit was accepted. VGE’s appeal against the order before the High Court was dismissed. VGE approached the SCI, which allowed the appeal (Venture-I); directing, inter alia, that VGE was entitled to challenge the award before Indian Courts, as Part I of the Arbitration and Conciliation Act of India (hereinafter ACA) was applicable even to a foreign award according to the law laid down in Bhatia International’s case. The SCI, without expressing any opinion on the merits of the claims made by parties, directed that “the Trial Court was at liberty to transfer the case to the competent court to decide the case…”. Accordingly, setting-aside proceedings under Section 34 of the ACA were initiated before the Court of 2^nd Additional Chief Judge (hereafter Trial Court), Hyderabad, in 2008.

Meanwhile, in January 2009, B. Ramalinga Raju, who was the Chairman and Founder of Satyam, disclosed that balance sheets of Satyam had been manipulated to present inflated profits. Upon this disclosure, VGE filed an application before the court to present additional facts and argued for setting-aside of the award on an additional ground of being against the public policy of India. The Trial Court allowed VGE’s application. Satyam challenged the order before the High Court, arguing that application for setting-aside was not filed within the prescribed limitation period under the Indian law, and new ground of challenging the award could not be invoked after the expiry of the limitation period. The High Court allowed the application of Satyam, which led to another round of litigation before the SCI. VGE challenged the decision of the High Court, and the SCI in Venture II allowed the appeal – restoring Trial Court’s order. The SCI emphasized that the facts revealed after the making of the award are relevant, in order to establish whether the making of the award has been induced by fraud.

Following the Venture II SCI judgment, the Trial Court allowed the application of VGE, and set-aside the award. The Trial Court reasoned that the transfer of 50% shares of the Joint Venture Company to Satyam at book value, as directed in the award, as against fair value, violated the provisions of the Foreign Exchange Management Act, 1999 (hereinafter FEMA) – hence against the public policy of India. It also held that the facts revealed by Ramalinga Raju constitute fraud and misrepresentation on part of Satyam – having a causative link with the facts that formed the basis of the award, therefore against the public policy of India. Satyam challenged the award before the High Court. Allowing the appeal, the High Court reversed the Trial Court’s decision. VGE, aggrieved by the decision of the High Court, filed an appeal before the SCI.

Decision:

Justice Sapre observed that the Trial Court correctly found the direction to transfer shares at book value instead of fair value as a violation of FEMA – hence against public policy. He largely relied on the definition of expression ‘public policy’ discussed in Associate Builders’ case. It was held that violating FEMA provisions would amount to patent illegality and, thus, public policy of India was violated. Taking a cue from the findings of the SCI in Venture I and Venture II, he observed that suppression of material facts on part of Satyam clearly has a causative link inter se the companies involved. He further reasoned that had the facts been brought before the shareholder of the joint venture, VGE would have been able to get first right to terminate the agreement and seek relief against Satyam – as a breach on Satyam’s part happened prior to VGE’s bankruptcy. Also, as suppression of material fact continued during the arbitration proceedings, the proceedings and the subsequent passing of the award cannot be said to have held fairly or reasonably. Finding that the award was tainted by fraud committed by Satyam, it was held to be against public policy of India

Justice Chelameswar, had a different opinion. In substance, he observed that the Trial Court had failed to provide reasons as to how the award, which directed the transfer of shares on book value instead of fair value, would violate the public policy of India. Criticizing the Trial Court, he observed that in absence of any basis in facts, or identification of the provision of law with which the award is in conflict with, the conclusions drawn cannot legally be sustained. On the issue of the alleged fraud committed by Satyam and its influence on the award, Justice Chelameswar sided with the finding of the High Court that fraud was not proved before any court. He observed that the Trial Court’s theory that concealment and misrepresentation of facts by Satyam establish a causative link, making the award opposed to the public policy of India, was also not supported by cogent reasons. He stressed that in Venture II, the SCI emphasized only upon the relevance of pleading those ‘concealed facts’, and did not hold that the ‘concealed facts’ constituted material facts rendering the award liable to be set-aside. He supported the decision of the High Court, that the appeal be dismissed, and the award restored.

Comment:

Venture III, is a reminder that dealing with the public policy exception continues to be a struggle for the Indian courts. Although the SCI produced diverging opinions in the case at hand, as far as the making of the award being induced by fraud is concerned, one cannot ignore to notice that both opinions agree upon the legal position that if the causative link is proved between the frauds committed and the award rendered, then such an award would be in violation of public policy of India. Justice Sapre’s observation that violation of FEMA is contrary to public policy of India takes us back to the same debate as to whether patent illegality, on the face of it, should be taken as violation of public policy of India. It is pertinent to note that the SCI on multiple occasions, for example in Associate Builders, Mc Dermott International, Centrotrade Minerals, J.G. Engineers, has stressed that patent illegality, if of trivial nature, should not be held against public policy. Patent illegality must go to the very root of the matter. The amended version of ACA, in Explanation (2A) of Section 34(2)(b)(ii), also seems to support this proposition. Now that the matter has been referred to a larger bench, it will be interesting to see how the legal issues will finally be settled, and how the decision will shape the approach of Indian courts as far interpretation of the public policy exception is concerned.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post Has the Public Policy Exception Returned to Haunt Indian Courts? appeared first on Kluwer Arbitration Blog.

Shalaka Patil and Jeet Shroff

The Delhi High Court (Court) recently rendered a decision in GMR v. Doosan (“GMR”) on two critical points related to Indian arbitration– a) joinder of non-signatories to arbitration and b) whether two Indian parties can choose a foreign seat. Both issues have had conflicting decisions from courts leading to confusion in jurisprudence. Did the Court’s decision in GMR help clarify the law? In our view, no. Instead, it addled precedent by issuing a tenuously reasoned decision.

Facts

GMR Chhattisgarh (“GCEL”) and Doosan India (“Doosan”) entered into 3 EPC contracts in 2010 (“EPC Contracts”) which provided for SIAC arbitrations in Singapore.

GMR Infrastructure Ltd. (“GIL”) furnished a corporate guarantee to Doosan, on behalf of GCEL in 2013 (“Corporate Guarantee”) containing an arbitration clause (SIAC administered, in Singapore).

Two MOUs were executed between Doosan and GMR Energy (“GE”) in 2015 where GE agreed to repay Doosan in installments for GCEL’s liability under the EPC contracts. The MOUs did not contain arbitration clauses and were terminated before commencing arbitration.

Doosan invoked SIAC arbitration under the EPC contracts and the Corporate Guarantee making GCEL and GIL parties. Doosan sought GE’s joinder based on the MOUs and theories of joinder of non-parties including alter ego, group companies’ doctrine, and common directors, seeking repayment jointly and severally from GCEL, GIL and GE. In response, GE filed a suit seeking a permanent injunction against Doosan from continuing arbitration since GE was not a party to the arbitration agreement in the EPC Contracts and the Corporate Guarantee. The Court stayed the constitution of the SIAC tribunal. Doosan sought vacation of this order and applied under the Arbitration and Conciliation Act, 1996 (“AA”) to compel GE to participate in the arbitration. In this hearing, GE’s motion for injunction and Doosan’s motion for vacation and arbitral reference were heard together and decided.

Was GE’s joinder justified?

The Court examined whether Doosan had made out a prima facie case in its notice of arbitration justifying GE’s joinder. In accepting GE’s joinder was proper, it found as follows:

• That GE, GCEL, and GIL freely “co-mingled” funds and were family run.

Family run businesses are common amongst Indian group companies. There was not much evidence of funds being co-mingled other than the corporate guarantee and MOUs. This, by itself, does not validate piercing the corporate veil to subject a party to the arbitration.

• That the entities had common directors.

In India, common directorship or even the holding company’s control in the appointment of directors in the subsidiary does not remove the juristic and legal independence of such subsidiary. The Supreme Court’s (“SC”) landmark decision in Vodafone International Holdings B.V. v India espouses this principle and holds that directors of subsidiaries have a separate responsibility to the subsidiary. Vodafone observed that in liquidation, such subsidiary’s assets would go to the liquidator, not the parent. The Court has not taken this into account at all.

• That there was no “corporate formality” between the various group companies.

However, it did not explain the absence of “corporate formality” when overlooking distinct corporate personalities. In fact, there are some cases that caution against the overzealous use of this power of piercing the veil (see Balwant Rai Saluja v. Air India). In India, while principles of public interest and single economic entity are accepted to pierce the veil, for the argument of agency, alter ego and control in a parent-subsidiary relationship, a high degree of control needs to be shown (see New Horizons v India).

• The parent-subsidiary relationship and that at the material time GCEL was GE’s 100% subsidiary.

In transactions that are admittedly “sham” where entities are merely created as funnels, the corporate veil should be pierced but not in other circumstances (Balwant Rai). In this case, while GCEL was an SPV, it was not camouflaged. Creation of SPVs is routine for infrastructure projects. There was no written agreement binding GE to arbitration, the MOUs had terminated, and the 100% subsidiary relationship also did not exist.

While this case may be fit for piercing the corporate veil on merits, there was not enough to bind GE to arbitration. This matter could have been resolved by Doosan filing a civil suit against all the entities. While extending the arbitration to GIL was appropriate even in the context of the well-worn Chloro Controls regime, it is hard to find any express or implied term by which GE agreed to submit to arbitration. GE may or may not have breached its commitment to pay, but it made no commitment to arbitrate.

The Court overstated the factors purportedly evidencing GE’s intention to arbitrate. Illustratively, one of the clauses in the contracts stated that parties could consolidate disputes in one arbitration under the various contracts; but such consolidation was only permissible if all parties consented. Such consent was however absent. The Court also failed to account for lack of an arbitration clause in the MOUs.

GE relied on a clause in the contracts which stated that parties were entering into this agreement on their own behalf and not on behalf of, amongst others, shareholders and agents and that neither party shall have recourse to them including through piercing the corporate veil. The Court ignored the clear mandate of this clause.

Can two Indian parties choose a foreign seat?

There has been judicial divergence on whether two Indian parties can choose a foreign seat. The GMR judgment further muddies the waters. Relying on SC decisions in Atlas Exports and Sassan Power, the Court concluded that two Indian parties can choose a foreign seat. However, the Court’s reasoning is feeble.

Two objections have been made against Indian parties choosing a foreign seat – a) this arrangement runs afoul of Section 28 of the AA which requires the governing law of the underlying contract for all India-seated, domestic arbitrations (between Indian parties) to be Indian law; b) Under Sections 28 of the Indian Contract Act, 1872 (“CA”) two Indian parties must not be prevented from accessing legal proceedings in India. The Court conflates these objections.

The Court misread the Atlas decision where the contract was executed between two Indian and a Hong Kong party. The arbitration clause provided for London arbitration. Relying on Section 28 of the CA, it was argued that denying two Indian parties remedy of Indian courts was contrary to public policy. The SC relied on the arbitration exception under the CA to enforce the award ruling that no public-policy argument could stand merely based on the arbitration being foreign-seated. The Court’s reliance on Atlas is problematic because Atlas does not examine the legality of Indian parties submitting to a foreign seat in the context of substantive law of the contract being foreign law (and therefore hit by Section 28 of the AA). The facts in Atlas do not fit the conclusion that the Court attributes to it.

Court’s reliance on Sasan is misplaced. In Sasan, two Indian parties agreed to arbitrate in London; English law governed. The lower court had ruled that two Indian parties could arbitrate in a foreign country under foreign law. In appeal, SC skirted the issue, ruling that the American parent of the Indian company was also party to the dispute. Since the dispute involved a foreign element, English law could apply. The court made no determination on the seat.

Holding Addhar Mercantile to be per incuriam for its failure to consider Atlas was also incorrect. In Addhar, two Indian parties had agreed to arbitrate “…in India or Singapore and English law to apply.” The Bombay HC held (relying on SC’s decision in TDM Infrastructure) that Indian nationals should not be permitted to derogate from Indian law. It, therefore, ruled that the arbitration would be India seated and accordingly Section 28 of the AA would not be breached. How has the Court misread these precedents? By suggesting that Atlas and Aadhar dealt with the same issue. The decision in Atlas is not a precedent for the proposition that two Indian parties cannot have their disputes determined by foreign law. Atlas dealt with Section 28 of the CA (not, Section 28 of the AA). Aadhar, on the other hand, deals with applicability of Section 28 of the AA to arbitrations involving two Indian parties.

