This blog has previously discussed the issue of jurisdiction of Indian courts over foreign-seated arbitrations and the issue of Indian parties choosing a foreign seat of arbitration. However, a more fundamental issue concerns the interpretation of arbitration agreements to determine the choice of seat. Since September 2018, the Supreme Court of India (“Supreme Court”) has considered this issue on three occasions. Yet, the jurisprudence resulting from these three judgments does not provide consistent and clear guidance on this issue. Consequently, parties pursuing arbitrations having a connection to India are likely to continue facing expensive and time-consuming litigation related to this issue.

We consider each of the three judgments of the Supreme Court and identify specific areas of concern. It may be noted that all three judgments were delivered by three-judge benches composed of different judges.

Hardy Exploration

In September 2018, the Supreme Court delivered Union of India v. Hardy Exploration and Production (India) Inc., (2019) 13 SCC 472, the first of these three judgments. In this case, the parties had entered into a production sharing contract containing an arbitration agreement. The arbitration agreement provided that the “venue of conciliation or arbitration proceedings… unless the parties otherwise agree, shall be Kuala Lumpur…” and that “[a]rbitration proceedings shall be conducted in accordance with the UNCITRAL Model Law on International Commercial Arbitration of 1985…”. After disputes arose, the parties commenced arbitration proceedings which were held in Kuala Lumpur and resulted in an award signed in Kuala Lumpur. Union of India sought to challenge the award under the Indian Arbitration and Conciliation Act, 1996 before the Delhi High Court. It contended that the arbitration agreement did not specify the seat of arbitration and referred to the venue of arbitration only. Therefore, Kuala Lumpur was merely the venue and New Delhi was the seat of arbitration. Hardy Exploration argued otherwise.

The Supreme Court held that the parties had not chosen the seat of arbitration and the arbitral tribunal had also not determined the seat of arbitration. It further held that the choice of Kuala Lumpur as the venue of arbitration did not imply that Kuala Lumpur had become the seat of arbitration. According to the Supreme Court, the venue could not by itself assume the status of the seat; instead a venue could become the seat only if “something else is added to it as a concomitant”. The Supreme Court therefore held that Indian courts had jurisdiction to hear a challenge to the award.

The decision in Hardy Exploration is of limited assistance because it does not clearly delineate the concepts of “place”, “seat” and “venue” and because it does not identify the additional factors needed to justify treating the chosen venue as the seat of arbitration. Through this decision, the Supreme Court ultimately did not provide any clarity on this issue except the simple conclusion that a chosen venue could not be treated as the seat of arbitration in the absence of additional factors indicating that such chosen venue was intended to be the seat of arbitration.

Soma JV

Thereafter, in December 2019, the Supreme Court revisited this issue in BGS SGS Soma JV v. NHPC Ltd., 2019 SCC OnLine SC 1585, which concerned an arbitration agreement stipulating that “Arbitration Proceedings shall be held at New Delhi/Faridabad, India…”. The Supreme Court prescribed the following bright-line test for determining whether a chosen venue could be treated as the seat of arbitration:

1. If a named place is identified in the arbitration agreement as the “venue” of “arbitration proceedings”, the use of the expression “arbitration proceedings” signifies that the entire arbitration proceedings (including the making of the award) is to be conducted at such place, as opposed to certain hearings. In such a case, the choice of venue is actually a choice of the seat of arbitration.
2. In contrast, if the arbitration agreement contains language such as “tribunals are to meet or have witnesses, experts or the parties” at a particular venue, this suggests that only hearings are to be conducted at such venue. In this case, with other factors remaining consistent, the chosen venue cannot be treated as the seat of arbitration.
3. If the arbitration agreement provides that arbitration proceedings “shall be held” at a particular venue, then that indicates arbitration proceedings would be anchored at such venue, and therefore, the choice of venue is also a choice of the seat of arbitration.
4. The above tests remain subject to there being no other “significant contrary indicia” which suggest that the named place would be merely the venue for certain proceedings and not the seat of arbitration.
5. In the context of international arbitration, the choice of a supranational body of rules to govern the arbitration (for example, the ICC Rules) would further indicate that the chosen venue is actually the seat of arbitration. In the context of domestic arbitration, the choice of the Indian Arbitration and Conciliation Act, 1996 would provide such indication.

The bright-line test prescribed in Soma JV was diametrically opposite to the principle laid down in Hardy Exploration. While Hardy Exploration stipulated that a chosen venue could not by itself assume the status of the seat of arbitration in the absence of additional indicia, Soma JV prescribed that a chosen venue for arbitration proceedings would become the seat of arbitration in the absence of any “significant contrary indicia”.

Although the bright-line test prescribed in Soma JV provided much needed clarity, it was not without its own share of problems. The Supreme Court did not identify which factors constitute “significant contrary indicia” and thereby displace the conclusion that a chosen venue is actually the seat of arbitration. It also did not consider whether the existence of a jurisdiction clause in favour of the courts of a place other than the chosen venue or the choice of curial law of a place other than the chosen venue constituted “significant contrary indicia”.

In addition, the Supreme Court wholeheartedly adopted the “Shashoua principle”, a principle that had first been articulated in the specific context of London arbitration. This principle was articulated by the England and Wales High Court in Roger Shashoua and Ors. v. Mukesh Sharma, [2009] EWHC 957 (Comm) wherein the High Court held that the chosen venue (London) was the seat of arbitration because the parties had: (a) chosen London as the venue of arbitration; (b) not designated any other place as the seat of arbitration; (c) chosen a supranational body of rules to govern the arbitration, and (d) there were no contrary indicia. The High Court’s decision was premised on London arbitration being “a well known phenomenon which is often chosen by foreign nationals with a different law”. This underlying rationale evidently did not apply in the Indian context.

It may be noted that the Supreme Court in Soma JV also held that its earlier decision in Hardy Exploration was per incuriam since it failed to follow the “Shashoua principle” approved by the five-judge bench decision in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services, (2012) 9 SCC 552. As a result, it appeared that Hardy Exploration was no longer good law and Soma JV would hold the field instead.

Mankastu Impex

Finally, in March 2020, the Supreme Court yet again considered the issue of choice of seat in arbitration agreements in Mankastu Impex Pvt. Ltd. v. Airvisual Ltd., 2020 SCC OnLine SC 301.

In this case, Mankastu (an Indian company) and Airvisual (a Hong Kong company) had entered into an MoU containing an arbitration agreement. The arbitration agreement provided that “[a]ny dispute, controversy… shall be referred to and finally resolved by arbitration administered in Hong Kong” and “[t]he place of arbitration shall be Hong Kong…”. The governing law clause in the MoU provided that “[t]his MoU is governed by the laws of India… and courts at New Delhi shall have the jurisdiction.” Once disputes arose between the parties, Mankastu approached the Supreme Court under the Indian Arbitration and Conciliation Act, 1996 for appointment of a sole arbitrator.

Mankastu argued that since Indian law was the governing law and courts at New Delhi had jurisdiction, the seat of arbitration was New Delhi, and accordingly, the Supreme Court could appoint a sole arbitrator. It further argued that Hong Kong was only the venue of arbitration and not the seat and relied on Hardy Exploration for this purpose.

On the other hand, Airvisual contended that since the arbitration agreement provided that the place of arbitration shall be Hong Kong and such arbitration shall be administered in Hong Kong, the seat of arbitration was Hong Kong. Accordingly, Indian courts had no jurisdiction to appoint a sole arbitrator. It relied on Soma JV for this purpose.

In response, Mankastu incorrectly argued that since Hardy Exploration and Soma JV were both judgments from a three-judge bench, Soma JV could not have decided that Hardy Exploration was per incuriam and therefore Hardy Exploration continued to be good law.

The Supreme Court, instead of decisively settling the controversy by affirming Soma JV, decided to sidestep it altogether. It noted that the use of the expression “place of arbitration” could not decide the intention of the parties to designate that place as the seat of arbitration and such intention had to be determined from other clauses in the agreement between the parties and their conduct. The Supreme Court held that the choice of Hong Kong as the “place of arbitration” itself did not lead to the conclusion that the parties had chosen Hong Kong as the seat of arbitration. However, because the parties had also agreed that such arbitration was to be administered in Hong Kong, the Supreme Court ultimately held that the parties had chosen Hong Kong as the seat of arbitration.

Conclusion

Although the result in Mankastu Impex is correct insofar as Hong Kong was determined to be the seat of arbitration, the Supreme Court’s disinclination towards affirming Soma JV has cast doubt on the precedential value of Soma JV. Moreover, although the Supreme Court did not explicitly follow Hardy Exploration, it appears to have adopted a similar approach in reaching its conclusion, particularly by emphasising the need for additional evidence of the intention of parties’ rather than the mere use of the expression “place of arbitration”.

As a result, it is unclear whether Hardy Exploration remains good law or the bright-line test in Soma JV holds the field. The bright-line test laid down in Soma JV is certainly clearer, more objective and aligned with the principle of party autonomy. Therefore, it merits consideration and affirmation by the Supreme Court at the next suitable opportunity. In the meantime, parties would be well advised to use express language referring to the “seat” of arbitration specifically to avoid unnecessary litigation on this issue.

Anjali Anchayil and Ashutosh Kumar are advocates practising in New Delhi, India. The views expressed in this article are personal.

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In a recent decision, Bina Modi and Ors. v. Lalit Modi and Ors., CS(OS) 84 and 85/2020, a single judge of the Delhi High Court has cast doubt on the jurisdiction of Indian courts to grant injunctions restraining arbitral proceedings (popularly called anti-arbitration injunctions). While the grant of anti-arbitration injunctions by Indian courts has been discussed previously on this blog (here and here), the Delhi High Court’s decision merits discussion as it poses a more fundamental question regarding the existence of a court’s jurisdiction to grant anti-arbitration injunctions.

Delhi High Court’s Decision in Bina Modi

In Bina Modi, one of the trustees of a family trust had initiated arbitral proceedings against the other trustees for resolution of disputes arising under the trust deed. The other trustees filed two civil suits before the Delhi High Court, seeking inter alia an anti-arbitration injunction against such arbitral proceedings and a declaration that the arbitration agreement in the trust deed was null, void, inoperative and unenforceable. The Delhi High Court, while dealing with the suits, limited its adjudication to whether it has the power to injunct the arbitral proceedings “notwithstanding the [purported] bar” set out in a 2001 decision of a three-judge bench of the Supreme Court of India (“Supreme Court”) in Kvaerner Cementation India Limited v. Bajranglal Agarwal and Anr., (2012) 5 SCC 214.

The Delhi High Court ultimately relied on Kvaerner Cementation and concluded that a civil court did not have jurisdiction to entertain suits to declare invalidity of an arbitration agreement or injunct arbitral proceedings. In doing so, the Delhi High Court noted that Kvaerner Cementation had recently been approved by the Supreme Court in A. Ayyasamy v. A. Paramasivam and Ors., (2016) 10 SCC 386 and National Aluminium Company Limited v. Subhash Infra Engineers Private Limited and Anr., 2019 SCC OnLine SC 1091.

Presently, an appeal against the decision in Bina Modi is pending before a division bench of the Delhi High Court. The division bench has in the interim restrained the respondents from pursuing proceedings before the emergency arbitrator till the disposal of the appeal.

However, in light of Bina Modi’s reliance on Kvaerner Cementation, there is now some doubt as to whether suits seeking anti-arbitration injunctions are maintainable, notwithstanding case law, both of the Supreme Court and other Indian High Courts, affirming civil courts’ jurisdiction to grant such injunctions.

Kvaerner Cementation and Subsequent Developments

Kvaerner Cementation was an early decision of the Supreme Court (given in 2001, but reported in 2012) on the Arbitration and Conciliation Act, 1996 (“Act”) which did not consider the interplay between the various provisions of the Act, or the scope of judicial intervention in relation to arbitration. It is a short order which did not consider or cite any precedent, nor did it elaborate on the facts of the dispute.

In Kvaerner Cementation, Kvaerner had sought the grant of an anti-arbitration injunction on the ground that there was no arbitration agreement between the parties, and as such the arbitration already initiated was without jurisdiction. The Supreme Court, on a bare reading of Section 16 of the Act (which enshrines the principle of kompetenz-kompetenz) and the object of the Act, held that a civil court did not have jurisdiction to determine any objection with respect to the existence or validity of the arbitration agreement.

Kvaerner Cementation appears to have read in a negative formulation of kompetenz -kompetenz, denuding civil courts of jurisdiction to rule on, inter alia, the existence and validity of an arbitration agreement. However, the argument that an arbitral tribunal has competence, to the complete exclusion of civil courts, to determine its jurisdiction was soundly rejected by a seven-judge bench of the Supreme Court in SBP & Co. v. Patel Engineering Limited, (2005) 8 SCC 618 and subsequent decisions. Under Indian law, the competence of the arbitral tribunal to rule on its own jurisdiction only means that when issues of jurisdiction are raised before the arbitral tribunal, it can decide them. Accordingly, in light of SBP & Co., it may be argued that Kvaerner Cementation has been implicitly overruled.

Kvaerner Cementation also did not consider earlier decisions of the Supreme Court where it had acknowledged civil courts’ jurisdiction to grant injunctions in restraint of foreign arbitrations and foreign court proceedings where such proceedings were vexatious or oppressive.

A number of judgments of the Supreme Court subsequent to Kvaerner Cementation have also affirmed the jurisdiction of civil courts to grant anti-arbitration injunctions. In Chatterjee Petrochem Company and Anr. v. Haldia Petrochemicals Limited and Ors., (2014) 14 SCC 574, the Supreme Court affirmed civil courts’ jurisdiction to entertain suits seeking grant of anti-arbitration injunctions. While ultimately the Supreme Court declined the grant of an injunction restraining arbitral proceedings, such decision was based on the Supreme Court’s finding that there was a valid arbitration agreement. Similarly, in World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd., (2014) 11 SCC 639 the Supreme Court unequivocally held that a civil court in India had inherent jurisdiction under Section 9 of the Code of Civil Procedure, 1908 to grant injunctions in restraint of arbitration. While these judgments did not consider Kvaerner Cementation, they incontrovertibly acknowledge the inherent jurisdiction of civil courts to grant anti-arbitration injunctions. From these judgments, it is also clear that the issue before courts is now limited to specifying the circumstances in which such injunctions can be granted.

While Kvaerner Cementation has subsequently been cited in two Supreme Court decisions, Ayyaswamy and National Aluminium, the following may be borne in mind.

The Supreme Court in Ayyasamy makes a distinction between cases where the arbitral tribunal is constituted at one party’s instance and the other party files a civil suit stating that the proceedings are not valid, and cases where a suit is filed by one party and the other party files an application under the Act seeking reference of the matter to arbitration. It observes that in the former case, Kvaerner Cementation applies to exclude the jurisdiction of civil courts whereas in the latter, courts have jurisdiction to examine questions of existence and validity of the arbitration agreement and arbitrability of the dispute. However, Ayyasamy did not appreciate that Kvaerner Cementation had been implicitly overruled by SBP & Co. and subsequent decisions which rejected the idea that an arbitral tribunal has the sole competence to decide such questions. Moreover, the distinction made in Ayyasamy appears to be without any real difference as the question of civil courts’ jurisdiction to examine the existence and validity of the arbitration agreement and arbitrability is equally at issue in both cases.

Similarly, in National Aluminium, the Supreme Court relied on Kvaerner Cementation and held that any objection with regard to the existence or validity of an arbitration agreement may be raised before the arbitrator. A civil suit cannot be maintained for determination of such objection. The Supreme Court simply applied Kvaerner Cementation without analysing that Kvaerner Cementation could no longer be considered good law in light of SBP & Co. Interestingly, the Supreme Court also appointed a new arbitrator, without examining the existence of a valid arbitration agreement. This goes against its previous decisions, including in Duro Felguera S.A v. Gangavaram Port Limited, (2017) 9 SCC 729, where the Supreme Court explicitly held that while considering the appointment of an arbitrator, it is well within the power of the Court to look into the existence of a valid arbitration agreement.

Additionally, both Ayyasamy and National Aluminium did not consider the decisions in Chatterjee Petrochem and World Sport Group wherein the Supreme Court had affirmed the jurisdiction of civil courts to grant anti-arbitration injunctions. Therefore, the value of these decisions as binding precedent to negate civil courts’ jurisdiction to grant such injunctions is doubtful at best.

Delhi High Court’s Prior Decision in Mcdonald’s

A division bench of the Delhi High Court had previously in Mcdonald’s India Private Limited v. Vikram Bakshi and Ors. 2016 (4) ARBLR 250 (Delhi) dealt with the issue of civil courts’ jurisdiction to grant anti-arbitration injunctions in arbitrations governed by the Act.

The division bench in Mcdonald’s held that civil courts had jurisdiction to grant anti-arbitration injunctions where it was proved that the arbitration agreement was null, void, inoperative or incapable of being performed. However, on facts, the court held that an anti-arbitration injunction could not be granted.

The Delhi High Court in Bina Modi considered Mcdonald’s but held that it was per incuriam as it did not consider Kvaerner Cementation, which was decided by a larger bench of the Supreme Court. However, while Mcdonald’s did not discuss Kvaerner Cementation, the reasoning therein is based on subsequent precedents of the Supreme Court including World Sport Group. It may also be argued that Mcdonald’s did not have to consider Kvaerner Cementation as the hardline interpretation of Kvaerner Cementation i.e. a complete bar on civil court’s jurisdiction is not applicable anymore owing to the decision in SBP & Co. The law laid down in Mcdonald’s holds ground as a challenge to the decision in Mcdonald’s before the Supreme Court was dismissed.

Does Section 41(h) of the SRA Bar the Grant of Anti-arbitration Injunctions?

A novel issue considered by the Delhi High Court in Bina Modi was the applicability of Section 41(h) of the Specific Relief Act, 1963 (“SRA”) which bars the grant of injunctions when “equally efficacious relief can certainly be obtained by any other usual mode of proceeding”. The Delhi High Court in Bina Modi decided that the Act provided an equally efficacious relief under Section 16, and therefore, injunctive relief could not be granted by a civil court. While this argument may seem attractive, it must also be taken into account that a procedurally inefficient remedy cannot be equally efficacious. If the issues go to the root of the arbitral proceedings, such as arbitrability and jurisdiction, such issues are bound to come back to the court in some manner or the other, which makes the whole process of referring the matter to an arbitral tribunal an exercise in superfluousness.

It remains to be seen whether the division bench hearing the appeal from Bina Modi would follow the single judge’s approach and deny jurisdiction to grant anti-arbitration injunctions or instead follow the position in Chatterjee Petrochem and World Sports Group.

Anjali Anchayil and Tamoghna Goswami are Senior Associates at J. Sagar Associates. This article has been prepared with inputs from Dheeraj Nair, Partner at J. Sagar Associates.

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The Prolonged saga of enforcement of the ICC commercial arbitration award of 2015 in Devas v. Antrix (ICC Case No. 18051/ CYK of 2011) has not only raised several interesting questions in respect of pathological arbitration agreements but has also highlighted the ineffectiveness of the “Negative Effect” of the doctrine of Kompetenz-Kompetenz, given the possible annulment of the arbitral award based on a jurisdictional challenge that could have been resolved at the very outset by the national courts. This post highlights the drawbacks of the said doctrine and proposes an alternative approach of positive Kompetenz-Kompetenz based on concurrent jurisdiction between arbitral tribunal and national courts.

Background 

The arbitration clause provided that the disputes are first to be referred to the senior management of both parties for resolution within three weeks, failing which they were to be heard by an arbitral tribunal seated in New Delhi, under ICC or UNCITRAL rules.

Devas instead of referring the matter to the senior management for resolution or notifying Antrix, unilaterally approached the ICC with a request to initiate arbitration. Consequently, ICC wrote to Antrix inviting it to appoint its arbitrator. However, instead of responding to ICC’s letter, Antrix wrote to Devas insisting that the matter be resolved through a senior management meeting. The senior management meeting remained inconclusive and subsequently, Antrix initiated arbitration under the UNICITRAL rules, asking Devas to nominate its arbitrator. At this juncture, ICC sent another letter to Antrix informing that:

“…Should the Court decide that this arbitration shall proceed pursuant to Article 6(2) of the Rules, any decision as to the jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral Tribunal itself.”

ICC also informed Antrix that the arbitration clause substantially departed from the ICC rules and that the institution would conduct the arbitration following its rules unless the parties objected. However, Antrix responded by filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 to the Supreme Court of India (SC) inter alia seeking to adjudicate the question that whether Chief Justice can constitute a Tribunal in supersession of the Tribunal already in the stage of constitution under the ICC Rules, notwithstanding the fact that one of the parties had proceeded unilaterally in the matter (Supreme Court of India, Arbitration Petition No. 20 of 2011).

The SC relying upon the negative effect of Kompetenz-Kompetenz refused to intervene in the issue by holding that since the ICC arbitration proceeding had already commenced, it did not have the power under Section 11 of the Act to appoint an arbitrator in a second arbitration and to determine the validity of the ICC proceedings.

Subsequently, with the SC refusing to interfere in the matter, Antrix pursued its dispute regarding the jurisdiction of the tribunal on the ground of a pathological arbitration clause, before the ICC tribunal. The tribunal in its final award held that the clause was not pathological, and therefore it had the jurisdiction to adjudicate the dispute between the parties. Subsequently, Devas obtained an ex parte confirmation of the award from the Paris Court of Appeal, which was subsequently challenged by Antrix on the ground that the arbitration agreement provided for ad hoc arbitration and hence the arbitral tribunal was irregularly composed. This was initially granted by the Paris Court of Appeal, however, the French Cour de Cassation has recently set aside the judgement and remanded it back to the Paris Court of Appeal. The case is now pending before the Paris Court of Appeal.

Moving towards Positive Kompetenz-Kompetenz based on Concurrent Jurisdiction

The doctrine of Kompetenz-Kompetenz grants power to arbitrators to decide upon their own jurisdiction. However, the negative effect of Kompetenz-Kompetenz allows the courts to consider a jurisdictional challenge only on a prima facie basis while allowing for a complete review only by an arbitral tribunal. While Article II of the New York Convention merely allows for the positive effect of Kompetenz-Kompetenz, domestic arbitral legislations and case laws in many jurisdictions are increasingly opting for the negative effect.

Prof. Stavros Brekoulakis while rejecting the negative effect, has suggested a distinction in treatment between disputes relating to existence and validity of an arbitration agreement and other disputes against the jurisdiction of a tribunal, including disputes on the scope of an arbitration agreement or arbitrability. According to him, concurrent jurisdiction should be accorded to national courts and arbitral tribunals in the former, while arbitral tribunals may have exclusive jurisdiction to determine the latter. This is because the issues in the latter are closely intertwined with the merits of the case.

Any risk of conflicting determinations by national courts and arbitral tribunal on the validity of the same arbitration agreement would then be avoided by the res judicata effect of a national decision or arbitral award, which would preclude a second determination on the same matter.

This post argues for a positive Kompetenz-Kompetenz with concurrent jurisdiction between national courts and the arbitral tribunal (with a condition of issuing a partial award on jurisdiction before considering issues of merits). If the national court is first to arrive at a decision then, its decision would be final against that of an arbitral tribunal and any other national court. On the other hand, if a partial award is first rendered, the court would determine its validity within the limited scope of grounds for setting aside of arbitral awards. It is important to allow the courts to determine the validity of the partial arbitral award so rendered within the grounds for setting aside of arbitral award which are confined only to the procedural fairness and do not question the decision of the tribunal itself.