In ruling that two Indian parties can opt for foreign-seated arbitrations, the Court advances party autonomy. The Court’s reasoning, however, is tenuous. The Court could have arrived at the same conclusion as follows:

• Atlas confirms that there are no public policy grounds that prevent two Indian parties from choosing a foreign seat;
• Section 28 of the AA requires Indian law be applied only for India-seated arbitrations between two Indian parties; and
• The SC’s decision in Sassan is not a precedent for either proposition.

In attempting to enforce the arbitration agreement, the GMR decision mirrors a welcome pro-arbitration trend adopted by Indian courts. Yet, its reasoning casts serious doubts on its standing as a precedent. Within their overarching pro-arbitration approach, Indian courts would do well to examine each case critically.

The views expressed herein are solely of the authors and do not represent any organizations or companies to which either author belongs.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post Delhi High Court’s decision in GMR v. Doosan: Two steps forward, two steps back? appeared first on Kluwer Arbitration Blog.

Mridul Godha and Kartikey M.

Young ICCA

Arbitration in India has traditionally skewed towards an ad-hoc rather than an institutional set up. Due to a lack of adequate emphasis on institutional arbitration, Indian parties have preferred to conduct their arbitrations with a seat in Singapore and London. In fact, 153 of the 307 cases administered by the Singapore International Arbitration Centre (SIAC) in 2016 involved Indian parties. India has been plagued by factors like the lack of a credible arbitral institution, excessive judicial intervention, absence of a dedicated arbitration bar and lack of clarity on the concept of public policy, making it an unfavourable place of arbitration.

However, as arbitration continues to grow between Indian parties, policy makers and courts of law have taken note of its importance. The recent discussion about a BRICS-centric arbitration centre in New-Delhi and SIAC’s tie-up with the Gujarat International Finance Tec-City shows a lot of promise towards making India a more favourable place of arbitration. In this post, we analyse two recent developments to show that institutional arbitration is now probably set to come out of the shadows into the mainstream in India, namely through the developments of new policies and those of the courts.

I. Developments through new policies: The Srikrishna Committee

In December 2016, the Indian Government constituted a High Level Committee under the chairmanship of Justice (Retd.) B.N. Srikrishna (the “Committee”) with the mandate to review and reform the institutionalisation of arbitration. The Government’s move was preceded by statements from key Indian policy makers on their desire to strengthen the infrastructure of institutional arbitration in India.

The Committee submitted its report on August 3, 2017 and suggested some much-needed reforms to arbitration in India. We analyse some of these key recommendations below.

• Arbitration Promotion Council of India (APCI)
The Committee recommended the creation of the APCI which would be responsible for grading arbitral institutions in India and accrediting arbitrators. APCI appears to be fashioned on the lines of institutions like the Chartered Institute of Arbitrators (CIArb). The motive behind forming the APCI is the training and accreditation of arbitrators as well as the promotion of arbitration in India. Keeping in mind the autonomous structure of institutions like the CIArb, the Committee clarified that they do not intend the APCI to be a Government-run body. It also stated that they do not consider the accreditation by the APCI to be a condition for the recognition and enforcement of awards administered by that arbitral institution so as to prevent the monopolisation of the accreditation procedure in the hands of the APCI.

• Arbitration Bar and Bench
The Committee recommended the establishment of an arbitration bar and arbitration benches in India. The arbitration bar would comprise of arbitrators who will be trained and accredited by the APCI. The specialist arbitration benches would deal with arbitration disputes before the courts. Judges forming part of this bench would be provided with periodic refresher courses on recent developments in arbitration. This would help reforming arbitration by having lawyers and well informed judges who can promote best practices of international arbitration in India.

• Proposed Changes to the 2015 Amendment Act
The Committee noted that the 2015 amendments to the Arbitration and Conciliation Act, 1996 (the “Act”) created undue hardship for its users, for instance, by the delays in the arbitration process caused by the extensive involvement of the courts. This called for a need for certain changes. The recommendations in this regard have been divided into two parts: a) amendments to correct obvious errors and ambiguities in the Act and incorporate international best practices; and b) amendments specifically aimed at promoting institutional arbitration in India. For the purpose of this post, we focus only on part b).

The Committee has sought to limit the involvement of Indian courts in the procedure of appointment of arbitrators: Drawing from the examples of the appointment mechanisms in Singapore, Hong Kong and the UK, it proposed an amendment to Section 11 of the Act. This amendment provided that the appointment of arbitrators shall only be done by arbitral institutions designated by the Supreme Court or the High Court (as opposed to arbitrators being appointed by the Chief Justice of the Supreme Court or the High Courts directly) and without the requirement for courts to determine the existence and validity of the arbitration agreement first. If undertaken, it would bring a remarkable change to the effectiveness of arbitration seated in India, which is often plagued by court related delays.

• National Litigation Policy
The term “National Litigation Policy” (NLP) was first used by the previous Government as a policy aimed at reducing government litigation. By using the same term, the Committee seems to want to promote arbitration in Government contracts to avoid expensive and time-consuming litigation before courts. The Department of Justice has already developed an action plan to reduce Government litigation. In fact, in a meeting in September 2017, the Government asked the Government departments and autonomous bodies to settle disputes through arbitration and provided a list of 13 institutions for assistance. These included, among others, the ASSOCHAM International Council of Alternate Dispute Resolution and the Bangalore International Mediation Centre.

• Declaration of the International Centre for Alternative Dispute Resolution (ICADR) as an institution of national importance
According to the Committee, this change has the potential of making the ICADR a globally competitive institution. The transformation of the ICADR is much needed. Founded in 1995, the ICADR has received only 49 cases until today. This is largely because it has not been able to market itself to prospective parties at the stage of contract formation. Once the ICADR is given the status of an institution of national importance, the Government will actively promote it and give it the backing required to ensure that at least in Government related contracts the ICADR is the arbitral institution of choice.

• Permission to foreign lawyers to represent clients in international arbitrations with seat in India
The Committee envisages allowing foreign lawyers to participate and represent clients in India seated arbitrations coupled with easing restrictions related to, amongst other things, immigration and taxation. Whilst as a matter of practice foreign lawyers are already participating in international arbitrations seated in India, providing easier access to immigration and clarity on taxation will encourage more foreign lawyers to conduct institutional arbitrations in India.

II. Developments from the Courts: Supreme Court refers the appointment of an arbitrator to the Mumbai Centre for International Arbitration (MCIA)

In July 2017, the Supreme Court of India asked the MCIA in an order to appoint an arbitrator in an international arbitration dispute between the drug maker Sun Pharmaceuticals Industries Ltd. and Nigeria-based Falma Organics Ltd. For the first time, the Court applied Section 11 of the 2015 Amendment Act designating an institution to assist with the appointment of an arbitrator. The amended Section 11 empowers the Supreme Court and the High Courts, upon request of a party, to appoint an arbitrator if a party fails to appoint one within 30 days from the receipt of a request to appoint from the other party.

This order marks a milestone towards promoting institutional arbitration in India. As already mentioned, Section 11 as currently in force, requires the court to examine the existence and validity of an arbitration agreement before appointing an arbitrator. This is highly problematic because only the Supreme Court can hear Section 11 applications concerning an international arbitration (and the High Courts concerning domestic arbitration). The immense amount of time taken by these courts to dispose of Section 11 applications along with their insufficient awareness of suitable arbitration practitioners has made the entire process highly inefficient.

This Supreme Court order promotes the pro-arbitration stance of the Indian judiciary and adds credibility to the newly established MCIA. More importantly, it sets a precedent for the High Courts and the Supreme Court to assign the appointment of arbitrators to arbitral institutions, which have greater access to a network of arbitrators and can act more swiftly without causing unnecessary delays.

Conclusion

The current performance of the arbitral institutions can be considered as a modest start. The Delhi International Arbitration Centre has successfully heard over 900 cases since its establishment in 2009 and the Bengaluru Arbitration Centre has heard 175 cases from its establishment in 2012 until September 2014, including six international arbitration matters. The MCIA, though new, has been structured on the pattern of a truly international arbitral institution. Implementing the recommendations of the Committee can be the first step towards ensuring an increase in these numbers and making India a preferred seat of international commercial arbitration. We hope that the above-mentioned changes will promote international best practices in India and make the process of institutional arbitration speedier and more reliable.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post The New-Found Emphasis on Institutional Arbitration in India appeared first on Kluwer Arbitration Blog.

Binsy Susan and Himanshu Malhotra

The (Indian) Arbitration and Conciliation Act, 1996 does not specify which disputes are arbitrable and which are not. The arbitrability of disputes is a contested issue and has been left for the courts to decide on a case-by-case basis. In Himangni Enterprises v. Kamaljeet Singh Ahluwalia (“Himangni Enterprises”), the arbitrability of disputes under a lease deed was questioned. In India, lease deeds are ordinarily governed by the Transfer of Property Act, 1882 (“TP Act”).

Previously, in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (“Booz Allen”), the Supreme Court held a gamut of disputes to be non-arbitrable (see here and here). One such category of disputes was “eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction”.

The Court also recognised a distinction between disputes involving rights in rem and those involving rights in personam. It ruled that disputes concerning rights in personam may be decided by a private forum (such as an arbitral tribunal) but those concerning rights in rem should necessarily be decided by a public court. The case of A. Ayyasamy v. A. Paramasivam  (“Ayyasamy”) further clarified this rule by carving out the following two categories of disputes which may not be subject to arbitral proceedings:

1. Disputes falling within the exclusive jurisdiction of a special court under a special statute; and,
2. Disputes which are generally considered by the courts as appropriate for decision by public fora, for instance, disputes pertaining to rights in rem (the 6 categories of disputes specified in Booz Allen).

The Issue of Arbitrability

While the law is clear on disputes arising under a lease deed governed by special statutes such as the Rent Control Act, conflicting judgments of various High Courts exist on the issue of whether disputes arising under a lease deed governed by the TP Act (a general statute on the transfer of property) can be a subject-matter of arbitration.

In Penumalli Sulochana v. Harish Rawtani, the Andhra Pradesh High Court extended the rule evolved in Booz Allen and held that disputes under a lease deed, governed by the TP Act are non-arbitrable. The court reasoned that since the eviction of a tenant, governed by special statutes, cannot be the subject-matter of arbitration, a similar case which falls under the TP Act cannot be a subject-matter of arbitration either.

In Ambuja Neotia Holdings Pvt. Ltd v. M/s Planet M Retail Ltd., however, the Calcutta High Court held that lease deed disputes, governed by the TP Act are arbitrable, as the TP Act codifies the general law of transfer of property and is not a special statute. The Court was of the view that Booz Allen does not render all eviction or tenancy matters non-arbitrable, but covers only such disputes which are governed by a special statute.

The Deciding Case – Himangni Enterprises

On 12 October 2017, the Supreme Court in Himangni Enterprises, ruled on this specific issue. The Court was dealing with a civil suit that had been filed before the trial court for eviction of a tenant, recovery of unpaid arrears of rent and grant of injunction against his possession of the property. The defendant filed an application before the trial court seeking referral of the disputes to an arbitrator on the basis of an arbitration clause in the lease deed. The trial court dismissed the application. The dismissal was later challenged before the Delhi High Court and then the Supreme Court. It was argued before the Supreme Court that since a special rent legislation was not applicable to the premises, the dispute had to be referred to arbitration.

Relying on Booz Allen and Natraj Studios Pvt. Ltd. v. Navrang Studios (“Natraj Studios”), the Apex Court held that the disputes under the TP Act would also necessarily have to be tried by a public court and not by an arbitrator.

Comment

Since the question of arbitrability of lease deed disputes under the TP Act was not considered in either Booz Allen or Natraj Studios, the Court’s reliance on the aforementioned judgments appear to be misplaced. While Booz Allen considered the arbitrability of a mortgage deed, Nataraj Studios considered a leave and licence dispute governed by a special rent legislation. Ideally, the Court should have focused on the facet of non-arbitrability of disputes concerning rights in rem and clarified the jurisprudential basis for its decision. However, this case is logically consistent with the ratio in previous cases such as the Ayyasamy judgment. The decision is also in line with an earlier judgment (Vimal Kishore Shah v. Jayesh Dinesh Shah), wherein the Court held that a reference to arbitration for deciding disputes under a trust deed is barred by implication, as the Indian Trust Act, 1882 provides a sufficient and adequate remedy (see here).

It is clear that a lease deed, whether governed by the TP Act or by a special statute, involves disputes concerning rights in rem. Since a lease involves a transfer of interest in the property, such a transfer invariably involves creation of rights qua third parties, as far as the rights of possession and enjoyment of the property are concerned.