Furthermore, it should be considered to grant parties the autonomy to mutually opt-out of the principle of concurrent jurisdiction, either at the stage of entering into the arbitration agreement, or at the stage of determination of the issue by either the court or the arbitral tribunal, and choose the determination of such disputes by either court or arbitral tribunal exclusively. This would ensure that the parties not only choose the forum for resolving their disputes but also choose the pitfalls that come with each approach.

Applying the Principle of Concurrent Jurisdiction to the case

The SC in the instant case did not exercise its jurisdiction to adjudicate the question of the legality or otherwise of the continuation of the arbitral proceedings before ICC, even though there was a case set up in the pleadings by Antix to address the larger issue of the validity of the ICC arbitration itself. The SC instead chose to tread the narrow path of going by the strict construction of the wording of Section 11(6) of the Arbitration Act, whilst leaving the parties to dispute the jurisdiction before the ICC tribunal. The SC instead could have seized this opportunity to clarify the validity of ICC arbitration in consonance with Indian law, given that SC had superintendence over the arbitration since India was the seat of arbitration. While the SC, obviously would have been very chary to issue an anti-arbitration injunction, it nevertheless could have opted to apply the principle of concurrent jurisdiction, given that the instant case fell within the field of validity and operability of arbitration clauses, as the case involved the interpretation of an alleged pathological arbitration clause which created confusion as to the forum of arbitration.

Following the positive effect of Kompetenz-Kompetenz, the SC should have concurrently determined the operability of the arbitration agreement with the ICC tribunal. If SC was first to decide the issue, then the judgement of the court would had operated as res judicata over the tribunal. On the other hand, if the tribunal was first to issue a partial award, then the courts could have merely considered the issue within the limited grounds of New York Convention and consequently either grant recognition or set aside the partial award and direct the parties to start new arbitration proceedings.

This would have resulted in an earlier resolution of the dispute between the parties, conferred greater legitimacy on the subsequent arbitral proceedings by removing uncertainty, and helped save additional costs of setting aside and enforcement proceedings after arguing the whole dispute. Furthermore, it would have also allowed Antrix to exercise its procedural rights of appointing its arbitrator in the arbitral proceedings before ICC. This approach is even more beneficial in cases where the arbitral tribunal has not yet been constituted, as it would ensure the swift and timely determination of issues affecting operability and validity of arbitration agreement.

Pitfalls in the Applicability of the Suggested Approach

Even the principle of concurrent jurisdiction does not come without pitfalls. It might result in increasing the burden on already overburdened national courts in large jurisdictions such as India. It might also lead to replication of arguments before two forums and resultant additional costs. More importantly, it might result in an enquiry into merits of the disputes by national courts, if the jurisdictional issues are intertwined with issues on merits. However, in cases like Devas, where the issues of jurisdiction are not intertwined with issues of merits or in cases where the arbitral tribunal has not yet been constituted, the advantages in favour of concurrent jurisdiction outweigh the pitfalls for the courts to assume concurrent jurisdiction. Furthermore, if the parties are granted the autonomy to choose between either of the approaches, then the risk of these pitfalls would already be expected by the parties and this would ensure greater certainty in dispute resolution.

Therefore, as is succinctly put by Professor Brekoulakis, the verdict for the negative effect of Komptenz-Kompetenz has to be negative, based on the principle of concurrent jurisdiction and party autonomy.

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The COVID-19 pandemic and the ensuing lockdowns have the legal community debating and exploring force majeure. That, however, does not rule out the imminent likelihood of international arbitration locking horns with domestic insolvency law. Arbitration agreements and subsequent awards may possibly be left redundant and award-holders remediless where insolvency proceedings are commenced in respect of a party. This post argues that the legitimacy of an arbitration agreement or an award-holder’s right to seek enforcement of such an award should remain unaffected despite any pending domestic insolvency proceedings.

Introduction

Whether or not non-performance of a contract triggers its force majeure clause is for the fact finder to decide. However, for purposes of this post, it is possible that the party claiming impairment may also be tackling insolvency.

Insolvency legislations are designed with domestic economic objectives, aiming to support a state’s economic, social and political goals. Whether insolvency results in reorganization of the debtor or liquidation of his assets, all claims and enforcements against the debtor are extinguished. In case of liquidation, the debtor ceases to have a corporate existence and in the alternative, reorganization cannot take place until all pending claim proceedings against the debtor are buried. In any event, insolvency law is centralized and formalistic. Arbitration, on the other hand, is decentralized, contractual and party autonomy based. The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the ‘Convention’) lays down the crucial tests for the success of arbitration, and supports the idea of arbitration.

The Intersection

In case of a conflict, most international arbitration award holders would not find enforcing awards against an insolvent debtor worth their candle. It takes years of efforts and resources to conclude an arbitration, which is a result of parties’ consent and investment of mind by both parties and the tribunal constituted pursuant to their consent. The conflict of laws approach mostly focusses on the issues of procedural and substantive laws applicable to an arbitration. The concept of arbitrability is wider in the international context than in a national context.

There are conflicting views and decisions. Some courts have refused the continuation of arbitration proceedings during the pendency of insolvency proceedings in respect of the insolvent party. Whether it be the institution or continuation of arbitral proceedings, or the enforcement of arbitral awards, the probable conflicts could only be seen in light of the Convention, either owing to the capacity of the insolvent party or the public policy of the state which would hinder the arbitral process.

The aspect of incapacity of an insolvent party to an arbitration proceeding can be fairly understood from the Swiss perspective as emanated in the Elektrim/Vivendi decision followed by the Swiss Supreme Court’s revisit of the decision. The Court held that the capacity of the party in an arbitration is to be determined on the preliminary substantive question of legal capacity and held that the same is to be determined by the law of the state where such party is registered as an entity. The Court went on to conclude that since insolvent entities still have rights and duties during the subsistence of insolvency proceedings, they have the legal capacity to be parties to arbitration in Switzerland. The incapacity must, therefore, exist at the time of entering into the agreement and not during arbitration proceedings and /or enforcement of the award.

No party can make any headway without the assistance of national courts. Arbitral tribunals may be delocalized, but national courts are bound by the laws which create them. ‘Public policy’ is a wide term. Article V(2)(b) of the Convention empowers national courts to refuse enforcement of foreign awards in case of contravention or conflicts with the public policy of that state. Insolvency law is seen as one of the backbones of states’ economic and legal framework, creating certainty in the market and promoting economic stability and growth (see UNCITRAL Guide on Insolvency Law, p. 10). Insolvency law may, therefore, be held to be a part of a nation’s public policy. They are clear in as much as they prohibit continuation of all proceedings against the insolvent entity and its estate, and violation of the automatic stay may entail severe punishment as it may be deemed to be against the public policy of that nation. Enforcement proceedings are essentially domestic proceedings where courts are likely to refuse enforcement of arbitral awards against an insolvent party.

An Indian court in Cruz City 1 Mauritius Holdings v. Unitech in 2017 held that enforcement of a foreign award can be only refused if such an enforcement is found to be contrary to the fundamental policy of Indian law, interest of India and justice or morality and that ‘Fundamental Policy of Indian Law’ does not mean provisions of the statute but substratal principles on which Indian law is founded. The US Supreme Court in Scherk v. Alberto-Culver Co., while discussing the refusal to enforce international arbitration agreements, held that it “would surely damage the fabric of international commerce and trade, and imperil the willingness and ability of businessmen to enter into international agreements…To refuse to enforce an arbitration clause in the context of an international transaction ‘would reflect a parochial concept that all disputes must be resolved under our laws and in our courts… We cannot have trade and commerce in world markets … exclusively on our terms, governed by our laws, and resolved in our courts”.

Be that as it may, there exists a conflict between arbitration and insolvency in the international context. National public policy exists for the national subjects, but international public policy holds constitutional validity in national laws in as much as treaties and conventions bind the domestic structures, then should primacy be given to statutes that govern domestic structures and parties?

What Prevails?

The principle of insolvency is to give back to the creditors who exist in a domestic realm where, constitutionally speaking, citizens have a say in the evolution of the law; are aware of it, structure themselves according to it, and are bound by it, but are aliens bound the same way?

Yes, arbitration is regulated, and it should be, but why frustrate an agreement – and everything that led to the agreement and its performance – on the actions of someone completely unrelated to it. If one has to choose between the international arbitration and domestic insolvency, there has to be a definitive clarity which trumps any ambiguity. The journey would fail if the destination is compromised. If delocalization of arbitration is conceptually recognized, it ought to be treated holistically and uniformly. Arbitration came about out of respect for party autonomy, and freedom of trade, and there is no reason to not uphold the principle of pacta sunt servanda.

The domestic creditors should take the entity as they found it, with a bundle of rights and obligations that include the duty to arbitrate.¹⁾The Idea of Arbitration – Jan Paulsson, at p. 118. To denounce continuation or enforcement on grounds of public policy becomes a domestic matter. Another US Court in Parsons & Whittemore held that “public policy is not the same as governmental policy; the latter cannot stand in the way of the duty to observe international treaty obligations. The award was enforced. The judgment included what may be the most-often quoted expression of the relevant standard: ‘enforcement must violate the forum state’s most basic notion of morality and fairness.’”

Recommendation 3(a) of the International Law Association’s Committee on International Commercial Arbitration’s Final Report (2002) on Public Policy as a Bar to Enforcement of International Arbitral Awards says, “An award’s violation of a mere ‘mandatory rule’ (i.e. a rule that is mandatory but does not form part of the State’s international public policy so as to compel its application in the case under consideration) should not bar its recognition or enforcement, even when said rule forms part of the law of the forum, the law governing the contract, the law of the place of performance of the contract or the law of the seat of the arbitration.”

Unless the substantive validity of an arbitration agreement is in question, it is both illogical and unlawful to stall arbitration proceedings against an insolvent entity. Rules of procedure under substantive insolvency ought to be kept separate from the rules of procedure facilitating enforcement of judgements; only the latter facilitating enforcement of foreign awards.

The Convention in the present form did not address insolvency; which ought to be construed as not being a hurdle. Therefore, the very idea of brushing under the carpet a valid arbitration agreement or an otherwise valid award in the face of domestic insolvency is an in-principle disregard of Articles II and III of the Convention, which casts a duty on all contracting states to recognize and enforce “agreement in writing” and “arbitral awards”. These articles are a fine mixture of respecting party autonomy and sovereignty, the same sovereignty with which the contracting states assented to the Convention while mutually respecting the concept party autonomy worldwide. This autonomy goes deep; deep enough to render the judgement of a party appointed sole arbitrator to have greater international force than nine unanimous justices of the U.S. Supreme Court (ICSID Review – Foreign Investment Law Journal, Volume 25, Issue 2, Fall 2010, Page 340).

Conclusion

Insolvency laws at best form part of governmental policies, but not international public policy. In the case of a party going insolvent before or during international arbitration proceedings, courts in reliance of domestic insolvency laws should not prevent the institution or continuation of such proceedings. Moreover, it curtails the growth of international arbitration or enforcement of an award passed against an insolvent, at least for the signatories to the Convention, for the signatory states have by definition adhered to a policy of enforcement of foreign awards. Refusing to recognize and enforcing agreements and awards on grounds of insolvency is fundamentally denigrative of the Convention. Invoking public policy to reject a foreign arbitral award is to be done only after much hesitation lest the system of the Convention be undermined (The Idea of Arbitration – Jan Paulsson).

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The Status of Art Arbitrations in India

As per a 2018 report, the Indian art industry is plagued by legal ambiguities, forgeries and lack of transparency, and infrastructural support, making it a fertile ground for disputes. A steady increase in the number of high-net-worth individuals and a surge in online auctions have contributed to the growth of the Indian art market, which is estimated to reach a global turnover of USD 195-260 million in the 2020s. In December 2014, Justice Gururajan delivered an 81-page arbitral award, ending a four-year-long legal battle concerning the authenticity of a 126 years old Raja Ravi Varma painting in a one-of-its-kind arbitral precedent on art disputes in India.

Art lawyers and other stakeholders have time and again iterated the suitability of arbitration for resolving art disputes. Contracts signed between stakeholders in the Indian art industry frequently have arbitration clauses. Moreover, Indian legal practitioners expect an exponential increase in the popularity of such arbitrations owing to the opening of the Court of Arbitration for Art (“CAfA”) at the Hague in 2018, and the option to include a CAfA arbitration clause in art contracts. This raises an inescapable question: will the existing arbitral jurisprudence in India provide a foundation strong enough to meet the requirements of the stakeholders in the art industry?

Sections 34 and 48 of the Arbitration and Conciliation Act (“1996 Act”) render an award arising out of an ‘inarbitrable’ dispute unenforceable in India. Art disputes generally include title and authenticity disputes, disputes arising out of testamentary matters, art fraud as well as copyright issues. In light of Booz-Allen, art disputes arising out of testamentary and succession matters are inarbitrable in India. Further, arbitrability of a dispute involving art fraud would depend on the facts as judicial precedent favours arbitrability of art fraud involving internal affairs of the parties while going against arbitrability of criminal charges and other complex art fraud cases.

While there is clarity regarding these issues, a few other potential issues arising out of art disputes merit a detailed analysis in light of the conflicting Indian arbitral jurisprudence.

Arbitration of Artists’ Resale Royalty Disputes

Since the monetary value of artwork generally grows with subsequent resale, visual artists remain at a huge disadvantage if they are not paid a share of the resale price. With the growing recognition of resale royalties around the world as a moral right of visual artists, resale royalty can also be incorporated as a contractual obligation in the sales contract. India has statutorily recognized the right to resale royalties under Section 53A of its Copyright Act which gives the Intellectual Property Appellate Board (“IPAB”), a quasi-judicial body, the power to resolve disputes concerning resale royalties. However, IPAB has remained dysfunctional for the majority of its existence and lacks the requisite infrastructure and personnel to effectively resolve disputes. Although IPAB’s incompetence acts as an additional impetus for stakeholders in the art market to resolve disputes concerning resale royalties via arbitration, there are few hurdles in the path.

In Booz-Allen & Hamilton Inc v. SBI Home Finance Ltd., the Indian Supreme Court (“SC”) ruled that disputes involving adjudication of action in rem, and disputes whose adjudication is exclusively reserved for public forums as a matter of public policy, are both inarbitrable. The question is whether contractual disputes concerning resale royalties pass the ‘Booz-Allen test’.

Despite the lack of clarity on arbitrability of IP disputes, the recent judicial trend suggests that IP disputes arising out of contracts are arbitrable as long as the rights of third parties are not affected by the decision of the arbitrator. High Courts ¹⁾EROS International v. Telemax Links India Pvt. Ltd., 2016 (6) Arb L.R. 121 (Bom.), ¶ 16; H.D.F.C. Bank Ltd. v. Satpal Singh Bakshi, (2013) I.L.R. 1 Delhi 583, ¶ 14. have also held that mere creation of forums under special enactments would not oust the jurisdiction of arbitral tribunal unless that particular enactment gives ‘special powers to the tribunals which are not with the civil courts’. These decisions augur in favour of arbitrability of resale royalty disputes.

However, the SC seems to have disregarded this line of reasoning while determining arbitrability of trusts disputes. The Indian Trusts Act does not expressly confer ‘exclusive jurisdiction’ on the civil courts to adjudicate trust disputes. Nonetheless, the SC referred to several provisions of the Trusts Act that specifically conferred jurisdiction on civil courts to rule that the scheme of the Trusts Act was of such nature that it impliedly excluded arbitration of trust disputes.²⁾see paras 54-58 of the decision. One can draw a similar analogy to IPAB as several provisions of the Copyright Act specifically confer jurisdiction on IPAB to adjudicate various copyright issues.³⁾See for example, Copyright Act, ss. 6, 11, 12, 19A, 31, 31A, 31B, 31C, 31D, 32, 33A and  53A. Further, on some instances, courts have employed the same reasoning to rule that the Copyright Act impliedly confers ‘exclusive jurisdiction’ on IPAB to deal with matters entrusted to it by the Copyright Act.⁴⁾Data Infosys Ltd. and Ors. v. Infosys Technologies Ltd., 2016 S.C.C. OnLine Del. 617; Music Choice India Private v. Phonographic Performance, 2009 S.C.C. OnLine Bom. 121. These decisions go against the arbitrability of resale royalty disputes, bearing testimony to the obscurity in the law on this issue.

Art Arbitration and the Antiquities and Art Treasures Act, 1972 (“AATA”)

The Government of India enacted the AATA in 1972 to regulate the trading of antiquities and art treasures in India. Pantings older than 100 years have been classified as ‘antiquities’ under AATA. The age of the painting or artefact can be a decisive factor in resolving certain authenticity disputes.

Section 24 of AATA makes it incumbent on the Archaeological Survey of India (“ASI”) (or an Expert Advisory Committee in the proposed 2017 bill) to determine whether an object is antiquity or not. In fact, in the arbitration concerning the Raja Ravi Varma painting, the arbitrator while deciding the question of authenticity gave precedence to the ASI certification over the opinion of the buyer’s experts.

The ASI’s incompetence is apparent from a number of cases where it did not employ any forensic tests to check the age of the artifact and declared certain items as ‘antique’ by ‘merely looking at them’. It has also been criticised for being short-staffed and riddled with red tape. In light of the above, parties ought to have the freedom to appoint experts who employ techniques that stand up to the parameters of the art market. Section 26 of the 1996 Act gives the parties and the arbitral tribunal the power to appoint an expert for assistance in deciding specific issues. However, in cases where the tribunal fails to refer the question of authenticity to ASI or does not rely on ASI’s opinion, there is a likelihood of the resultant award being successfully challenged.

In 2019, the SC ruled that in case of conflict, provisions of AATA will override the provisions of a general enactment covering the same aspect. In that case, the SC gave primacy to the ASI’s power under Section 24 in case of a prosecution under the Customs Act. The SC has previously ruled in favour of special enactments while dealing with conflicts with the 1996 Act (see here and here). Following this line of reasoning, Section 24 of AATA, being a special provision, would override the right to appoint experts under Section 26 of the 1996 Act. Consequently, reliance upon any expert opinion on the age of the concerned work will be in contravention of the ASI’s statutory power. Now, the question arises whether such contravention would be fatal to the validity of the award? It is settled law that a ‘mere contravention of substantive laws of India’ does not amount to a breach of public policy of India. However, if a law relates to ‘core values of India’s public policy’ or protects its national interest, its violation would constitute a violation of India’s public policy. In the authors’ opinion, the correct view would be to not elevate Section 24 of AATA to the pedestal of public policy. Despite this, in April 2020, the SC in NAFED v. Alimenta refused to enforce a foreign award as it was made in contravention of a government order prohibiting exports, which, according to the SC was part of India’s ‘public policy relating to export’. A similar argument can be made on these lines to bring AATA within the ambit of public policy. AATA was enacted in line with India’s policy to preserve its cultural heritage. The government intended to exercise control over the trading of antiquities⁵⁾See, ss. 3, 7, 13, 14, 19, 24 of AATA. and conferred the power to determine whether an object is an antiquity on ASI. Thus, a future court may rely on NAFED to opine that the power of the ASI to decide the status of antiquities is a matter within the fundamental policy of India in preserving its cultural heritage. Such a view amounts to excessive judicial interference and is bound to harm the future of art arbitration in India.

Conclusion

A major step towards tapping into the economic potential of Indian art is understanding and strengthening the dispute resolution mechanism for dealing with it. Courts themselves are of the opinion that they are not best suited to resolve art authenticity issues.⁶⁾Thome v. The Alexander & Laura Calder Foundation, 890 N.Y.S.2d 16, 26 (N.Y. App. Div. 2009). A decision given by a specialised art tribunal is far more likely to be revered and accepted by the art market.

Unfortunately, the existing arbitral jurisprudence in India is woefully inadequate to support the art industry. The newly added Section 42A in the 1996 Act on confidentiality of arbitral proceedings has been rightly criticized for being marred by vagueness. Considering how much people “prize their anonymity” in the art world, such equivocal provisions will prove to be a dampener for parties wishing to arbitrate their art disputes.

Such ambiguities undermine the utility of arbitration agreements in art transactions. Thus, art lawyers need to factor in these considerations while advising their clients on contractual terms. Further, positive legal developments in areas such as expert training and confidentiality will go a long way in supporting the incipient art industry of India.

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This post analyses the recent developments in enforcement of foreign awards in India that were discussed during the Delos’ Tagtime webinar by Mr. Gourab Banerji SA.¹⁾ who was “tagged” by Sir Bernard Eder. Mr. Banerji then “tagged” his colleague from the Nigerian Bar Ms. Funke Adekoya SAN to appear in the next Tagtime webinar by Delos. The webinar provided an overview of the application of the New York Convention, 1958 (NYC) in India. Here, we focus on the salient developments considered by Mr. Banerji.

Field of Application (Article I)

India’s history with the NYC is as old as the convention itself. India signed the NYC on 10 June 1958 and ratified it in on 13 July 1960 with two caveats, “…the Government of India declare that they will apply the Convention to the recognition and enforcement of awards made only in the territory of a State, party to this Convention. They further declare that they will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the law of India.”

The NYC is applied in India through Part II of the Arbitration and Conciliation Act, 1996 (the Act) titled as ‘Enforcement of Certain Foreign Awards’. The Act is broadly based on UNCITRAL Model Law and India’s reservations under the NYC, can be found in Part II of the Act at Section 44.

Under the first reservation, India only enforces binding awards from 48 NYC notified territories (even though there are currently 164 contracting states to the NYC). Under the second reservation, India has agreed to enforce NYC awards arising from relationships that are ‘commercial’ in nature. But, how does one define a commercial relationship under Indian law? This question assumes significance considering pending investment treaty awards against India. Would awards arising from investment treaty arbitrations be enforceable in India under Part II of the Act? As the term ‘commercial’ has not been defined in the Act, there is confusion over how this reservation is to be applied qua investment treaties. Two judgments of the Delhi High Court have sought to demystify the issue.

In Union of India v. Vodafone Group PLC United Kingdom & Anr. (2017) and Union of India v. Khaitan Holdings (Mauritius) Limited & Ors. (2019), suits seeking anti-arbitration injunctions had been filed by the Union of India before the Delhi High Court. The court, in both these cases, while refusing to grant injunctions, noted that investment treaty awards arose out of relationships that were fundamentally different from commercial disputes as they were based on state guarantees and assurances, and consequently, the NYC under Part II of the Act could not be utilised to enforce such awards.

While this holding of the Delhi High Court doesn’t directly apply the NYC to investment treaty awards, it is possible that these observations will be seen as obiter dicta and hence do not reflect the accurate position of Indian law. This may be a likely scenario because of how the meaning of the word ‘commercial’ has been interpreted in India through the years as construed, for instance, by the Gujarat High Court in Union of India v. Owner & Parties interested in Motor Vehicle M/V Hoegh Orchid) (1983). Here, a charter party contract provided for a London arbitration clause; yet, the Union of India filed an anti-arbitration suit on the ground of commercial reservation under the NYC i.e. the relationship between the parties was not commercial in nature. Denying the injunction request, the court held that the word ‘commercial’ must be given a wide import.