This becomes relevant in situations where a third person may claim possession over a property on the basis of another lease deed. A dispute of this nature would involve a determination of the parties’ respective interest in the property, which would necessarily be a determination of rights in rem. Therefore, a hearing should be afforded to all persons whose rights may be affected that can be adjudicated only by a public court. An arbitral tribunal, being a creature of a contract between parties, cannot possibly decide on any impact on third party rights or allow for such a procedure. Additionally, an arbitral tribunal’s decision would not be binding on a third person and would thus frustrate the process of dispute resolution between all parties.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post Arbitrability of Lease Deed Disputes in India – The Apex Court Answers appeared first on Kluwer Arbitration Blog.

Kun Fan

ITA

In the context of the backlash against investor-state dispute settlement (“ISDS”), one of the main criticisms is the asymmetric nature of investment treaties, which impose numerous obligations on the States, but do not seem to hold corporations accountable for the social, environmental and economic consequences of their activities. Some recent developments reflect a redirection away from a sole focus on investor protection, and a move towards a more balanced approach, by respecting States’ regulatory space and introducing a more tenable link between business and human rights and investment treaty instruments.

One attempt to balance between investment protection and the right to regulate is to provide a carve-out for regulatory measures. For instance, some recent treaties, including in Trans-Pacific Partnership (“TTP”)¹⁾Annex 9-B of the TPP., The Canada-European Union (EU) Comprehensive Economic and Trade Agreement (“CETA”)²⁾Article 28 of the CETA., China-Korea Free Trade Agreement³⁾Annex 12-B, 3(b) of the China-Korea Free Trade Agreement., exempt non-discriminatory regulatory measures for lawful public welfare objectives (public health, safety and environment) from the indirect expropriation obligations. China-Australia Free Trade Agreement (“ChAFTA”)⁴⁾Article 9.11 of the ChAFTA. takes a step further to provide that non-discriminatory measures for legitimate public welfare objectives are not subject to the ISDS claims. If the respondent deems that its disputed measure falls within such a carve-out, it could deliver a notice elaborating the basis for its position to the claimant and non-disputing party, which is referred to as the “public welfare notice”. This notice will lead to a 90-day consultation between the respondent and non-disputing party, during which the dispute resolution procedure will be suspended. The public welfare notice contained in the ChAFTA is an innovative approach and serves as a strong safeguard for State’s regulatory autonomy.

Another development is the emphasis on corporate social responsibility (“CSR”), human rights and sustainable development in some recent treaties. For instance, the Dutch model BIT 2004 in its preamble recognizes that “the development of economic and business ties will promote internationally accepted labour standards” and that “these objectives can be achieved without compromising health, safety and environmental measure of general application”⁵⁾Preamble of the Austrian Model BIT 2010.. The Dutch government has also linked the OECD guidelines to export credits. Investors that want to have their capital needs insured by the government are obliged to sign a declaration of intent that they will endeavor to implement OECD guidelines.

The Austrian Model BIT 2010 states the commitment to “achieving these objectives in a manner consistent with the protection of health, safety, and the environment, and the promotion of internationally recognised labour standard”, and emphasizes “the necessity for all governments and civil actors alike to adhere to UN and OECD anti-corruption efforts, most notably the UN Convention against Corruption (2003)”. It further acknowledges that “investment agreements and multilateral agreements on the protection of environment, human rights or labour rights are meant to foster global sustainable development and that any possible inconsistencies there should be resolved without relaxation of standards of protection”.⁶⁾See “Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad”.

Since 2010, Canada has also included a voluntary CSR provision in the Bilateral Investment Treaties (“BITs”) it signs, emphasizing that “each Party should encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized standards of CSR their practices and internal policies, such as statements of principle that have been endorsed or are supported by the Parties. These principles address issues such as labour, the environment, human rights, community relations, and anti-corruption”.

The India Model BIT (draft) issued in March 2015 (“The Indian Model BIT March Draft”) goes further by providing for positive obligations on investors and their investments, in terms of obligation against corruption, obligation to comply with the provisions of Host State’s law on taxation, obligation to compliance with the Law of Host State, including, among other things, environmental law applicable to the investment and its business operations; law relating to conservation of natural resources, law relating to human rights; relevant national and internationally accepted standards of corporate governance and accounting practices.⁷⁾Articles 9, 11 and 12 of the Indian Model March Draft. 
Compliance with these positive obligations is necessary to benefit from the provisions of this Treaty.⁸⁾ Article 9 of the Indian Model March Draft. Significantly, it also allows the State to initiate a counterclaim against the Investor or Investment for a breach of these positive obligations before a tribunal and seek as a remedy suitable declaratory relief, enforcement action or monetary compensation.⁹⁾ Article 14.11 of The Indian Model March Draft.

In December 2015, the Indian Ministry of Finance released an updated and approved version of the Indian Model Bilateral Investment Treaty (“Indian Model BIT December Version”). The final December 2015 model took a number of steps back from the March 2015 draft by diluting or entirely removing several noteworthy provisions, although a few interesting features remain. For instance, CSR provision is incorporated, though in a much softer language, providing that “investors and their enterprises operating within its territory of each Party shall endeavour to voluntarily incorporate internationally recognized standards of CSR in their practices and internal policies, such as statements of principle that have been endorsed or are supported by the Parties. These principles may address issues such as labour, the environment, human rights, community relations and anti-corruption.”¹⁰⁾Article 12 of the Indian Model BIT December Version. The Ministry of Finance confirmed that the Indian Model BIT will be used as the starting point for the negotiation of all standalone BITs and the investment chapters of Free Trade Agreements.

Norway first attempted to incorporate by reference a CSR-style provision in its draft Norwegian Model BIT (2007), stating that “parties agree to encourage investors to conduct their investment activities in compliance with the OECD Guidelines on Multinational Enterprises and to participate in the UN Global Compact”.¹¹⁾Article 32 of the draft Norwegian Model BIT 2007. Subsequently, the government withdrew its draft Model BIT in 2009, following widespread public criticism. Built on the previous draft in 2007, Norway reintroduced its new draft Model BIT in May 2015. The shift from a sole focus on investment protection is reflected in the preamble of the Norwegian Model BIT 2015, which emphasized the “importance of CSR”, and reaffirmed “their commitment to democracy, the rule of law, human rights and fundamental freedoms in accordance with their obligations under international law, including the principles set out in the United Nations Charter and the Universal Declaration of Human Rights”, as well as the commitment to prevent and combat corruption. The Norwegian Model BIT 2015 expressly preserves the States’ right to regulate for the protection of health, safety, human rights, labour rights, resource management or environmental concerns, and precludes states from waiving or derogating from such measures as an encouragement of investment. It also reserves the state’s right to adopt or enforce measure necessary to protect public morals or to main public order; to protect human, animal or plant life or health, and to protect the environment.¹²⁾ Articles 12, 11 and 24 of the draft Norwegian Model BIT 2015.

The above developments propose some novel reforms, reflecting the aim of promoting alignment of international investment agreements with sustainable development objectives. It remains to be seen whether these countries or their treaty partners will seek to incorporate those more progressive features in the forthcoming treaty negotiations, how foreign investors will react to these instruments, and what the potential business costs of doing this are.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post Rebalancing the Asymmetric Nature of International Investment Agreements? appeared first on Kluwer Arbitration Blog.

Binsy Susan and Neha Sharma

On 5 January 2018, the Central Government introduced New Delhi International Arbitration Centre Bill, 2018 (the “Bill”) in the lower house of Indian Parliament (Lok Sabha). This was with the objective of making India an investor-friendly nation. There are few arbitral institutions operating in India – Indian Council of Arbitration (“ICA”), International Centre for Alternative Dispute Resolution (the “ICADR”) and more recently Mumbai Centre for International Arbitration (“MCIA”). However, foreign investors have long preferred referring their disputes to arbitration centres located in Singapore, Hong Kong or London under the aegis of institutional rules of International Chamber of Commerce (“ICC”), Singapore International Arbitration Centre (“SIAC”) or London Court of International Arbitration (“LCIA”). Unwarranted judicial intervention and under-developed dispute resolution infrastructure and procedures have dented investors’ confidence, and discourages investors from adopting recourse to contract enforcement measures. The Bill proposes to establish the New Delhi International Arbitration Centre (the “NDIAC”) in order to acquire and revamp the procedural framework and governance structure that was previously in place under the ICADR. Further, the Bill seeks to develop and expedite the dispute resolution process. Undoubtedly, this is a welcome move to encourage foreign investment in the country and would auger well for India’s reputation globally.

Key features of the Bill

The following features of the Bill seeks to do away with the procedural issues previously in place under the ICADR, making it distinct from other arbitral institutions in India.

• Incorporation of NDIAC

The NDIAC is proposed to be established as a body corporate, different from the ICADR and ICA that are registered as a society under the Societies Registration Act, 1860. MCIA has been registered as a not-for-profit organisation in Mumbai. Akin to other body corporates, it is proposed to have perpetual succession and a common seal that will permit it to acquire and transfer property, and enter into contracts in its own name. However, as NDIAC will be established pursuant to a notification issued by Central Government, it will be exempt from other requirements, such as minimum shareholders and directors, applicable to body corporates established under the Companies Act, 2013. The NDIAC is proposed to have a head office at New Delhi and branches at various other places in India and abroad.

• Institute of national importance

The Bill proposes to declare NDIAC an institute of national importance – a step expected to allow NDIAC have autonomy in administrative, financial and academic activities. It is for the first time that the Central Government has proposed to declare an arbitral institution as an institute of national importance. The Central Government also proposes to make contributions to the funds of NDIAC in each financial year to give it the financial fillip required and to enable NDIAC promote research and study, organise conferences and seminars for imparting knowledge of law and procedures on alternative dispute resolution.

• Organisational structure

The Bill proposes to eliminate the large ICADR governing council. The ICADR governing council consists of 47 members that handles the management of the ICADR. All the decisions are taken based on majority approval of the governing council and various committees of ICADR. Similarly, the MCIA council consists of 17 arbitration practitioners. Lack of coordination among the members of the governing council causes delay in the decision making process of arbitration institutions. NDIAC is proposed to consist of only 7 members appointed by the Central Government. That will expedite the decision making process.

• Transfer of undertakings

In order to utilise the elaborate infrastructure set up for ICADR, the Bill proposes that ICADR will transfer all its undertakings, including assets and all property, in favour of the Central Government and the Central Government will thereafter transfer the right, title and interest in the undertakings in favour of NDIAC which will facilitate discharge of arbitration proceedings.

• Chamber of arbitration and arbitration academy

It is proposed that NDIAC will establish two other bodies, namely, a chamber of arbitration to maintain a permanent panel of arbitration practitioners, and an arbitration academy to impart training to the arbitrators and conduct research activities. The proposed panel of expert arbitrators will assist the disputing parties in resolving their disputes in a more efficient and effective manner.

Ambiguities in the Bill

Though the Bill is a crucial step to build India into a global arbitration hub, there are some inherent ambiguities in the Bill that will cause roadblocks in the development of an effective dispute resolution mechanism.

Illustratively, the Central Government is the appointing authority of the members of the NDIAC and a periodic contributor to its funds. Further, its accounts are proposed to be audited by the Comptroller and Auditor-General of India. The Central Government would also have the power to remove members from office. Investors adopting alternate modes of dispute resolution prefer a neutral decision making body. The proactive role played by the Central Government may discourage contracting parties from referring disputes to NDIAC for fear that the independence and credibility of the arbitral institution will be compromised, especially in cases where the opposite party is a public sector undertaking. Although SIAC was established with government aid and funding, it has now become a completely self-sufficient and independent arbitration institute.

Further, the Bill only addresses the administrative issues in relation to NDIAC. It remains to be seen how the procedural framework concerning the settlement of disputes is laid. The primary reason behind ICADR’s failure to become an institute of choice was its antiquated approach in resolving disputes. In order to present NDIAC as a preferred arbitration institute, it must be competitively priced, have state of the art facilities and must have precise timelines for the completion of arbitration proceedings. Separately, provisions such as consolidation of arbitrations, emergency arbitrators, immunity to arbitrators and confidentiality of information that were not envisaged under the ICADR Rules must be incorporated in the NDIAC procedural framework.

Conclusion

The Bill, establishing NDIAC with an organised governance structure, will replace the outdated ICADR and lay a strong foundation in the institutional arbitration setup of India. The High Level Committee headed by Justice B.N. Srikrishna (the “Committee”) suggested taking over of ICADR and overhauling its governance structure because of the procedural deficiencies in the functioning of the ICADR. Particularly, the large governing council and the archaic rules make the institute unattractive to the potential contracting parties. The Bill proposes to overcome these roadblocks by streamlining the organisational structure of the arbitration centre. Further, the Arbitration and Conciliation (Amendment) Bill, 2018 (the “Arbitration Amendment Bill”) proposes to establish the Arbitration Council of India (the “ACI”) which will periodically review and grade the arbitral institutions in India. The periodic review and grading will certainly help in promoting the credibility of NDIAC among the foreign investors. It is hoped that NDIAC will change the perception of doing business in our country and will expedite the dispute settlement mechanism. However, the Parliament must clear the ambiguities associated with the Bill. Particularly, an investor friendly procedural framework must be adopted. A transparent process for appointment and removal of the members must be incorporated. Separately, the Central Government involvement/ interference in the functioning and funding of NDIAC must be phased out to gain investors’ confidence.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post New Delhi International Arbitration Centre: Building India into a Global Arbitration Hub appeared first on Kluwer Arbitration Blog.

Tania Singla

The Indian Parliament passed the Indian Arbitration & Conciliation (Amendment) Act, 2015 (“Amendment Act”) in a bid to refresh and reform the existing arbitration regime under the existing Arbitration Act. Ironically, the Amendment Act spiralled new waves of persistent ambiguity and uncertainty regarding the applicability of these amendments to pending as well as fresh proceedings before the arbitral tribunals and the national courts.

The entire controversy regarding the amendments emanated from Article 26 of the Amendment Act, 2015, which reads:

Section 26. Act not to apply to pending arbitral proceedings.

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. (emphasis supplied)

A detailed discussion of the issues regarding Article 26 have been previously discussed on this Blog here. Given the length and drafting of the provision, it is not surprising that various High Courts in India have only contributed to the confusion by offering diverse interpretations of this provision.

The Supreme Court of India recently made a laudable attempt to set the record straight. The judgement of the Court in Board of Control for Cricket in India vs. Kochi Cricket Pvt. Ltd finally settled the confusion surrounding the date of application of the amendments and their operation vis-à-vis the previous Act. The major takeaways of the judgment are:

2015. The operation of the Amendment Act, 2015 is prospective in nature and the critical cut-off date is October 23, 2015. The amended version of the Arbitration & Conciliation Act will apply to those arbitrations that were/are initiated on or after this date and to all arbitration-related court proceedings commenced on or after this date.

2015. Prior to the Amendment to Section 36, if an application for setting aside was filed under Section 34, it led to an automatic stay on the enforcement of the award. The amended Article 36 requires a party to make a separate application requesting for a stay on enforcement of the award. By this judgment, the benefit of the amended Section 36 has been extended even to those applications that were filed prior to October 23, 2015.

Prospective Operation of the Amendments

The Supreme Court performed an extensive textual analysis and distinguished between the two ‘limbs’ of Section 26 separated by the ‘but’. It focused particularly on the use of “to the arbitration proceedings” in the first part versus “in relation to arbitral proceedings” in the second part. The Court concluded that the first part applies to proceedings that are conducted before the Arbitral Tribunal alone whereas the second part refers to courts proceedings that are commenced in aid and assistance of arbitral proceedings. Thus, the operation of the Amendment Act, 2015 has been held to be prospective and applied to arbitrations as well as related court proceedings under the Arbitration Act initiated on or after October 23, 2015. This means that for awards that have been rendered before this date, any setting aside proceedings initiated on or after this date would benefit from the application of the amended provisions of the Act.

Automatic Stay on Enforcement of Domestic Awards Lifted with Retrospective Effect

 Prior to the amendment, if and when a party filed an application for setting aside before a Court under Article 34, the other party could not seek enforcement of the award until the application was refused. Notably, the Supreme Court of India had previously criticized this provision in National Aluminium Co. Ltd. v. Pressteel & Fabrications (2004) because it did not grant discretion to the Court and instead, the mere filing of a Section 34 application led to an automatic stay on the enforcement of the award. Fortunately, the newly amended Article 36 has replaced this ‘automatic’ stay with the discretion to the Court to grant a stay where it receives a request from a party. In this judgment, the Court noted that the amended Section 36 would apply to all setting aside applications filed on or after October 23, 2015. However, the main issue before the Court was whether the newly amended Section 36 could also be applied retrospectively to applications filed before this date.

Under the Indian Arbitration Act, the award is deemed to be a decree by the Civil Court and deemed to be enforceable without any further action on the part of the Indian courts. Therefore, the issue was whether ‘execution’ proceedings relating to a decree gave rise to vested rights of a substantive nature which would not permit retrospective application of the amendment. Notably, the Court found that the execution of a decree (and therefore, an award) is a matter within the realm of procedure and does not give rise to any substantive right vested in a party to resist the enforcement of the award. Therefore, all domestic arbitration awards can now be enforced in India irrespective of any pending setting aside applications before national courts!

Interestingly, the Court also took into account ‘the practical aspect and the nature of rights presently involved, and the sheer unfairness of the unamended provision’, which reflects the Court’s evolving pragmatism and its acknowledgement that minimum judicial intervention is necessary to promote the efficacy of arbitration. It is evident the Supreme Court sought to cast its net far and wide and attempted to extend the progressive regime created under the Amendment Act to as many beneficiaries as possible within the textual contours of the legislation.

To conclude, the application of the amended Section 36 now mirrors the pro-arbitration approach codified Article 34 (4) of the UNCITRAL Model Law. The retrospective effect of Section 36 would undoubtedly benefit several arbitration awards, the enforcement of which was hitherto blocked by pending setting-aside applications. In addition, it would discourage parties from filing strategic Section 34 applications merely to block the enforcement of the award by the other parties and therefore, ease some of the burden on Indian courts. Important questions still remain regarding the application of other provisions of the Amendment but the Supreme Court has set the ball rolling and clarified critical issues, finally granting predictability and certainty to the High Courts as well as the arbitration community to a certain extent.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post Arbitration Seated in India? It is Time to Enforce Your Award! appeared first on Kluwer Arbitration Blog.

Ritvik Kulkarni

A plethora of business transactions today have evolved into complex structures of multi-faceted sub-transactions. Multiple parties enter into several distinct, yet interconnected and interdependent agreements towards achieving a common commercial goal.

Every so often, however, one or more of these interconnected agreements will lack an arbitration agreement; whereas the others will contain similar/related arbitration clauses. Disputing parties may then initiate parallel litigation and arbitration proceedings against each other.

One disputing faction would most likely request the relevant State Court to refer all the parties to one tribunal. Conversely, the other faction would resist any request for arbitral reference on grounds that it is a non-party to the arbitration agreement; and/or oppose a composite reference on grounds that the parties have clearly entered into several separate agreements.

I argue here that in such disputes, the Indian Supreme Court (SC) has realigned its focus on determining the commonality and end goal of composite transactions, instead of merely dissecting them into separate agreements based on a strict interpretation.

One Agreement, One Tribunal

India’s treatment of these issues has been previously analysed here on this blog. The most recent judgment discussed in the aforesaid post is the SC’s decision in Duro Felguera v. Gangavaram Port  (2017 SCC OnLine SC 1233) [Duro].

In Duro, the SC was faced with a request for a composite arbitral reference in relation to disputes arising out of six agreements. An original tri-partite agreement between all parties was subsequently restructured into five new agreements. The sixth agreement was a related bank guarantee. All six agreements were entered into in respect of one main project and had identical arbitration clauses.

In Chloro Controls v. Severn Trent (2013) 1 SCC 641 (Chloro Controls), the SC had referred even non-signatories to a single international arbitration since the ‘mother agreement’ among the agreements in question, contained an arbitration clause. However, the SC distinguished Chloro Controls because the arbitration clauses in Duro lacked the wide terms: [disputes arising] ‘under and in connection with’ [this agreement].

Even though it was observed in Duro that there had been “no novation by substitution of all five agreements”, the SC declined a composite reference mainly on grounds that Section 11(6A) of the Arbitration Act, 1996 (the Act) restricts the scope of judicial inquiry merely to determining the existence of an arbitration agreement. Having found six separate arbitration agreements, the parties were referred to four domestic and two international arbitrations, albeit presided over by the same set of arbitrators.

Paradigm Shift?

In this backdrop, the SC was yet again required to adjudicate a similar dispute in Ameet Lalchand Shah & Ors. v. Rishabh Enterprises and Another (Ameet Shah) [Civil Appeal No. 4690 of 2018].

Briefly put, four parties executed a total of four contemporaneous agreements for the purpose of commissioning a photovoltaic solar plant in Uttar Pradesh, India (the Solar Plant). Three of these four interconnected agreements contained an arbitration clause. When disputes arose, one of the parties issued a notice of arbitration, whereas the opposing party filed a suit before a Single Judge of the Delhi High Court (HC). In the suit, the plaintiff levelled serious allegations of misrepresentation and fraud in respect of the subject matter covering all four agreements. In Ameet Shah, the SC has also discussed a few contours of arbitrability of fraud. However, I have not delved into this aspect of the judgment in this post.

The defendant in the suit then filed an application under Section 8 of the Act and sought the dispute to be referred to arbitration. This request was rejected by the Single Judge, as also by the Division Bench (DB) on appeal.

While deciding the request for a single reference, the SC first revisited its ratio in Chloro Controls. Here, it will be recalled, the SC had given a purposive construction not only to the arbitration clause in the mother agreement, but also to the transaction as a whole. Importing its formative analysis from Chloro Controls, the SC in Ameet Shah observed that all parties could be covered by the arbitration clause in the main agreement as all four agreements were clearly interconnected and meant for achieving the single commercial goal of setting up the Solar Plant at Uttar Pradesh, India. Unlike in Duro, the Apex Court did not mandate the presence of a particular widely worded arbitration clause, as the one in Chloro Controls, to enable a single arbitral reference.

Further, the SC in Ameet Shah steered clear of its earlier decision in Sukanya Holdings v. Jayesh H. Pandya (2003) 5 SCC 531 (Sukanya). In Sukanya, it was held that a matter cannot be referred to arbitration if all parties to a civil suit are not privy to the arbitration agreement; as there is no provision in the Act for a partial reference to arbitration. The SC in Ameet Shah rightly adverted to the 2015 Amendments to the Act, and noted that the amended in the amended Section 8(1) clearly entitles even persons claiming through or under a party to the arbitration agreement to seek an arbitral reference, notwithstanding any judicial precedent. The SC then went on to refer all disputing parties to arbitration. Notably, while the SC has not returned a concrete finding to this effect, Sukanya should effectively stand overruled in light of the amended Section 8 and the SC’s decision in Ameet Shah.

Missed Chances

Interestingly though, Duro does not feature at all in the Ameet Shah analysis; and as such it has not been expressly overruled. Parties in future disputes may still seek to rely upon Duro to resist a composite reference if governed by both domestic as well as international agreements.

The SC has rightly applied Chloro Controls in Ameet Shah. However, it has done so only after having identified a principal/mother agreement among the four agreements. Therefore, Ameet Shah may impede the application of Chloro Controls in a similar multi-contract dispute which lacks the centrifugal force of a mother agreement. Hopefully, Indian Courts will nevertheless discard a Shylockian interpretation of contract and apply the Chloro Controls ratio in all multi-contract disputes where the overall transaction is common and comprises inextricably linked components.

Concluding Remarks

As Lord Hoffman has remarked in Fiona Trusts v. Primalov [2007] UKHL 40, the construction of an arbitration clause should start with the assumption that parties, as rational businessmen, are likely to have intended that any dispute arising out of their commercial relationship should be decided by the same tribunal. Perhaps India had a good opportunity to have formally adopted this presumption in Ameet Shah. Nonetheless, the SC’s purposive approach towards commercial transactions is a refreshing development in India’s arbitration landscape.

That said, would a party be permitted to reintroduce its grievance to consolidation as a ground for challenging the arbitral award? Most leading arbitral institutions now provide for consolidation (Article 28 of the 2013 HKIAC Rules, Article 8 of the 2016 SIAC Rules, Article 10 of the 2017 ICC Rules, Article 15 of the 2017 SCC Rules, and Article 22(ix) and (x) of the 2014 LCIA Rules). It has been previously argued on this blog that an institution’s decision on consolidation is administrative in nature and cannot by itself be challenged. However, the tribunal of the consolidated proceedings can determine the validity of the consolidation order since it retains kompetenz-kompetenz to decide its own jurisdiction, including a challenge based on the institution’s decision to consolidate.