In R.M. Investment and Trading Co. (P) Ltd. v. Boeing Co. (1994), which was a case on the enforcement of a foreign award under the Foreign Awards (Recognition & Enforcement) Act, 1961 (1961 Act, the erstwhile framework under which foreign arbitral awards were enforced in India before the enactment of the newer Act in 1996), the question was whether R.M. Investment’s consultancy agreement with Boeing, under which it had promised to help Boeing sell their aircrafts in India, could be considered a ‘commercial’ agreement. The underlying agreement had an arbitration clause, despite which R.M. Investment filed a suit at the Calcutta High Court. Boeing applied for a stay of the suit in favour of the arbitration. The Supreme Court relied on UNCITRAL Model Law, to observe that, “the expression ‘commercial’ must be construed broadly having regard to the manifold activities which are part of International trade today”, and upheld the stay of the suit.

Even though India has no ‘national law’ specific to the NYC, to ascertain what is considered as commercial under Indian law, the views enunciated above are in consonance with the definition of ‘commercial dispute’ as used in Section 2(1)(c) of the Commercial Courts Act, 2015. A wide number of activities have been enumerated under this definition as being commercial. More pointedly, the Explanation to Section 2(1)(c) states that merely because one of the contracting parties is the state does not mean that a commercial dispute will cease to be one. Additionally, Article 27 of India’s Model BIT also states that disputes submitted to arbitration under this BIT would be considered as ‘commercial’ and are enforceable under the NYC.

Therefore, it is likely that Indian courts will interpret the term ‘commercial’ in a broad manner because that seems to be the approach of both the Indian judiciary and the legislature. Consequently, it is possible that investment treaty awards may be enforceable in India under the NYC. Mr. Banerji also appeared to support this view.

Grounds for refusal to enforce a New York Convention Award (Article V)

Article V of the NYC states the grounds for refusal to enforce an arbitral award. These are conditions such as violation of public policy, non-adherence of principles of natural justice etc., which if met, may result in courts refusing to enforce a NYC award made in a Contracting State. In India, Article V finds its place under Section 48 of the Act. The webinar focussed on the ground of public policy. To define this oft-used term, Mr. Banerji quoted Justice Burrough in Richardson v. Mellish (1824), where he observed re public policy that “it is a very unruly horse, and once you get astride it you never know where it will carry you. It may lead you from sound law”.

Over the years, the Indian judiciary’s approach to the enforcement of foreign awards has been inconsistent both under the 1961 Act and the 1996 Act. India’s arduous journey of jurisprudence on public policy reached a pivotal moment with the celebrated judgment of Renusagar Power Co. Ltd. v. General Electric Co. (1994), which formulated the “Renusagar test”. It held that enforcement of a foreign award would be refused on the grounds of public policy only if such enforcement contravenes:

1. fundamental policy of Indian law; or
2. the interests of India; or
3. justice or morality.

This test has now been largely adopted by the Indian legislature and is codified in the Explanation 1 to Section 48(2)(b) of the Act.

Over the years, the judiciary has interpreted the Renusagar test in myriad ways. However, a visible pro-enforcement shift was seen in the Indian judiciary after the Supreme Court’s judgment in Shri Lal Mahal Ltd. v. Progetto Grano Spa (2014). In Shri Lal Mahal, a Grain and Feed Trade Association award was sought to be enforced. Resisting enforcement, Shri Lal Mahal argued that public policy was defined widely under the Act. Rejecting this argument, and upholding the Renusagar test, Justice Lodha, in a display of intellectual honesty, overruled his own earlier judgment in Phulchand Exports Limited v. O.OO. Patriot (2011) and enforced the present award. Taking a cue, the subsequent Arbitration and Conciliation (Amendment) Act, 2015 significantly narrowed the definition of public policy.

Recently, the Supreme Court pronounced a landmark judgment on enforcement of foreign awards in Vijay Karia v. Prysmian Cavi (2018), where it emphasised that a party resisting enforcement can only have “one bite of the cherry.” Where a party loses in the high court, the Supreme Court’s standard of review only permits interference in an exceptional case of blatant disregard of Section 48. Relying on Renusagar and Shri Lal Mahal, the Supreme Court held it was not permitted to review the merits of the decision, and that an enforcing court cannot interfere by second guessing an arbitrator’s interpretation of the agreement under the guise of public policy. The Supreme Court advanced the international jurisprudence on NYC Article V by holding that a residual discretion remains with the court to enforce a foreign award, despite grounds for its resistance having been made out. On the public policy aspect, it held that a rectifiable breach under Foreign Exchange Management Act, 1999 cannot be held to be a violation of the fundamental policy of Indian law. This judgment re-affirmed the pro-enforcement stance of Indian courts with respect to foreign awards.

However, this position was challenged by the Supreme Court itself in NAFED v. Alimenta S.A. (2020), a judgment delivered a few weeks later in April 2020. In Alimenta, the Supreme Court conducted a review of the case on merits, and held that since there was absence of permission to export a commodity, such “export without permission would have violated the law, thus, enforcement of such award would be violative of the public policy of India”.

Nevertheless, soon after Alimenta, the Bombay High Court in Banyan Tree Growth Capital LLC v. Axiom Cordages Ltd. (2020) pronounced a judgment permitting enforcement of a SIAC award, and in Centrotrade Minerals & Metals Inc. v Hindustan Copper Limited (2020), a case argued by Mr. Banerji, the Supreme Court, reiterated its judgment in Vijay Karia, and enforced the foreign award.

Conclusion

Towards the end of the webinar, Mr. Banerji noted that Indian judges are ‘ultra-pro-enforcement’ and that an overwhelming number of foreign awards are enforced in India. Since Shri Lal Mahal, a very few foreign awards have been refused enforcement in India. While the judgment in Alimenta may make us doubt this statement, it appears that Alimenta is an exceptional break from the norm in Indian arbitration (as can be seen in Banyan Tree and Centrotrade). Supporters of the holding in Alimenta may argue that the award ought to have been refused because there were serious infirmities in the arbitral process. Nevertheless, critics also make a strong point. Alimenta adopted an unduly expansive definition of public policy and an enforcing court likely shouldn’t foray into the merits of an award.

Nonetheless, a reason why even a pro-enforcement Indian judiciary is not seen as such, is because of the time taken in enforcing foreign awards in India. For instance, in Centrotrade, an award from 2001 was finally enforced in 2020. While Alimenta may be an aberration, lengthy timelines for enforcement of awards in India are not so. While the recent developments in Indian arbitration point towards consistent enforcement of foreign awards, it is urgent for the judiciary and legislature to work together to ensure that foreign awards are not only enforced, but enforced within a reasonable period of time.

Mr. Sahil Tagotra and Ms. Ishita Mishra are Advocates at the Supreme Court of India.

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In a recent decision, National Agricultural Co-operative Marketing Federation of India (NAFED) v. Alimenta S.A. (“NAFED”), the Indian Supreme Court (“SC”) refused to enforce a foreign award on the ground of it being opposed to public policy under Section 7 (1) (b) (ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961 (“the 1961 Act”). The decision raises questions on the propriety of a court reviewing the merits of a foreign award at the stage of enforcement and the scope of public policy exception to enforcement of foreign awards in India.

The Facts in NAFED

In 1980, NAFED and Alimenta S.A entered into a contract under which NAFED would supply a fixed quantity of Indian HPS groundnut. Clause 11 of the contract incorporated the terms and conditions as per the FOSFA 20 (Federation of Oils, Seeds and Fats Association Ltd.) contract. Clause 14 of the FOSFA 20 contract provided that, in case of prohibition of export by executive order or by law, the contract would be treated as cancelled. [Para. 32]. NAFED was only able to supply a part of the quantity stipulated in the contract. This led to the parties’ executing two addenda, which allowed NAFED to supply the remaining quantity in the subsequent year. However, NAFED could not supply the outstanding quantity because it had no permission under the Indian government’s Export Control Order- to carry forward the exports from the 1979­-80 season to the subsequent year due to a restriction on exports under a quota system. Alimenta treated this as a default and initiated arbitration proceedings before FOSFA, London. FOSFA passed an award in 1989 directing NAFED to pay $4,681,000 as damages (along with interest), to Alimenta. This award was upheld by the FOSFA Board of Appeal in 1990.

Proceedings before the Indian Courts

In 1993, when Alimenta filed a petition to enforce the award before the Delhi High Court (“High Court”), NAFED raised objections inter alia on the ground that the award is opposed to the Indian government’s export policy and consequently, to the public policy of India. In 2000, a single judge of the High Court rejected NAFED’s contentions and held that the award is executable as a decree of the court. NAFED filed an application for review against this decision, which was dismissed. Thereafter, it filed an appeal before the division bench (comprising two judges) of the High Court, which was dismissed in 2010. Against this dismissal, NAFED filed an appeal before the SC.

The Approach of the SC

The SC extensively reviewed the award on its merits and held that without government’s permission, it was not possible for NAFED to carry out its contractual obligations and both the parties knew that the contract would be cancelled in such an exigency for non-supply in quantity. [Para. 57]. The SC then scrutinized whether the award was contrary to the public policy of India. The SC referred to its previous decisions on the interpretation of “public policy” exception to enforcement of awards such as, Renusagar Power Co. Ltd. v. General Electric Co. Ltd. (“Renusagar”), O.N.G.C. v. Saw Pipes, Shri Lal Mahal Ltd. v. Progetto Grano Spa (“Shri Lal Mahal”),  Associate Builders v. Delhi Development Authority and Ssangyong Engineering & Construction Co. Ltd. v. NHAI  (“Ssangyong”) and observed that the defence of public policy under Section 7(1)(b)(ii) of the Act of 1961 should be construed narrowly. [Para. 65]. However, the SC concluded that the enforcement of the award would contravene the public policy of India relating to export for which permission of the Indian government was necessary. Thus, enforcement of the award was refused as being opposed to the fundamental policy of Indian law and basic concepts of justice. [Para. 69]

Analysis

It is noted that although the 1961 Act has been repealed by the Arbitration and Conciliation Act, 1996 (“the 1996 Act”), Section 7 (1) (b) (ii) of the 1961 Act is retained in Section 48 (2) (b) of the 1996 Act. The SC referred to most of the relevant precedents on the question of when an award can be said to be opposed to the “public policy of India” and on the approach to be taken when considering a challenge to foreign award. However, it omitted to refer to another recent judgment in Vijay Karia v. Prysmian Cavi E Sistemi Srl (“Karia”), which laid down the following principles on dealing with challenge to enforcement of foreign awards. This omission may be because NAFED was reserved for judgment before the decision in Karia. Had the SC taken Karia into account, the following propositions would be relevant:

1. It would only be in a very exceptional case of a blatant disregard of Section 48 of the 1996 Act that the SC would interfere with a judgment which recognises and enforces a foreign award however inelegantly drafted the judgment may be. [Para. 24]
2. The “pro-enforcement bias” of the New York Convention has been adopted in Section 48 of the 1996 Act. Foreign awards cannot be set aside by second guessing the arbitrator’s interpretation of the agreement of the parties. [Para. 45]
3. The “fundamental policy of Indian law”, as has been held in Renusagar, must amount to a breach of either a legal principle or legislation which is so basic to Indian law that it is not susceptible of being compromised. The Court also approved the dictum of the High Court in Cruz City 1 Mauritius Holdings v. Unitech Ltd. that one of the principal objectives of the New York Convention is to ensure enforcement of awards notwithstanding that the awards are not rendered in conformity to the national laws. Thus, the objections to enforcement on the ground of public policy must be such that offend the core values of a member State’s national policy that is beyond compromise. The expression “fundamental policy of law” must be interpreted in that perspective and must mean only the fundamental and substratal legislative policy and not a provision of any enactment. [Paragraphs 82 and 83]
4. Interference and denial of enforcement on the ground that the award offends the most basic notions of justice is an award that either shocks the conscience of the court or is illegal given the prevailing mores of the day. It will be attracted in exceptional circumstances. [See: Footnote no. 1 in paragraph 78, referring to the decision in Ssangyong]

Proposition no. 2 above is also reflected in Explanation 2 to Section 48 (2) (b)of the 1996 Act inserted by the 2015 Amendment, that a review on the merits of the award is impermissible to find out whether the award is in contravention with the fundamental policy of Indian law. The failure to consider the above propositions will result in unnecessary judicial intervention at the stage of enforcement of the award, which is against the policy of minimal judicial intervention envisaged by Article V of the New York Convention and the 1996 Act.