Insofar as a tribunal’s decision on consolidation is jurisdictional, parties in an Indian arbitration may raise it as a ground for setting aside an award before the relevant Court (Sections 16(6) and 34(2)(a)(v) of the Act). In PR Shah v. BHH Securities (Civil Appeal No. 9238/2003), an award was challenged because the tribunal had permitted a common arbitration when a party raised related claims against two parties under separate arbitration agreements. The SC dismissed the objections against consolidation and observed that denying the benefit of a single arbitration against the two parties would lead to multiplicity of proceedings, conflicting decisions and cause injustice.

Where the decision of consolidation is made by a court of the arbitral seat in accordance with its laws, as argued in the above post, it would be difficult to sustain a challenge to the award on the ground that the arbitral procedure and/or constitution of the tribunal was not in accordance the parties’ agreement(s) or with the law of the seat of arbitration.

Of course, this is not to suggest that every dispute with multiple contracts must automatically be referred to a single arbitral tribunal. Even in multi-party transactions involving several related contracts, parties may consciously structure the agreements to create distinct obligations on each set of contracting parties.

In Trust Risk Group v. AmTrust Europe [2015] EWCA Civ 437, the parties’ contractual arrangements comprised (i) a standard London-form agreement with  dispute resolution under English law and jurisdiction and (ii) a subsequent framework agreement structured closer to the Italian market, which provided for arbitration in Milan under Italian law. It was observed that both agreements dealt with different parts of the parties’ commercial relationship, and the parties’ decision to have different dispute resolution was founded on a rational basis. The Court dismissed the argument that all disputes between the parties must be referred to arbitration under the latter agreement. Accordingly, such disputes could indeed be referred to separate tribunals even though they arise out of related transactions.

Views expressed in the post are the personal opinion of the author and do not necessarily reflect those of his law firm.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post India’s Treatment of Interconnected Agreements to Arbitrate appeared first on Kluwer Arbitration Blog.

Stephen Trevis

Part I

Over recent years we have seen an uptick in requests to insert arbitration clauses in derivatives and other financial product documentation, and most particularly in the Asia Pacific region. Indeed, the International Swaps and Derivatives Association (ISDA), which is responsible for producing the most widely-used industry template of the master agreement, has shown a keen interest in this area and in 2013 ISDA provided guidance on the use of arbitration clauses, allowing for a number of institutions and seats around the world. An ISDA working group continues to track relevant legal developments and regularly publishes guidance.¹⁾See e.g. Loukas A. Mistelis (Queen Mary University of London), Are Banks Changing? The New Big Industry for International Arbitration? Kluwer Arbitration Blog, October 2, 2013

There are many reasons for the growing interest in this form of dispute resolution, broadly falling into two categories:

• reasons that are jurisdictionally or regionally driven; and
• those more relevant to the nature of the business being transacted.

In order to do some justice to these topics I have split this article into two, and in this first part I will focus more on cross border and jurisdictional considerations. In the second part I will discuss how the complexity and variety of arrangements between counterparties to these types of products can be drivers to choosing arbitration.

It is worth noting at this point how in-house teams responsible for negotiating these clauses are typically organized. After all, the final, executed version of the clause is of course derived at through a process of negotiation between the parties prior to execution of the documentation, and this will determine much of the course of any dispute that may arise. However, in-house legal teams typically split responsibility between negotiating these terms (and the transactional side of the businesses) on the one hand, and the dispute resolution side on the other. When a dispute occurs over this documentation therefore a certain degree of sympathy must be afforded to the litigation teams who are presented as a fait accompli with a contract they typically took no part in negotiating! I have somewhat unusual responsibilities as an in-house lawyer in that I see “both ends” of the documentation, as it were. My teams include those who deal with documentation negotiation and the transactional side, as well as dispute resolution specialists. It has been our experience that there are distinct areas which regularly come up for discussion. From this perspective I would like to summarise some of the more commonly-negotiated terms of arbitration clauses we are currently seeing across the Asia-Pacific region.

Negotiations have to start somewhere, and this is by using one or other of the party’s templates. A clear majority of the time the starting point is our (the bank’s) template, and so the points that come up for discussion are interesting in as far as they are driven largely by the client’s concerns. Our template is perhaps not untypical among international banks in nominating the London Court of International Arbitration, seat in London and under English law. The reasons for this starting point are, firstly, that we favour English law globally for our Markets documentation generally. Therefore to the extent that arbitration is considered appropriate, LCIA has historically been considered a natural choice. Much of the reasoning here is to do with the fact that London is a legal centre globally, with a legal profession and judiciary with long and deep experience in dealing with these types of transactions. I will discuss this in more detail in Part II of this discussion.

From our perspective bringing proceedings in a globally-recognised centre avoids many of the complications and uncertainties entailed in conducting the dispute resolution “onshore” or in the counterparty’s jurisdiction. ²⁾See e.g. Deyan Dragiev, Arbitration vs Litigation in Financial Agreements: A Policy Perspective, Kluwer Arbitration Blog, September 10, 2015 It is also clearly of central concern from the perspective of obtaining a fair and equitable result, that the entire process is disinterested and clean. These concerns with local dispute resolution, including the court process and judiciary in many countries, operate broadly speaking on two levels:

• Risk of interference by the local courts in the arbitration itself. The advantage of going down the arbitration route of a potentially quicker, more straight-forward process which is (broadly) not subject to appeal may well be nullified if the local courts actively involve themselves in the arbitration hearing, and allow the parties to appeal every stage;
• Possible difficulties with onshore enforcement. One might point out at this stage that if there are concerns with enforcement in the counterparty’s jurisdiction, this should be the case regardless of whether the arbitration was conducted onshore or offshore. However in the cross border context there may well be assets located in multiple jurisdictions which may be of interest at the enforcement stage, and if so an arbitration award obtained in an internationally-recognised centre would be preferable from this perspective. Moreover it may be the case that an award obtained offshore will limit the scope for disruption of the enforcement process onshore.

At either of these two stages concerns may arise that the local court process is not free from bias or even corruption. Clearly, any suspicion along these lines has very serious implications for the integrity of the outcome.

This has one very clear effect on our template clause. We endeavour to insert a provision concerning the nationality of the arbitrators, in the context of a three-person panel. The stipulation is that each party shall elect one arbitrator who shall not have the same nationality as that party (and these two arbitrators then elect the Chair). The thinking behind this is to avoid any suggestion of bias on the part of any one of the arbitrators. However, this is regularly contested in the course of negotiations. The reasons for this resistance I believe are to do with ensuring (from the counterparty’s point of view) as wide a choice of qualified candidates as possible. This provision could be viewed as severely or unfairly restricting the pool of candidates for the panel.

Concerns with bias or corruption do not generally arise in the context of India, where the concern is more to do with undue interference from the local courts in the arbitration process and award. India-located counterparties very frequently take the position that they want the dispute resolution to take place onshore. So for example we may well see a request for International Chamber of Commerce with seat in Mumbai, or arbitration in Mumbai in accordance with the domestic provisions of the Arbitration and Conciliation Act. Historically there have been concerns over the extent to which the domestic courts would directly involve themselves in such arbitration should it come within these domestic provisions. This issue is well understood in India, however, and it will be very interesting to see what effect when implemented current proposed changes to the law will have on the extent to which domestic arbitration is insisted upon. We are watching the progress of the Arbitration and Conciliation Act (Amendment) Bill 2018 with interest! However, as things currently stand our compromise, which is normally accepted, is arbitration in Singapore; Singapore International Arbitration Centre (SIAC) rules, seat in Singapore. In other words concerns over domestic arbitration in India remain.

Governing law in the India context can be more complicated, with a wider range of possible outcomes. That said, in the majority of cases English law is still accepted regardless of the rules/seat outcome; so for example, English governing law with SIAC rules is not an uncommon end position. On Indian governing law, historically we have viewed such requests sympathetically. However, recently the advent of the recovery and resolution regime in the UK, with its requirements for contractual recognition of stays where the governing law is non-EEA, has complicated this issue, since the necessity of inserting such a provision is difficult to explain where the transactions contemplated are intended to take place entirely onshore (as is the case the majority of the time).

Lastly the nominated courts in relation to the arbitration itself, for such matters as injunctive or interim relief, are also a matter for regular negotiation. Where we are starting from the position of LCIA, we will normally just specify the English courts for such matters, although for applications or interventions taking place in India we would specify Mumbai courts to that extent. For India-based counterparties this is regularly resisted in favour of Mumbai courts exclusively or Singapore courts where SIAC has been agreed upon. As in the context of insisting upon offshore arbitration, the concern with the Mumbai courts here is one of undue interference and heavy-handed oversight, leading to delays and spiraling costs. Singapore courts for would also be a natural compromise for counterparties based in South East Asia, where SIAC is to be used.

In the context of counterparties located in the People’s Republic of China we favour arbitration for very different reasons to the India context. Here, the concern is more fundamentally to do with enforcement, given the lack of reciprocal enforcement treaties or other formal judicial recognition with the PRC. On the other hand, PRC is a signatory to the New York Convention (Convention of the Recognition and Enforcement of Foreign Arbitral Awards), and so in theory at least offshore arbitral awards should be enforceable onshore.

PRC-located counterparties are frequently willing to compromise on Hong Kong; so Hong Kong International Arbitration Centre, seat in Hong Kong and Hong Kong courts for purposes of applications or intervention, and this is frequently the end position.. This compromise normally comes with a request for Hong Kong as the governing law, and this is normally acceptable. Interestingly the doubtful position of waivers of sovereign immunity for state-owned entities before the Hong Kong courts makes the choice of arbitration all the more attractive in this context.

In our experience therefore the cross border nature of these relationships throws up many challenges which mitigate towards a choice of arbitration, and increasingly arbitration in the region. In the next part I will focus more on the business context as a driver of this choice, and how that informs negotiations over the details of that choice.

Part II

In Part I of this article I noted the trend in favour of arbitration as a dispute resolution mechanism across the AP region in the context of derivatives and other complex financial instruments, and discussed primarily the jurisdictional and region drivers for this trend. In this second part I will focus more on the nature of the business relationship as a further possible dynamic.

I mentioned that our starting point for negotiation normally includes a nomination of the London Court of International Arbitration (LCIA) and London as the seat. This may reflect something of a bias towards the “home” jurisdiction, but also has solid technical reasons behind it, given London’s position as a global legal centre with wide-ranging experience of derivatives and sophisticated financial products generally. It is important to choose a centre with deep experience and expertise among the judiciary AND a strong legal “hinterland” more generally among legal professionals and arbitrators. This issue of the availability and bench strength of both the legal profession and arbitrators who are qualified and experienced in considering these complex financial instruments is critical when negotiating the choice of arbitration centre.

So how does this play out in the Asia Pacific region, assuming parties are looking for a choice closer to home? Here the choices become very specific, at least from our perspective. The foremost choices are Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC). ³⁾See e.g. Joe Liu (Hong Kong International Arbitration Centre), The Use of Arbitration for Derivative Contracts, Kluwer Arbitration Blog, March 31, 2015 Both Singapore and Hong Kong have sophisticated legal professions and independent judiciaries, and are international financial centres. So, the pattern that typically emerges during negotiations is for parties located in South or South East Asia to be more sympathetic towards SIAC, with parties based in greater China more open to the choice of HKIAC. SIAC probably has the edge in terms of size as a centre (i.e. number of disputes it deals with), but otherwise the drivers for these tendencies are as much cultural or geographic as they are technical.

Japan is an interesting one in this context; it clearly has a very sophisticated legal system and judiciary, including in the context of financial instruments. However the use of arbitration for dispute resolution is still unusual. This may be for a couple of reasons; firstly that sophistication and efficiency of process in the judiciary compare favourably to arbitration, and yet (unlike say London) the subject matter of disputes does not typically involve complex cross border issues where challenges around enforcement (by way of one example) may come into play. It is my view therefore that arbitration has not really taken root in Tokyo as a financial centre in the same way largely because the judiciary already meets the demands of dispute resolution as they arise there.

Disputes over these products frequently centre on the issue of their complexity. This begs the question of the required level of sophistication the parties would need to have a full understanding of the risks involved. Accordingly, it is common for the non-financial institution to present itself as the victim in having been sold something by the financial institution it could not reasonably have been expected to understand. Does this mean the financial institution owed some sort of responsibility to the non-FI party, either simply to explain the risks better on entering into the transaction, or in more extreme cases a fiduciary duty of care to which liability is a natural consequence? Expertise and experience in these markets on the part of the arbitrators is therefore going to be key to unpicking such arguments.

Moreover these products are typically regulated activities, and therefore subject to complex laws and regulations in at least the counterparty’s jurisdiction and the financial institution’s home jurisdiction. Other laws such as currency controls may also be relevant. These regulations frequently come up as part of the dispute in an attempt to throw doubt on the legality and enforceability of the transactions. To choose just one example to illustrate the point of where legal and regulatory issues connect is the question, as a regulatory matter, of the appropriateness and suitability of the selling of such transactions to the non-financial institution. This is clearly an issue for the bank to answer, and connects closely to the question, as a legal matter, of how reasonable it is to treat such a non-bank party in this context as operating at arm’s length and capable of assessing the risks for itself.

The need for sophistication and a high level of understanding of the subject matter of the dispute applies not just to the parties’ lawyers and the arbitrators, but also to the courts of the legal system that may find themselves involved. The first requirement for the local courts in any jurisdiction where the arbitration is taking place is to allow the hearing to be conducted without undue interference. Hence the importance of clear legislation governing arbitration proceedings and clear and disinterested application of such rules by the judiciary. Secondly, during the conduct of the arbitration there may be legitimate need for recourse to the courts for such matters as injunctive or interim relief. Again in such cases, clear legislation and predictable application by the courts are key considerations. Again, SIAC and HKIAC compare favourably on both these point, and provide another reason for their frequent nomination during contract negotiations.

In the case of India, the risk is that any onshore process is susceptible to being dragged out for years on end through the courts (although there are reasons to believe the situation has been improving in recent years). There is little cause for concern over bias or corruption, and it is clear, at least in the higher courts, that sophistication and experience are also not worries. However there are persistent concerns that any onshore process may become embroiled in extremely lengthy appeals and counter-appeals. Of course when it comes to enforcement, onshore proceedings, at least to that extent, may well be unavoidable; much depends on the location of the parties’ assets. However, the argument goes that once an award has been obtained offshore, the scope for delaying tactics in the local courts is at least restricted.

The nature of the transactions or banking relationship may also have a bearing on the attractiveness of arbitration for the parties. One frequently-touted reason is the fact that it tends to take place behind closed doors, in contrast to court litigation which tends to be public. However this may be a double-edged sword. In the case of investment banking, especially following the financial crisis and many of the scandals which followed in its wake (such as LIBOR setting) it may well be the case that the financial institution is publicity-shy, even where it believes itself to be in the right and on solid legal ground. Even in these cases, in many parts of the world a newspaper story detailing a financial loss incurred by a corporate from “Main Street”, having purchased financial products from “Wall Street” may well be damaging from a reputational point of view regardless of the merits of the case. By contrast however in the private banking world many clients are equally if not more averse to publicity when it comes to their financial dealings, and so the incentive to use arbitration as the dispute resolution mechanism because of the avoidance of publicity may well lie on the client side.

So what are the trends at this point? Certainly Singapore is establishing itself more and more as not just a regional centre for arbitration, but globally too. The statutory backdrop, with its judicial support for arbitration and strong restraints on court interference in the process are one aspect of this. As more and more cases are held in Singapore, a virtuous circle starts to assert itself whereby more cases means an organic growth of expertise, a deeper bench of practitioners and a more familiar judicial backdrop, leading to more cases, so and on. It is safe to say that arbitration clauses will continue to be frequent points of negotiation in the context of derivatives for the foreseeable future. ⁴⁾See e.g. Maria Karampelia, Cross-border Disputes in the Financial Sector: A Trend towards Arbitration and the Release of the ISDA Arbitration Guide, Kluwer Arbitration Blog, October 24, 2013

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post Negotiating Arbitration Provisions in the Derivatives Context: Perspectives appeared first on Kluwer Arbitration Blog.

Harsh Hari Haran

Introduction

The 2018 International Arbitration Survey: The Evolution of International Arbitration undertaken by the Queen Mary University and White and Case LLP found flexibility to be the third most valuable characteristic of international arbitration.

The flexibility inherent in the arbitral process allows tribunals to conduct the proceedings (ideally) in an expeditious manner. One common method used by tribunals is to delineate the issues in dispute and, where appropriate, determine some issues at an early stage of the proceedings by way of a “partial” or “interim” award.

Challenges to jurisdiction, questions of liability and applicable law are just some of such issues. In fact, a 2012 survey undertaken by the Queen Mary University and White and Case LLP found that partial or interim awards are issued in one third of arbitrations.

Given the potentially significant impact that an interim award can have on the arbitration proceedings, most jurisdictions provide parties with immediate recourse against an interim award. However, the Supreme Court of India in M/s Indian Farmers Fertilizer Co-operative Limited v M/s Bhadra Products (Civil Appeal No. 824 of 2018) (“Bhadra Products“) invites the Indian Parliament to disrupt this delicate balance.

The current state of play

The Indian Arbitration and Conciliation Act, 1996 (“the Arbitration Act“) is, in many ways, unique. One area where the Arbitration Act departs from the Model Law (and many other jurisdictions) is with respect to the remedies available to a party where a tribunal rules, as a preliminary question, that it has jurisdiction.

Article 16(3) of the 1985 UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”) provides a party with immediate recourse where the tribunal rules as a preliminary question that it has jurisdiction. By contrast, Section 16(5) of the Arbitration Act states that where a tribunal rejects a challenge to its jurisdiction, it shall continue with the arbitral proceedings and make an arbitral award and, pursuant to Section 16(6), a party aggrieved by such an award may make an application for setting aside such an award. In other words, under the Arbitration Act, where the tribunal rules as a preliminary question that it has jurisdiction the aggrieved party has no immediate recourse and must await the final award on merits.

There is some weight to the argument that the position taken by the Arbitration Act is far from satisfactory as it compels parties to incur unnecessary time and costs in potentially useless arbitration proceedings. But parties could take comfort in the fact that they could apply to set aside an interim award on any other issue. However, that too may soon change given the Supreme Court’s observations in Bhadra Products.

The Supreme Court’s decision

In arbitration proceedings between the appellant (respondent in the arbitration) and the respondent (claimant in the arbitration), the tribunal issued a “First Partial Award” rejecting the appellant’s objection that the respondent’s claims were time barred. The appellant applied to have the “First Partial Award” set aside. The trial court dismissed the petition on the ground that the tribunal’s decision did not constitute an interim award and therefore could not be set aside under Section 34 of the Arbitration Act. The appeal to the High Court was also dismissed which resulted in an appeal to the Supreme Court.

The respondent argued that the tribunal’s decision on limitation was a ruling with respect to its jurisdiction and, in accordance with Section 16(6) of the Arbitration Act, can only be challenged together with a final award.

Rejecting the argument the Supreme Court held that the term “jurisdiction” in Section 16 of the Arbitration Act has been used in the narrow sense and, similar to Section 30 of the English Arbitration Act, 1996, refers to (i) the existence of a valid arbitration agreement; (ii) whether the tribunal has been properly constituted; and (iii) whether the matters have been submitted to arbitration in accordance with the arbitration agreement.

Accordingly, the Supreme Court found that a determination on limitation is not a determination on the tribunal’s jurisdiction but a determination on the merits of the claim and therefore constituted an interim award which can be set aside under Section 34 of the Arbitration Act.

Fatal parting words?

By adopting a narrow definition of “jurisdiction“, the Supreme Court mitigated the potentially harmful consequences of Section 16(6) of the Arbitration Act as only a limited category of decisions would constitute a tribunal’s decision on its jurisdiction.

However, the Supreme Court’s judgment concludes with an invitation to the Parliament to consider amending Section 34 of the Act, such that all interim awards can only be challenged together with the final award. If accepted, this would severely reduce the attractiveness of arbitration in India.

Take the hypothetical situation where, in an arbitration arising from a construction contract, a contractor claims damages for wrongful termination of the contract and payment for work done and the employer counter-claims for costs incurred in engaging a replacement contractor. An interim award holding that the contract was validly terminated, would greatly reduce the scope of the damages hearing.

The Supreme Court’s invitation, if accepted, would require the contractor to first contest the entire arbitration and thereafter apply to have the interim award set aside together with the final award. If the contractor is successful in having the award set aside, it will then have to potentially re-commence arbitration in order for its claim for damages to be determined. This is clearly unsatisfactory and would greatly increase the time and costs incurred by the parties.

Where does the balance lie?

The Supreme Court’s invitation was motivated by a concern for the unnecessary delay and additional expense incurred by parties in dealing with “piecemeal challenges“. While it is true that parties’ incur time and costs in dealing with challenges to interim awards, the solution is not to remove all recourse to interim awards. Instead, the author suggests that the balance is struck when both tribunals and court exercise their discretion in an appropriate manner.

An arbitral tribunal should only determine an issue by way of an interim award if it will have a significant impact on the merits hearing. Courts, when faced with a challenge to an interim award, should be circumspect in granting a stay of the arbitration proceedings pending the determination of the challenge. Indian Courts may find guidance on this issue in the decision of the Singapore High Court in BLY v BLZ & Another [2017] 4 SLR 410, where the Singapore High Court, determining an application for a stay of the arbitration pending a challenge against the tribunal’s ruling on its jurisdiction, held:

• The “default position” is that the arbitration will continue pending curial review;
• The court’s discretion to stay the arbitration must be exercised judicially and with reference to all the circumstances of the case; and
• In order to justify the exercise of its discretion, there must be “special circumstances” necessitating a stay of the arbitration proceedings, which can include the conduct of the other party in relation to the arbitral proceedings. However, costs incurred in potentially useless arbitration proceedings would not constitute special circumstances.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post Do Parties Need Recourse against Interim Awards? appeared first on Kluwer Arbitration Blog.

Siddharth Ratho and Tanisha Khanna

YSIAC

A mandatory legal provision is one that a party has no choice but to obey, whereas a directory provision is one which the party is encouraged to obey. In other words, a mandatory provision must be observed, disobedience of which would lead to a nullification of the legal act, whereas a directory provision is optional.

In the case of State of Bihar & Ors. v Bihar Rajya Bhumi Vijas Bank Samiti¹⁾ Civil Appeal No. 7314 of 2018, the Supreme Court of India (“SC”) has had occasion to decide whether Section 34(5)²⁾ Section 34 (5) of the Arbitration Act (inserted vide Section 18 of the Arbitration and Conciliation (Amendment) Act, 2015) states as follows: An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. of the Indian Arbitration and Conciliation Act, 1996 (“Act”), is a mandatory or directory provision of law. In doing so, it had to play referee to two competing considerations – discouraging unscrupulous defendants by upholding strict rules of procedure, versus preventing procedural provisions of law from defeating substantive rights. The SC eventually ruled in favor of the latter.

Consequently, prior notice to an adversary is not mandatory for filing an application to set aside an arbitration award. In reaching its conclusion, the SC elucidated important principles governing the distinction between mandatory and directory provisions of procedural law.

Precedential Back Drop

In this case, the SC was tasked with finally resolving two contrary streams of precedent. One line of rulings, helmed by New India Assurance Co. Ltd. v Hilli Multipurpose Cold Storage Pvt. Ltd. (2015) 16 SCC 20, held that procedural provisions of law (in this case the time limit prescribed for filing a written statement under the Consumer Protection Act, 1986 (“CPA”)) were mandatory in nature. The SC in New India Assurance was guided by observations in Dr. J.J. Merchant & Ors. v Shrinath Chaturvedi (2002) 6 SCC 635 to the effect that the prescribed time limit for filing of a written statement under the Code of Civil Procedure, 1908 (“CPC”) was ‘required to be adhered to.’

Eventually, the SC upheld its previous rulings in Topline Shoes v Corporation Bank, (2002) 6 SCC 33 Salem Advocate Bar Association v Union of India (2005) 6 SCC 344, State v N.S. Gnaneswaran (2013) 3 SCC 594 and Kailash v Nankhu & Ors (2005) 4 SCC 480, where similar procedural provisions prescribing time-lines were considered directory in nature.

Facts and Arguments

The newly introduced Section 34(5) of the Act provides that applications to set aside arbitral awards “shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.” Section 34(6) further provides that such an application is to be disposed of expeditiously and in any event within one year from the date on which such notice is served upon the other party.

The appellants in this case (“Appellants”) had filed an application for setting aside an arbitral award under Section 34 of the Act (“Application”) before the High Court of Patna (“Patna HC”) without issuing prior notice to the respondents (“Respondents”). The Respondents challenged the maintainability of the Application on the ground that no prior notice had been issued to them. The Appellants countered this by stating that the requirement to provide notice under Section 34 (5) of the Act was only directory in nature.

The two arguments came to a head before a single judge of the Patna HC, who relied upon the SC ruling in Kailash to hold that the requirement to issue notice under Section 34(5) of the Act was only directory in nature. However, a division bench of the Patna HC struck down the single judge’s order, opining that the obligatory language in which the provision was couched, and the object of the section, indicated that the provision was mandatory in nature.