The SC in NAFED treats the contravention of export policy as contravention of public policy of India but does not offer any reason as to how or why it contravenes the public policy of India. The High Court in C.O.S.I.D. Inc. v. SAIL, (“C.O.S.I.D.”), which was also in the context of the 1961 Act, held that contravention of export policy contravenes the public policy of India. However, C.O.S.I.D. is distinguishable for the following reasons:

Firstly, C.O.S.I.D. was before the judgment in Renusagar which took a narrow interpretation of the term “public policy” under Section 7 (1) (b) (ii) of the 1961 Act. Secondly, C.O.S.I.D. was a case where the award was against the government order banning exports. While any contravention of an order banning exports will fundamentally affect the export policy, contravention of a restriction or quota in the export policy may not necessarily do so. Such a narrow interpretation of an export policy is in tune with the dictum in Renusagar, as explained in Karia, that every violation of an economic legislation cannot amount to violation of public policy. In other words, something more than contravention of the law is required to refuse enforcement of a foreign award as being contrary to the public policy of India.

The finding that the award is opposed to the basic concept of justice is also without any reasoning. Normally, this ground will apply in very exceptional circumstances when the conscience of the court is shocked by infraction of fundamental notions or principles of justice. It cannot possibly include what the court thinks is unjust on the facts of a case for which it then seeks to substitute its view for the arbitrator’s view and does what it considers to be “justice”.

The decision in NAFED is also problematic in terms of its precedential value. The decisions in Renusagar, Shri Lal Mahal and Karia, from which NAFED made a departure, are all decisions of three-judge benches of SC like NAFED. NAFED has neither distinguished nor offered any reason to depart from these decisions. NAFED has thus put the Indian law on public policy exception to enforcement of foreign awards in a state of confusion.

Conclusion

The decision in NAFED opens the door for a review on merits at the stage of enforcement, a view that is contrary to the pro-enforcement bias stipulated in Section 48 of the 1996 Act. The finding that contravention of export policy contravenes public policy of Indian law expands the scope of public policy exception enunciated by the earlier decisions. It will prompt award debtors to engage in speculative litigation with hope that “some mud flung would stick” – an approach reprimanded by the SC in Karia [Para. 102]. The uncertainty caused by NAFED as a precedent is likely to be a challenge for Indian Courts in the coming days. However, considering that the facts of NAFED arose at a time when the Indian economy had rigid export-import policy restrictions, it is possible that the SC may restrict its applicability to its particular facts. Otherwise, it will be detrimental to India’s push as a hub of international arbitration.

R. Harikrishnan is an Advocate in the High Court of Kerala.

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On 10 July 2020, a panel of arbitration practitioners discussed the topic of “Recent Developments and Key Arbitration Trends in Asia” as part of the 2020 Paris Arbitration Week. The panel discussion covered the distinctive features of and the latest developments in five different jurisdictions: Singapore, China, Hong Kong, South Korea and India. Hosted by the Singapore International Arbitration Centre’s YSIAC group, the panel was moderated by Ms Marina Zenkova (Member, YSIAC Committee; Senior Associate, White & Case (Moscow)), and the speakers were Mr Manish Aggarwal (Partner, Three Crowns LLP), Ms Edwina Kwan (Partner, King & Wood Mallesons), Ms SeungMin Lee (Partner, Peter & Kim), Mr Daryl Chew (Member, YSIAC Committee; Partner, Shearman & Sterling) and Ms Ong Pei Ching (Partner, TSMP Law Corporation.

Asia has become one of the world’s most important arbitration regions, with Singapore being the third-most preferred arbitration seat after London and Paris, and SIAC being the third most-preferred arbitration institution after ICC and LCIA. Singapore continues to offer users secure, stable and sustainable solutions even amidst COVID-19, while new opportunities for foreign arbitrations open up in China and Hong Kong particularly in the Pilot Free Trade Zones. In South Korea, users of arbitration are paving the way forward for IP disputes which are uniquely dense in the market, while India continues to showcase innovation through its arbitral rules.

Singapore continues to be a secure, stable and sustainable hub for dispute resolution

Singapore continues to be a popular seat due to its three distinctive features: security, stability and sustainability. These characteristics were demonstrated by Singapore’s effortless transition into the “new norm” of online hearings in the current COVID-19 climate. Despite the severe disruptions created by movement restrictions and social distancing rules, the courts and arbitral institutes turned seamlessly towards various forms of online and other hearing arrangements, minimising the interruption to ongoing cases.

In addition to these characteristics, the Singapore courts and government take a proactive stance that supports arbitration. For example, recent case law demonstrates the robust approach taken by the Singapore courts to enforce the obligation to arbitrate by the firm adoption of the “prima facie” threshold that some jurisdictions have departed from.¹⁾AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33; Hai Jiang 1401 Pte Ltd v Singapore Technologies Marine Ltd [2020] SGHC 20.

The Ministry of Law and the Law Reform Committee of the Singapore Academy of Law also actively consider reforms to arbitration law. A noteworthy proposal under consideration is to introduce to the International Arbitration Act (IAA) an “opt in” mechanism that would allow parties to appeal to the High Court on a question of law arising out of an award made in the proceedings. If this proposal is accepted, it will be interesting to see how it operates in practice. It is not clear the extent to which commercial users would agree to opt in; although the option of inviting the court’s intervention may afford parties greater autonomy, it may also protract the proceedings.

Another proposal is to amend the IAA to give parties the option to waive or limit the grounds to set aside an arbitral award under Article 34(2) Model Law and section 24(b) IAA, on the condition that the agreement is reached after the award is rendered.

In addition, the Ministry is also considering amendments that would give the Singapore courts the power to order costs in certain situations, such as when an arbitral award is successfully set aside. This would plug a lacuna in the existing legal framework, since tribunals cannot render new costs awards once the award is set aside.

New opportunities for foreign arbitration open up in China and Hong Kong

The arbitration scene in China and Hong Kong is marked by efficiency, speed, and the endorsement of hybrid ADR approaches such as med-arb and conciliation-arb. Market trends tend to be heavily shaped by the China’s Belt & Road Initiative (BRI). Equally shaping the scene is the China’s more recent vision for the Greater Bay Area (GBA), an economic corridor connecting the delta of the Pearl River including Hong Kong SAR, Macao SAR and the nine most developed cities (including the megacities of Guangzhou and Shenzhen) in the adjacent Guangdong Province. The nine different arbitration institutions in the GBA are discussing how to make dispute resolution user-friendly and facilitate more cross-border investments in those regions. At the same time, there is discussion on how to reconcile the different laws (Chinese law, Hong Kong law which is based on common law, and Macau law which is based on Portuguese law), and different currencies.

As to recent developments, from 1 January 2020 foreign (non-Chinese) arbitral institutions have been permitted to set up branches in the Shanghai Pilot Free Trade Zones (Pilot FTZs).²⁾Measures for the Administration of Overseas Arbitration Institutions’ Establishment of Business Departments in the China (Shanghai) Pilot Free Trade Zone Lin-Gang Special Areas effective from 1 January 2020. On the one hand, this now signals an opening up of the Chinese arbitration market but it is clear that China is cautious not to fully open up. Foreign arbitral institutions are only entitled to lawfully administer civil and commercial arbitral disputes that have a “foreign-related element”.³⁾Measures for the Administration of Overseas Arbitration Institutions’ Establishment of Business Departments in the China (Shanghai) Pilot Free Trade Zone Lin-Gang Special Areas effective from 1 January 2020, Article 14.

The Shenzhen Municipal Government has updated the rules for arbitration proceedings administered by the Shenzhen Court of International Arbitration (SCIA).⁴⁾Provisions on the Administration of Shenzhen Court of International Arbitration effective from 1 June 2019. The rules now allow parties to conduct hybrid arbitrations where parties can select a set of arbitration rules while engage in another arbitration institution as the appointing agency for arbitrators.⁵⁾Provisions on the Administration of Shenzhen Court of International Arbitration effective from 1 June 2019, Article 17.

Most recently on 18 June 2020, Shenzhen and Singapore signed a series of memoranda of understanding (MOUs) for the Singapore-China (Shenzhen) Smart City Initiative (SCI).⁶⁾Singapore-China (Shenzhen) Smart City Initiative (SCI). International awards by SIAC or SCIA will have similar standing as those awarded by each other, meaning a SIAC award can be converted into a SCIA award, and thus enforceable in China as a domestic award. This important development will increase the predictability of enforcement outcomes in China. We expect to see more of these procedural developments over the course of the year.

South Korea’s users pave the way forward for IP arbitration  

Perhaps one of the only jurisdictions where arbitration practitioners will spend a solid amount of their time on IP disputes, is South Korea. The arbitration market is moving in sync with the increasing popularity of Korean cultural content such as online and offline games which accounted for 69.2% of the country’s total content exports in the first half of 2019, as well as animation, knowledge and information services, and no doubt, Korean music. Statistics show that the value of the South Korean cultural content was worth 64 billion USD in 2019.

IP disputes are particularly dense in the region. Since last year, many arbitral awards were rendered concerning infringement of intellectual property rights of Korean IP owners, and these were administered by different arbitral institutions such as KCAB, SIAC and ICC. Users of arbitration, who are predominantly IP owners, are thus paving the way forward as they challenge the Korean arbitration community with issues of arbitrability, validity of IP rights, estoppel and parallel proceedings. There are also discussions underway to address IP issues through legislative amendments to the Korean Arbitration Act. It will be interesting to watch the South Korean market develop into a specialised hub for IP disputes.

Procedural innovations continue in India

In India, all three wings of the Indian state – the legislature, executive and judiciary – have been making significant efforts to develop India into an arbitration-friendly jurisdiction.

For example, insofar as enforcement of awards is concerned, following certain amendments to the Indian Arbitration and Conciliation Act 1996 and certain judicial pronouncements, there is no longer an automatic stay on enforcement if a domestic award is challenged before the courts. Similarly, for foreign awards, the Indian courts are taking a proactive approach to enforcement, which is reflected in the vast majority of foreign awards having been enforced in the last five years (albeit with some delays).

There have also been a string of procedural innovations designed to make the arbitral process expeditious and more cost-effective. For instance, following certain amendments made in 2015 and 2019, the Indian Arbitration Act now requires a tribunal in purely domestic arbitrations to render an award within 12 months from the completion of pleadings, which in turn must be completed within six months of the notification of constitution of the tribunal. In case of international commercial arbitration seated in India, this time limit is not mandatory. The parties can agree to extend the statutory 12-month period to 18 months. However, if the award is not rendered within the original 12-month period or the extended 18-month period (in case of an extension), the tribunal’s mandate will terminate, unless it is extended by courts on application.

Broadly speaking, the perception within the arbitration community and users remains that the recent measures to improve the Indian arbitration landscape are well-intended; however, they could have been better executed. In particular, uncertainty over a long period regarding the prospective or retrospective effect of the amendments made in 2015 and 2019, and the prevailing lack of clarity regarding some other important aspects (such as ability of foreign lawyers to participate in India-seated arbitrations), have adversely affected India’s emergence as an arbitral hub.