Accordingly, the Appellants appealed the decision of the Patna HC division bench before the SC.

Game, Set, Match: SC upholds appeal, ruling that prior notice is not mandatory

On appeal, the SC initially observed that the language of Section 34(5), namely the words ‘shall’, ‘only after’ and ‘prior notice’ supported the Respondents’ argument that the provision was mandatory in nature. The SC also took note of the 246^th Indian Law Commission Report (“Law Commission Report”) which documented that the object of Section 34(5) and 34(6) was that an application under Section 34 be disposed of expeditiously within a period of one year from the date of service of the notice.

However, the SC ultimately served three decisive strikes against the Respondents’ arguments.

• Strike 1: No consequence under the Act for non-service of notice

Relying upon a plethora of judgments, the SC held that the Section 34(5) of the Act was directory in nature because no consequences was provided for its contravention.  The SC also drew a parallel with Section 29A of the Act which prescribes the time limit within which an arbitration award is required to be made and also provides that if the same is not met, the mandate of the arbitrator stands terminated. This stands in stark contrast to Sections 34(5) and 34(6) which did not prescribe a consequence if an application under Section 34 was not decided within the prescribed time limit.

• Strike 2: Object of Section 34 was to advance justice, not defeat it

The SC held that procedural provisions of law, such as Sections 34(5) and 34(6), ought not be construed in a manner that justice itself was trampled upon. The Law Commission Report indicated that the object behind them was to dispose of applications under Section 34 expeditiously. However, as had been observed in Kailash, the intent behind such provisions was to ‘expedite the hearing and not scuttle the same.’ The SC emphasized the time-honored principle that ‘all rules of procedure were the handmaids of justice’. It noted that ‘if, in advancing the cause of justice, it is made clear that such provisions should be construed as directory, then so be it.’

Apart from alluding to the ratio in Kailash to this effect, the SC also noted similar observations in Topline Shoes wherein it was held that a similar provision under the CPA did not create any substantive rights in favor of the complainant that bars a respondent from advancing his defense.

Relying upon the principles propounded in these previous judgments, the SC held that to construe the requirement of ‘prior notice’ in Section 34 as mandatory in nature would defeat the advancement of justice.

• Strike 3: New India Assurance judgment liable to be set aside

The SC was conscious of the contrary finding of the SC in New India Assurance wherein it was held that the time period for filing a written statement under the CPA was mandatory. In doing so, the SC in New India Assurance relied upon observations in JJ Merchant wherein it was observed that a speedy trial in summary proceedings did not necessarily indicate that justice had not been administered.

In New India Assurance, the SC had reasoned that the remarks in JJ Merchant would prevail, as JJ Merchant was decided prior to Kailash.

The SC in the present case, however, noted that the judgement in New India Assurance had completely overlooked a crucial paragraph in Kailash which underscored both that (i) the observations in JJ Merchant were obiter; and (ii) Topline Shoes had not been cited before the court in JJ Merchant, and that therefore the critical ratio on the consequence of no penalty being provided had not been considered in JJ Merchant.

Additionally, the reasoning in Kailash had been successively upheld by a three–judge bench in Salem Bar Association. In light of this, the SC reasoned that the reliance on the observations in JJ Merchant in New India Assurance was misplaced, and that it was principles propounded in Kailash that held the field.

What this means for procedural provisions of Indian law

This judgment clarifies that before construing a particular provision to be mandatory or merely directory in nature, one has to assess whether there are any penal consequences provided for the same, and whether or not adhering to such a procedural requirement would in any manner take away a vested right of a party and in effect scuttle the administration of justice. This would certainly affect the applicability of the various new provisions introduced across various statutes in India, such as provisions imposing strict time lines for the resolution of disputes, whether through arbitration, litigation, or corporate insolvency.

Some of these statutory time-lines are arguably unreasonable given the judicial backlog, pendency of cases and lack of judges in India. What this judgment re-affirms is that while adhering to procedure is important, administration of justice remains paramount.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post Supreme Court of India ‘Rules Out’ the Rulebook in Favor of Substantive Rights appeared first on Kluwer Arbitration Blog.

Aman Deep Borthakur

Young ICCA

A key issue that has assumed importance in BIT arbitrations today is the role of state courts vis-à-vis investment tribunals. Two aspects of this issue become particularly relevant when courts are faced with claims of vexatious BIT arbitrations: (i) the law applicable in the court’s supervisory capacity, and (ii) the extent to which courts can intervene in such arbitrations. On 7 May 2018, the Delhi High Court addressed these issues from the Indian perspective in Vodafone’s long-running retrospective taxation dispute with the Indian authorities. Its judgement is significant for the 20 plus investment disputes India is currently embroiled in.

Factual Background

On 17 April 2014, the Dutch company, Vodafone International Holdings B.V., initiated an arbitration under the Netherlands-India Bilateral Investment Promotion and Protection Agreement (BIPA), now terminated, disputing its tax liability under Indian statute. Several years later, on 24 January, 2017, Vodafone UK initiated an arbitration under the UK-India BIPA. The Indian government approached the Delhi High Court seeking an anti-arbitration injunction since both arbitrations were related to the same question. The Court dismissed the Indian government’s plea (CS(OS) 383/2017 & I.A.No.9460/2017).

The Ruling of the Delhi High Court

The Court adopted a pro-arbitration outlook while declining to issue the anti-arbitration injunction. It held that the UK-India tribunal was the appropriate authority to decide on the question of abuse of process caused by a multiplicity of proceedings under different BITs. Three related questions were adjudicated upon by the Court: (1) the jurisdiction of state courts to deal with BIT arbitrations, (2) the law applicable to such arbitrations, and (3) multiplicity of BIT proceedings.

Firstly, as regards the jurisdiction of national courts in investment arbitrations, the Court recognised that a signatory to the ICSID Convention would agree to completely negate the jurisdiction of national courts as made clear by Article 26 of the Convention. Countries such as India which are not signatories to the Convention are therefore not bound by this requirement. Hence, a national court in an ICSID non-signatory state such as India has the power to intervene in a BIT arbitration to decide jurisdictional questions if the subject matter of the dispute was in that country. In other words, there is no threshold bar to the jurisdiction of state courts in BIT arbitrations. However, due to the kompetenz-kompetenz principle, courts should exercise this power only in exceptional circumstances such as when no alternative efficacious remedy is possible.

Secondly, on the nature of an investor state arbitration, the Court drew a distinction between an international commercial arbitration and an investor state arbitration. It overruled India’s first investment arbitration court case (Board of Trustees of the Port of Calcutta v. Louis Dreyfus, decided by the Calcutta High Court), holding that commercial arbitrations are born out of the consent of private parties, while the latter is based on state guarantees arising out of treaties. Consequently, a BIT arbitration would not be subject to domestic arbitration statutes but to international law.

The third issue which the Court ruled on was the initiation of separate arbitration proceedings under a different treaty by an entity in the same vertical structure, in this case the U.K. based parent company. It observed that since such multiple proceedings would not per se be vexatious or oppressive, this was not an extraordinary circumstance warranting the court’s intervention. Therefore, this question was ultimately left to the India-UK tribunal.

Analysis

The judgement in Vodafone is certainly a step forward in making India a more preferred seat for investment arbitrations. The court rightly recognised the competence of the UK-BIPA tribunal in being better placed to rule on its own jurisdiction.

However, a number of crucial issues merit clarification and improvement. For instance, the judgement does not define the extent to which international law would be applicable to a BIT arbitration, given specific choice of law clauses now common in a number of BITs. It also implicitly indicates a differential standard of scrutiny for intervention by a state court (whether the proceeding is abusive per se) as opposed to a tribunal. This requires clarity on what constitutes this prima facie standard of abuse of process on which the state court itself could intervene.

Furthermore, the Delhi High Court relied on international investment law cases instead of relying on the domestic Arbitration and Conciliation Act of India. This approach takes the distinction between investment and commercial arbitration too far by completely precluding the application of the Act. This is so because solely for the purpose of supervisory jurisdiction of a state court, an investment arbitration should not be treated differently from a foreign seated commercial arbitration. There is a need to draw a distinction between the substance of a country’s treaty obligations and the procedural aspects of a BIT arbitration. A state court should not intervene in questions such as whether an entity qualifies as an ‘investor’ under a treaty. These are matters that should be left entirely to the domain of a tribunal. However, the characteristic of a BIT proceeding as an arbitration should allow a state court to consider questions such as the granting of provisional measures, assisting in the taking of evidence or injunct vexatious BIT proceedings, as in this case. Adopting an entirely deferential stance towards international investment tribunals (especially problematic when the country in question is not a signatory to the ICSID Convention) would render courts unable to aid parties during BIT proceedings.

Therefore, while the substance of a BIT dispute may be governed by both public and private international law, procedurally it must be looked at from the lens of domestic law of the state court as if it were a commercial arbitration. As a consequence, Part II and Sections 9, 27 and 37 of Part I of the Arbitration Act (provisions applicable to foreign seated commercial arbitrations) would apply even to an investment arbitration with a foreign seat or no designated seat as in this case. Similar powers can be invoked under the statutes of other jurisdictions, most notably Sections 12A and 44 of the Singapore and UK arbitration legislations respectively. Furthermore, if the Act were to not be applicable, several practical issues would arise when invoking the supervisory jurisdiction of a state court. For instance, there would be no statutory scheme for the granting of interim measures by a court or execution of an investment award.

Courts have routinely applied domestic statutes while deciding on the recognition and/or enforcement of investment treaty awards. In both Sanum Investments v. Laos (PCA Case No. 2013-13) and Ecuador v. Occidental Exploration Company (LCIA Case No. UN3467), courts in Singapore and the U.K. respectively determined whether to set aside BIT awards based on provisions in their domestic arbitration statutes.

Lastly, while the court recognises the power of Indian courts to restrain/annul vexatious BIT arbitrations, it refuses to exercise its inherent power in this case on the ground that since Vodafone had offered to consolidate proceedings, there is no question of a double remedy (a view also taken by the CME v. Czech Republic Tribunal). However, there are other reasons apart from multiple awards as to why such arbitrations initiated by companies in the same vertical structure on the same facts are vexatious. The host state is put under a more onerous obligation of defending all of these arbitrations simultaneously while the investor need succeed in just one. However, as the Delhi High Court concurs, the abovementioned tactic is not per se unlawful and has been used in a number of arbitrations such as OI European Group BV v. Bolivarian Republic of Venezuela (ICSID Case No ARB/11/25). It is yet to be seen if Indian courts remain similarly cautious when called upon to exercise their powers to restrain such claims.

Takeaways

This decision has important consequences for the 51 countries India has BITs with at present. It firmly establishes that there is no threshold bar to the jurisdiction of Indian courts to issue anti-arbitration injunctions in investment arbitrations. The wide jurisdiction granted by Section 9 of India’s Civil Procedure Code and recognised by the court can potentially lead to greater court scrutiny of investment awards.

The Delhi High Court’s position on international law being applicable highlights another aspect of non-ICSID investment arbitrations. Article 42 of the Washington Convention provides for parties to agree on the applicable law failing which the law of the host state (including Conflict of Laws Principles) and international law become applicable. Since India is not an ICSID signatory, the BIT provisions must be relied upon. Most Indian BITs, including the UK-India BIPA, contain a clause to the effect that the dispute is to be decided in accordance with the provisions of the BIT. The judgement gives an indication that the interpretation of BIT provisions or any investor-state contracts which contain similar arbitration clauses will now take place in accordance with international principles and will not be subject to the same kind of grounds for annulment as in domestic law.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post State Courts and BIT Arbitrations: Cautious Optimism in the Vodafone v. India Saga? appeared first on Kluwer Arbitration Blog.

Li Haifeng

Background on CIETAC Split

Up until May 1, 2012 CIETAC had a branch in Shanghai named CIETAC Shanghai Sub-commission (the “Old Sub-commission”). This Old Sub-commission used the same CIETAC arbitration rules but was administered by a secretariat semi-independent of that of the head office of CIETAC in Beijing.

On May 1, 2012 CIETAC launched its 2012 edition of arbitration rules. Some disagreements arose between the Old Sub-commission and the head office of CIETAC, which triggered the Old Sub-commission declaring independence from CIETAC.

On April 11, 2013 the Old Sub-commission renamed itself as Shanghai International Arbitration Center (“SHIAC”) (the “Re-naming”). CIETAC then established a new CIETAC Shanghai Sub-commission (the “New Sub-commission”) shortly after the Re-naming. ¹⁾ See e.g. Justin D’ Agostino, Kluwer Arbitration Blog, 2 May 2014, The Aftermath of the CIETAC Split: Two years on, lower courts take clashing views on arbitration agreements and awards– but higher courts strive for consistency.

To clarify uncertainties surrounding the competence of CIETAC and SHIAC over cases with an underlying clause providing for arbitration by CIETAC Shanghai Sub-commission, the Supreme People’s Court of China (the “SPC”) issued a circular in June 2015 (the “SPC Interpretation”). Article 1 states that disputes in connection with contracts signed before the Re-naming carrying an arbitration clause providing arbitration by CIETAC Shanghai Sub-commission shall be administered by SHIAC. It also provides in article 3 that no party shall be upheld in its application for the set-aside or non-enforcement of an award on the ground of no competence if either CIETAC or SHIAC had accepted the case which it should not have as per the SPC Interpretation prior to the issuance date thereof.

Delhi Court’s Decision on Enforcement

As reported in Global Arbitration Review, a Chinese solar power company, LDK Solar Hi-Tech (“LDK”), attempted to enforce a CIETAC award against an Indian counterpart, Hindustan Clean Energy (“Hindustan”), in India. ²⁾ https://globalarbitrationreview.com/article/1171818/chinese-company-enforces-award-in-delhi-despite-arguments-based-on-cietac-split

The underlying arbitration clause carried in a guarantee agreement entered into between LDK, as the beneficiary, and Hindustan, as the guarantor, provides that “any and call claims, disputes, controversies or differences arising between the Parties out of or in connection with this Bond shall be submitted for arbitration before China International Economic and Trade Arbitration Commission (CIETAC) in Shanghai by three arbitrators appointed in accordance with the corresponding rules of arbitration…”

LDK brought arbitration before New Sub-commission in October 2013 and the award was made in February 2015.

When LDK applied for enforcement of the award in the Delhi High Court, Hindustan tried to resist the enforcement raising the following arguments:

1) That the New Sub-commission had no jurisdiction as the arbitration agreement referred disputes to the Old Sub-commission, now renamed as SHIAC. For this argument Hindustan relied on article 1 of the SPC Interpretation.

2) That CIETAC breached principles of natural justice when it appointed a substitute arbitrator to replace the original chair within 2 days.

All the arguments were rejected by Judge Navin Chawla.

Comments

In my view, Judge Navin Chawla made a judicious judgment.

It is important to note the distinction between providing for arbitration before CIETAC Shanghai Sub-commission on the one hand, and arbitration before “CIETAC in Shanghai” as is in the present case, on the other. The former provision refers to a specific institution by the name of CIETAC Shanghai Sub-commission whereas the latter commonly interpreted as “CIETAC” being the name of the institution whereas “Shanghai” the place of arbitration.

According to the 2005 edition of CIETAC Arbitration Rules, the claimant could choose either CIETAC the head office or CIETAC Shanghai Sub-commission to administer its arbitration if there is no such selection in the arbitration clause. Although in practice cases with a contractual provision for arbitration before CIETAC in Shanghai were usually handled by the Old Sub-commission, CIETAC reserved the right to decide otherwise. So provision for arbitration before CIETAC in Shanghai is not 100% equivalent of arbitration before CIETAC Shanghai Sub-commission.

Art. 1 of the SPC Interpretation obviously refers to an express reference to CIETAC Shanghai Sub-commission by name rather than Shanghai by place because the very object of the circular was to eradicate ambiguity and uncertainty.

Alternatively even if the reference to arbitration before CIETAC in Shanghai could be treated as 100% equivalent of CIETAC Shanghai Sub-commission, article 3 of the SPC Interpretation would have deprived Hindustan of any right to challenge the award on the ground of no competence in China. Since China is the place of arbitration, it’s only normal for the Indian court to give overriding weight to the positions of PRC laws and courts, particularly the SPC.

Chawla J’s rejection of the natural justice point was predicated on the fact that Hindustan had made no effort to achieve agreement with LDK on the choice of presiding arbitrator when it had the opportunity to do so at the start of the case. It’s true that as per the 2005 CIETAC Arbitration Rules, the same procedure should have been followed to appoint a replacement arbitrator as that for the one being replaced. In other words, to replace the presiding arbitrator, the parties should have been given 15 days to agree on a candidate. However, when a party had not exercised that right when it had an opportunity to do so in the first place, it’s hardly arguable that its legitimate interests would be compromised in any consequential way if it was not given a second opportunity. Therefore, Chawla J was only right in commenting that Hindustan was “merely trying to take advantage of an inconsequential issue to challenge the arbitral award”, and that “there is no such thing as mere technical infringement of natural justice.”

Had the presiding arbitrator been appointed without giving the parties an opportunity to agree on a candidate in the first place, would the judge have viewed it as inconsequential and rejected Hindustan’s invocation of natural justice? I think it would probably not be so. Hence the crux of the judgment is that Hindustan had waived or been slack in exercising its right to propose a presiding arbitrator candidate in the first place.

The decision of the Delhi court to enforce the award is a welcome pro-arbitration gesture of Indian courts that they would not refuse enforcement of arbitral awards merely based on some non-material technical irregularities.

More from our authors:

International Arbitration and the Rule of Law by Andrea Menaker € 240

The post Delhi High Court Rejects Arguments against Enforcement Based on CIETAC Split appeared first on Kluwer Arbitration Blog.

Ajar Rab

The current government in India is undertaking sweeping policy changes to increase India’s rank on the global index of ease of doing business. In order to attract more investments, it is also focusing on revamping the ailing judicial system and attempting to bring India at par with global arbitration standards. In pursuance of the same, the Union Cabinet has approved the Arbitration and Conciliation (Amendment Bill 2018) (the “Bill”) and the  New Delhi International Arbitration Centre Bill, 2018 (the “NDIAC Bill”) which has already been tabled before the Lower House of the Parliament (covered previously in this post).

Highlighting the salient features of the Bill, the Press Information Bureau of India issued a press release stating that the Bill will, inter-alia, provide for the creation of an autonomous body called the Arbitration Council of India (“ACI”) aimed towards grading arbitral institutes and accrediting arbitrators. The press release also noted that the amendments were based on the recommendations of a High-Level Committee under the Chairmanship of Justice B. H. Srikrishna, Retired Judge, Supreme Court of India, which was to provide recommendations and suggestions with respect to “Institutionalisation of Arbitration Mechanism” in India (“Committee”).

The Bill, inter-alia, provides for the insertion of Section 43G in the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”) specifying the norms for accreditation of arbitrators as provided in the Eight Schedule (to be added to the Arbitration Act). Though there are many instances of an existing gap between cup and lip between the provisions of the Bill and the report of the Committee, Section 43G of the Bill is going to have a severe impact on international arbitration and arbitrators in India.

Section 43G of the Bill states the norms for accreditations shall be as specified in the Eighth Schedule. However, instead of providing an inclusive definition, the Eighth Schedule provides a list of who can be an arbitrator and anyone not falling within the below-mentioned list shall “not be qualified to be an arbitrator”:

• is an advocate within the meaning of the Advocates Act, 1961 having ten years of practice experience as an advocate; or
• is a chartered accountant within the meaning of the Chartered Accountant Act, 1949 having ten years’ of practice experience as a chartered accountant; or
• an officer of the Indian Legal Service; or
• an officer with a law degree having ten years’ experience in legal matters related to the Government, Autonomous Body, Public Sector Undertaking or at a senior level managerial position in private sector; or
• an officer with an engineering degree having ten years’ of experience as an engineer in the Government, Autonomous Body, Public Sector Undertaking, or at a senior level managerial position in private sector or self-employed; or
• an officer having senior level experience of administration in the Central or State Government or having experience of senior level management of a Public Sector Undertaking or a Government company or a private company of repute; or
• in any other case, a person having educational qualification at degree level with ten years’ of experience in scientific or technical stream in the fields of telecom, information technology, Intellectual Property Rights or other specialised areas in the Government, Autonomous Body, Public Sector Undertaking or at a senior level managerial position in a private sector, as the case may be.

It is pertinent to mention that the Committee report categorically mandated that no new body is to be created for accreditation of arbitrators and instead recognition is to be given to professional institutes which have a robust and well-defined system of accreditation such as the Chartered Institute of Arbitrators (CIArb), the Singapore Institute of Arbitrators (SIArb), the Resolution Institute (RI), or the British Columbia Arbitration or Mediation Institute (BCAMI). Thus, the recommendation of the Committee was to recognize international bodies/professional institutes providing accreditation of arbitrators as their criteria is based on (a) professional education (b) attendance of arbitration hearing (c) qualifying examinations (d) peer interviews/assessment by a panel of approved arbitrators. This would lead to professional and well-qualified arbitrators. While this intent is duly reflected in Section 43D(2)(b) of the Bill which states that one of the functions of the ACI will be to recognize professional institutes providing for accreditation of arbitrators, based on the current wording of Section 43G, it is unclear whether the ACI will simply (i) recognize such institutes; or (ii) recognize such institutes only if the accreditation provided by them meets the criteria mentioned in the Eighth Schedule; or (iii) whether the ACI alone will accredit arbitrators as Section 43G does not provide for recognition of professional institutes for the purposes of accreditation.

It is pertinent to highlight that as per the criteria laid down under the Eighth Schedule, there is no room for any method by which the quality, experience and professional qualification of an arbitrator can be gauged. The Eighth Schedule reflects the conservative and outdated thinking of the government as the criteria relies solely on seniority and a basic professional degree or employment in a government service. None of these are sufficient or even remotely reflective of a person’s knowledge of arbitration law or his/her capability to effectively discharge the duties and role of an arbitrator.

The current list provided in the Eighth Schedule assumes that by merely practicing as an advocate or chartered accountant for 10 years, a person is deemed to have gained knowledge in the field of arbitration and can discharge the role of an arbitrator which is judicial in nature. The list gives preference to seniority in managerial positions, matters related to government functions and government enterprises without defining what is the scope and extent of such seniority. Again, fallaciously, the list assumes knowledge of arbitration and basic tenets of justice only on account of age and association with the government or managerial positions in the private sector.

As many internationally renowned arbitrators would testify, mere age or seniority or association with government work does not in any manner equip a person to become an arbitrator. Even as an advocate with 10 years of practice in India, there is no guarantee that an advocate would actually be well versed in arbitration or that he or she would have handled arbitration matters in those 10 years. Therefore, the result of the Eighth Schedule being passed as a law would be that all those persons mentioned in the Schedule can become accredited arbitrators since there are no other criteria to evaluate their knowledge and understanding of arbitration. The catastrophic result would be accredited arbitrators without any knowledge, education, experience in arbitration law or the practice of arbitration.

The Committee report had specifically stated that the ACI should not be a body which provides accreditation but one that merely recognizes the accreditation provided by international bodies/professional institutes. The establishment of another body for accreditation would only result in duplication of efforts and would involve substantial financial commitment from the government. Despite such a clear recommendation that the ACI is not to become a regulator or a license granting body, the Bill has managed to achieve just that. If the proposed amendment is passed in its current form, it remains unclear if all internationally accredited arbitrators would again require accreditation in India by the ACI or will their existing accreditation be given due recognition, and if so, under what circumstances.

The other problems with Section 43G and the Eighth Schedule are that they fail to account for persons who even though internationally accredited and recognized as arbitrators, may not fall in the list of persons provided in the Eighth Schedule. Furthermore, while most bodies/professional institutes such as the CIArb, SIArb etc. encourage students to enrol and get accreditation as arbitrators, the Eighth Schedule in effect provides an age/seniority threshold which runs counter to the idea of promotion of arbitration.

Unless suitably addressed, creating another body for accreditation would neither benefit nor bolster arbitration in India. In fact, it would just become another certification for arbitrators without any serious reputation in the international market. Moreover, if professional institutes are not recognized, international arbitrators would have to re-apply for accreditation in India before arbitrating disputes in India.

Arbitration was already moving at a snail pace in India and suffered on account of judicial interference at every stage of the arbitration proceedings, the last thing it needed was government interference as well. In effect, the current text of Section 43G and Eight Schedule of the Bill will create more problems for arbitrators and the arbitration landscape in India. Instead of reducing the scope of judicial intervention, the Bill manages to create a new licensing requirement for arbitrators under the garb of providing accreditation.

More from our authors:

Arbitration in Belgium: A Practitioner’s Guide by Edited by Niuscha Bassiri, Maarten Draye € 185

The post Accreditation of Arbitrators in India: A New License Requirement? appeared first on Kluwer Arbitration Blog.