More coverage from Paris Arbitration Week is available here.

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Indian courts have pronounced inconsistent decisions regarding the limitation period on applications for enforcement of foreign arbitral awards. This blog post discusses the conflicting jurisprudence and advocates adoption of purposive interpretation for its redressal. Sections 47 to 49 of the Indian Arbitration and Conciliation Act 1996 (“the Act”), which forms part of the chapter on New York Convention awards are relevant in this regard. Section 47 states the evidence which the party applying for enforcement is required to produce before court. Section 48 lays down the grounds for refusal of enforcement on the request of the award debtor. Section 49 provides that ‘where the Court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that Court’. Since neither the Act nor the Limitation Act 1963 specifically prescribes a limitation period for an enforcement application, recourse has been made to Articles 136 and 137 of the Limitation Act. Article 136 prescribes a limitation period of 12 years for execution of a decree and Article 137 prescribes a limitation period of 3 years for any application for which no limitation is provided. The issue of whether a time bar of 3 years applies to an enforcement application or that of 12 years hinges on the question whether a foreign award should straight off be treated as a decree.

The Rocky Landscape of Indian Jurisprudence

In 2006, the Bombay High Court in Noy Vallesina Engineering Spa v Jindal Drugs viewed the enforcement of a foreign award in two stages: 1) inquiry into the enforceability of the award and 2) commencement in case the award is found enforceable. It held that, in the first instance, the application which is filed is not for the execution of a decree but for the execution of an “award which is capable of being converted into a decree”. Therefore, it held that an award’s enforcement period is governed by the residuary Article 137 (3 years). It determined that, only after a court finds the award enforceable, in terms of Section 49, the award is deemed to be a decree and Article 136 (12 years) becomes applicable. Thus, an award creditor has 3 years from the date of the award to apply for recognition and after the award becomes a decree, i.e., when a court records satisfaction under Section 49, the award creditor receives a further period of 12 years to apply for execution.

In 2019, the same Bombay High Court in Imax Corporation v E-City Entertainment (I) took a contrary view after considering Thyssen Stahlunion GMBH v Steel Authority of India and Fuerst Day Lawson v Jindal Exports and held that Article 136 (12 years) applied to an enforcement petition. In Thyssen, the Indian Supreme Court (“Supreme Court”) compared the enforcement provisions of the repealed Foreign Awards Act, 1961 with those of its replacement, the Act, and observed that while under the Foreign Awards Act a decree follows the award, under the new Act a foreign award is already stamped as a decree. In Fuerst, the issue was whether two separate applications are required for enforcement and execution and the Supreme Court held that awards are already stamped as decrees and can be enforced and executed in one and the same proceeding. The Bombay High Court in Imax, therefore, concluded that to advance the object of the Act the word “stamped” should be understood as “regarded” and a foreign award should be regarded as a decree.

Interestingly, the Bombay High Court considered the Supreme Court decisions of Thyssen and Fuerst in both Noy and Imax but arrived at contrary views. In Imax, it took the Supreme Court observation as indicative of the nature of foreign awards; however, in Noy it observed that the Supreme Court had in neither case considered this decree question by referring to the Limitation Act or dealt with the issue in consideration. The Supreme Court had only stated that a separate application for recognition of the award is not necessary because, under the new Act, the court is not required to pronounce judgment in terms of the award for the award to operate as a decree.

The most recent development came from the Delhi High Court in February 2020, Cairn India v Government of India. In this case, the Court ruled that to effectuate the Act’s object, which is speedy disposal of disputes, Article 136 of the Limitation Act should apply to enforcement petitions. The Limitation Act should be read “pragmatically” rather than in a “pedantic manner“. The Court stated that the Act “presupposes that a foreign award is a decree” whose execution can only be impeded under Section 48 of the Act. Section 48, similar to Article V of the New York Convention, provides grounds for refusal of enforcement of a foreign award. The Court further held that pragmatically, ‘enforcement’ in Section 48 should be treated as execution. It also observed “[t]hat a foreign award is enforceable on its own strength and not necessarily dependent on whether or not it goes through the process of Section 48 proceedings emerges from the principle enunciated in international arbitration conventions that there are no limits on the forums in which recognition and/or enforcement of such awards can be sought” (Para 22).

Unlike Imax, Cairn disputed the legal outcome of Noy. Cairn, on the basis of Section 48, questioned Noy’s reasoning that an award becomes a decree under Section 49 only after the court’s satisfaction of its enforceability. Cairn stated that, according to Noy for a court’s satisfaction of enforceability, the award requires examination under Section 48, but an anomaly will occur if no objection under Section 48 is filed as then the court can never arrive at the satisfaction under Section 49 and the award can never become a decree.

Though the Supreme Court has not dealt specifically with the question, it recently, in Bank of Baroda v Kotak Mahindra Bank held that the limitation period for execution of a foreign decree under Section 44A of the Civil Procedure Code 1908 (“CPC”) is governed by the limitation law of the reciprocating country where the decree was issued. It observed that Article 136 of the Limitation Act, being restricted to decrees of Indian courts, is not applicable. This judgement, however, does not apply to foreign arbitral awards for three reasons. Firstly, the CPC, conscious of the different legal domains in which arbitration functions, explains that a foreign decree does not include an arbitration award, even if such an award is enforceable as a decree. Secondly, the Supreme Court applied the reciprocity principle which is unavailable for application in case of arbitral awards. Finally, a foreign award is regarded as already stamped as a decree but not a ‘foreign’ decree.

Conclusion

Indian courts continue to grapple with clearly determining the limitation period applicable to petitions for enforcement of foreign awards. Yet, the statutes themselves (whether focused on arbitration or limitation periods) of leading international arbitration hubs, like the U.S.A., U.K., and Singapore, that prescribe clear time bars to such applications. India lacks such legislative certainty and the question of what time limitation applies to enforcement petitions in India pivots on the question whether a foreign arbitral award is to be treated straight off as a decree.

The point of conflict is Section 49 of the Act which states that the award can become a decree only if the court is satisfied that it is enforceable. It is accepted that one enforcement proceeding may consist of stages; 1) deciding the enforceability of the foreign award and 2) taking steps for execution, if the award is found enforceable. The satisfaction under Section 49 is arrived at after clearing the first stage, an application for which may be subjected to 3 years limitation. It is only after the passing of the first stage that 12 years limitation may be applied. Noy has based its reasoning on this premise and admittedly, has provided a sound literal interpretation of the legal matrix involved.

However, given the pro-enforcement policy of Article III of the New York Convention and the objective of the Act, i.e., speedy disposal of disputes, reduced supervisory jurisdiction of courts, and prompt enforcement of awards including foreign awards, smooth enforcement should be enabled by the adoption of a purposive approach. The purposive interpretation of Sections 47 to 49 of the Act implies the application of Article 136 (12 years) of the Limitation Act to enforcement applications. Contrarily, allowing only 3 years’ limitation to the first stage of enforcement applications, by applying Article 137, is damaging to the decretal interest of award creditors. The interpretation of the Act should not defeat substantive and concluded arbitral proceedings between parties. The bifurcation of enforcement proceedings into stages and consequent application of different limitation periods, though literally sound, would be against the purpose of the Act. Therefore, until the Supreme Court clarifies the situation in unequivocal terms or the legislature prescribes a certain answer to the conundrum, one can best wish that High Courts adopt the purposive approach.

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The relationship between developing countries and the International Centre for Settlement of Investment Disputes (ICSID) has not been smooth, to say the least. Several developing countries such as Bolivia, Venezuela and Ecuador have pulled out from the ICSID Convention. India is one of the prominent developing countries that has refrained from joining the ICSID Convention, since its inception. While India has not stated the specific reasons for its absence from the ICSID Convention, in 2000, the Indian Council for Arbitration recommended to the Indian Ministry of Finance that India refrain from becoming a signatory to the ICSID Convention on the following grounds: (1) the Convention’s rules for arbitration leaned towards the developed countries and (2) there is no scope for a review of the award by an Indian court even if it violates India’s public policy. Despite these criticisms, ICSID remains the foremost institution for investor-state disputes. This post revisits India’s absence from ICSID and argues that India’s reservations against membership of ICSID have been mitigated or taken care of by the restrictive India Model BIT text 2015 (Model BIT). As a result of rearranging the structure and content of its current and future investment treaties to align with the Model BIT, India should now reconsider joining the ICSID regime. The purpose being to enhance its overall reputation as an investment-friendly country.

Changed attitude of India

During the last decade, India has shown a general lack of trust in ISDS and has, as a result, unilaterally terminated 58 of its existing Bilateral Investment Treaties (BITs). In response, as has been discussed on this blog, India has taken a highly restrictive approach to ‘investor protection’ and ISDS in the Model BIT. At present, India has successfully negotiated 6 BITs subsequent to the adoption of its Model BIT, with an additional 13 BITs still under discussion. These BITs mirror several provisions of the Model BIT. For example, the Belarus BIT (2018) included most provisions as stipulated in the Model BIT.

These recent developments provide reasons to revisit India’s absence from the ICSID Convention. This is because negotiations on the basis of the Model BIT and subsequent incorporation of its provisions are sufficient to safeguard India’s political concerns and policy objectives with respect to investor protection and ISDS. The skepticism towards ICSID arbitration is, thus, no longer justified. Moreover, the substantial rise in outbound investments from India in the recent years, both in terms of magnitude and geographical spread, indicates there may be some advantages for India to become a party to the ICSID Convention. Foreign investments of Indian companies grew with 18 per cent in 2019. Indian investors have invested in several countries that are members to the ICSID Convention, e.g. the Netherlands, Singapore, Mauritius, USA, and the UK. The trajectory shows that Indian companies will increase making foreign investments, including in Africa and Latin America. Therefore, joining the ICSID Convention would provide enhanced rights and protection to Indian investors and their investments abroad.

Tackling the “regulatory chill” and apprehension of investor-bias

In between 2011 and 2015, India was subjected to a plethora of investment treaty claims. Most of these claims were a direct result of the regulatory changes undertaken by India in the telecom and taxation frameworks. As a result, concern relating to a risk of “regulatory chill,” that is the hesitance to regulate for public welfare due to fear of unfavourable investment awards, began to surface. In the context of becoming a member of ICSID, this concern was heightened due to India’s apprehension that the system is maligned by an investor-bias which might result in expansive interpretations of treaty provisions in favour of investors.

However, as mentioned, the Model BIT is indicative of the fact that India has mitigated these concerns/apprehensions by the introduction of several control mechanisms.

Firstly, the Model BIT readdresses the risk of “regulatory chill,” drawing a fine balance between ISDS and state regulation, by incorporating several reservations/exclusions with respect to the applicability of the treaty itself. Article 2.4 of the Model BIT explicitly provides for the exclusion of the treaty in disputes arising out of taxation related issues, measures by a local government, subsidies or grants provided by a Party, issuance of compulsory licenses, government procurements by a Party, services supplied in the exercise of governmental authority by the relevant body or authority of a Party, among others. These exclusion(s) are present in the BITs negotiated by India with Brazil (2020), Belarus (2018), Taipei (2018) and Bangladesh (2017).

Secondly, the Model BIT has taken care of the lack of investor accountability. This has been done through the incorporation of a broad ‘compliance with law’ provision. Article 11 of the Model BIT requires the investors and their investments to comply with all laws, regulations, administrative guidelines and policies of the State. Similarly, various other “investor obligations” have been included in the Model BIT to ensure investor accountability. These obligation(s) have been replicated in the BITs negotiated by India with Brazil (2020), Belarus (2018) and Taipei (2018). Such provisions are interpreted strictly by ICSID tribunals to be jurisdictional prerequisites for investors. Therefore, it will provide an additional safeguard to India in ICSID arbitrations.

Thirdly, India’s apprehension against the supposed investor-bias in ICSID is also mitigated by the Model BIT. This apprehension was strengthened post White Industries v India (2010). White Industries was the first unfavourable investment award rendered against India. As a response to this case, India has made fundamental changes to its Model BIT. In order to restrict the potential investor-bias or contradictory interpretations to creep in, the Model BIT has done away with several substantive provisions. For instance, the Model BIT does not incorporate: the MFN clause (in an attempt to avoid treaty shopping by investors); the ‘Fair and Equitable Treatment’ (FET) clause; nor the ‘Full Protection and Security’ (FPS) clause as traditionally understood, it is now limited to mere physical protection. Additionally, while Article 3 of the Model BIT provides certain substantive obligations of the host state (qualified by customary international law threshold), it evidently excludes the protection of the ‘legitimate expectations’ of the investors. Moreover, even in BITs negotiated by India where an FET clause has been included, such as the BIT with Colombia (2018), the scope of the clause has been limited to ‘minimum standards of treatment’ under customary international law.

It is likely that the narrowing of the substantive protections, in conjunction with enhanced regulatory powers for states and the imposition of investor obligations, will likely mitigate the current skepticism manifested as a regulatory-chill, lack of investor accountability, and the supposed investor-bias.

Predictable enforcement regime

The current enforcement regime for investment awards in India lacks certainty. Investment awards are expected to be enforced under the New York Convention. However, India has availed of the commercial reservation provided in Article 1(3) of the New York Convention, restricting its applicability to foreign awards arising out of legal relationships ‘considered as commercial under Indian law’. Therefore, whether the Indian Arbitration Act 1996 (which implements the Convention) applies to ISDS is highly uncertain. Different High Courts have reached contrasting decisions, as discussed on this blog. Conclusively, the New York Convention is not a predictable regime for enforcement of investment awards in India.

The ICSID Convention provides a more predictable regime for enforcement of its awards. All ICSID awards are final, binding, and directly enforceable. The ICSID enforcement regime has been a subject of concern for India as it does not provide for a ‘public policy review’ of awards by the national courts. However, as previously discussed, with several control mechanisms (in the form of regulatory freedoms, investor obligations and narrowed substantive protections) in place, the Model BIT ensures more level regime between states and investors, and therefore, the concern regarding the lack of a ‘public policy review’ is diluted. With abundant front-end safeguards available to India, there will be less need for national courts to safeguard at the back-end of the procedure.

Exhaustion of local remedies: safety net prior to ICSID arbitration

One of the foremost developments in the Model BIT is the inclusion of a mandatory ‘exhaustion of local remedies’ clause. Article 15.1 of the Model BIT mandates that the investor must seek remedy for the particular dispute before the relevant domestic courts or administrative bodies of the host state as a precondition to filing a claim before the tribunal. Moreover, Article 15.2 clarifies that the investor must exhaust all judicial and administrative remedies relating to the measure underlying the claim for at least a period of five years prior to arbitration. The provision has been replicated in the Belarus BIT and Taipei BIT (2018). The incorporation of this provision is in consonance with Article 26 of ICSID Convention, which permits Contracting States to require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration. Therefore, Article 15 of the Model BIT would act as a safety net for India as it would allow the domestic judicial bodies to resolve disputes prior to ICSID arbitration, thereby restricting ICSID arbitration to only unresolved disputes.

Conclusion

The Indian economy benefits significantly from incoming investments. As ICSID provides a transparent, reliable, and predictable legal framework for investor/investment protection, its membership will naturally enhance investor confidence and promote incoming investments. Therefore, the membership of ICSID will significantly add to India’s vast and emerging market and relatively cheap labour as factors attracting foreign investors to India. Incidentally, the benefits of membership of ICSID will also be reaped by Indian investors abroad as it will allow them to avail of the enhanced protection and special features of ICSID. Lastly, as India emerges as a political and economic superpower, it would be well-advised to re-consider its stance with regard to the ICSID regime. If India is able to renegotiate its investment treaties in line with the Model BIT, it will dilute the factors usually cited as reasons for India to refrain from joining ICSID Convention, thereby making its membership a viable option.

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The Supreme Court of India (“Supreme Court”) recently ruled on the arbitrability of fraud in the case of Avitel Post Studioz Ltd. v. HSBC PI Holdings [2020] (“Avitel”). The judgement lays down the tests to determine “serious allegations of fraud” and thereby disputes which cannot be resolved through arbitration.

Various developments in the jurisprudence of the arbitrability of fraud in India have led to diverging legal positions adopted by the judiciary. The Supreme Court in A. Ayyasamy v. A. Paramasivam (“Ayyasamy”) attempted to settle the debate on this issue (as discussed on the blog). Previously, an inconsistency existed between the judgements of N. Radhakrishnan v. Maestro Engineers (“Radhakrishnan”), which held that a case would not be arbitrable if it involved serious allegations of fraud, and Swiss Timing v. Organizing Committee, Commonwealth Games (“Swiss Timing”), which held that cases involving allegations of fraud can be resolved through arbitration. Ayyasamy thus sought to offer clarity by distinguishing between “mere allegations of fraud simplictor” and “serious allegations of fraud”, holding the former to be arbitrable and whereas the latter as non-arbitrable.

Despite the attempt made by the Supreme Court to offer clarity in Ayyasamy, ambiguity persisted in the modus operandi of the substantive law in India qua arbitrability of fraud. Ayyasamy thus gave rise to problems of a hazy and inconsistent interpretation of “serious allegations of fraud” (discussed here on this blog). In particular, it held that “a strict and meticulous enquiry into the allegations of fraud” would be conducted in order to determine whether an allegation of fraud is serious or not. Going against the nature and core principles of arbitration, this was bound to result in unnecessary judicial intervention and delay, if a clear cut formula was not derived to distinguish the two categories of fraud.

Tests for Determining the ‘Fraud Exception’ 

The Arbitration and Conciliation Act 1996 1996 (“Act”) does not specifically exclude any category of cases as non-arbitrable. Section 8 states that the judicial authority has the power to refer the cases to arbitration if a valid arbitration agreement exists. Further, Section 34(2)(b) provides for awards to be set aside if the subject matter is not arbitrable by the law in force. Despite various landmark judgements and recommendations made by the Indian Law Commission (in its 246th Report), no legislative clarity existed. The exceptions to arbitrability of disputes are therefore created by judicial decisions.

Through these decisions (specifically Ayyasamy) it was extrapolated that in Indian law “serious allegations of fraud” are not arbitrable. Thus, the Supreme Court in Avitel focused on determining what would exactly constitute the “serious allegations of fraud” exemption to the arbitrability of disputes. It accordingly laid down that “serious allegations of fraud” would arise only when either of the following two scenarios are satisfied:

• The first scenario involves an arbitration agreement that cannot be said to exist. This would involve cases in which a party cannot be said to have entered into an agreement to arbitrate at all. Therefore, only in cases where the allegations of fraud are directed towards the ‘agreement to arbitrate’ or are such that if proved, it would vitiate the arbitration clause along with the agreement, would this test apply. Section 16(1) of the Act provides for a wide interpretation of the arbitration clause. It states that the arbitration clause shall be treated as an agreement in itself and the invalidity of the contract shall not entail ipso jure the invalidity of the arbitration clause. Therefore, through Section 16(1) even when the contract is claimed to be fraudulently induced, the substantive validity of the arbitration clause is not compromised. Application of the first test together with this Section 16(1) would considerably reduce the scope of judicial intervention on grounds of fraud. Furthermore, the Supreme Court referred to the work of Gary Born [International Commercial Arbitration by Gary B. Born 2nd Edn., Vol. I, p. 846], and agreed with his rationale that matters in which a party procures an agreement to arbitrate by fraud rarely arise, even in cases where fraud may have actually been committed in connection with the underlying contract. Thus, this test reflects an internationally accepted approach and stance which endorses minimal intervention by the courts. [Para 14 of the judgement]
• The second scenario is where allegations of arbitrariness, fraud or malafide conduct are made against the “state or its instrumentalities”. Such cases would not be arbitrable as the questions raised would concern matters of public law, thereby attracting implications not only on the parties but concerning the public domain as well. These cases would necessarily be settled in a writ court as issues related to fundamental rights of the people would arise (such as Article 14 of the Indian Constitution). However, with regards to the “public domain” ambit of fraud, the Supreme Court stated that allegations of impersonation, false representations and diversion of funds are all internal affairs of the parties having no “public flavour” and are thus not to be construed as “serious allegations of fraud” so as to attract the fraud exception. Therefore, unless these allegations are made against the state and its authorities, the dispute would be arbitrable and not be adjudged in a court of law. [Para 14 of the judgement]

Analysis 

Avitel in essence deviated from the position taken in Ayyasamy, including inter alia its conformity with Radhakrishnan, and adopted the reasoning given in Swiss Timing instead. It noted that the earlier decisions did not consider the judgement in Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums, which stated that under Section 8, it is mandatory for the court to refer the dispute to arbitration if the parties have a valid arbitration agreement. The Supreme Court opined in Avitel that the previous cases failed to take into account a combined reading of Section 5 (limitation on judicial intervention), Section 8 and Section 16 of the Act which reflected a new approach to arbitration. The Supreme Court seemed keen to adopt this approach and thus found Radhakrishnan to be wanting in law.

In Avitel, the Supreme Court sought to clear out multiple anomalies. It addressed the ambiguity arising due to the lack of a specific category of non-arbitrable cases being carved out in the domestic legislation and the decision of the Indian Parliament to not incorporate the recommendation of the Indian Law Commission in this regard. According to the Supreme Court, “the parliament has left it to the courts to work out the fraud exception on a case by case basis”. However, this is worrying as it will lead to a “a case by case” determination of what constitutes fraud and will result in unnecessary judicial intervention and delay. This approach would harm the existing regime of arbitration to a considerable extent.

The Avitel decision is certainly a welcome development after inconsistent interpretations of “serious allegations of fraud”. However, it does not come without its own concerns. The second scenario it presents, where “allegations of such frauds are made against the state or its instrumentalities”, brings to fore certain potential problems as parties can now conveniently raise an allegation or defence of fraud to avoid recourse to arbitration. The test can be misused to avoid arbitral proceedings in cases which involve government sectors, authorities or instrumentalities. India being the second most populous country in the world, there are a large number of contracts which involve the government. Therefore, a blanket application of this test would result in an influx of cases being relegated for adjudication by the courts. This would again lead us back to the initial position of judicial interference by way of closely examining cases involving allegations of fraud to determine arbitrability. Such consequences emerging from this test would thus undermine arbitral principles such as kompetenz-kompetenz and also lead to unwarranted delays which is contrary to the objectives of the Act.

Conclusion

Despite the potential scope for misuse of one of the two tests, the Supreme Court has offered clarity on what makes an allegation a “serious” one. There has been a massive shift from the initial positions adopted by the Supreme Court as it has shed off its interventionist attitude and diverged from its arbitration averse approach. It has essentially adopted a pro-arbitration rhetoric albeit while retaining its protectionist approach, not for reasons of lack of confidence in arbitration, but to secure and reinforce the rights of citizens in the public fora. However, a judicial trend of consistent application of the second test (regarding “states and its instrumentalities”) needs to be developed to negate the use of this test as a pretext to avoid recourse to arbitration. Thus, a pragmatic approach to arbitration needs to be adopted in practice.

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A single-judge bench of the Calcutta High Court (Calcutta HC) recently delivered a judgement in Balasore Alloys Ltd. v. Medima LLC which revived the debate regarding whether a ‘civil court has jurisdiction to grant anti-arbitration injunctions in foreign seated arbitrations?’ This decision requires a careful examination because of its impact on 1) the arbitration-friendly reputation that India has slowly gained and, 2) the larger and important question of whether civil courts have the jurisdiction to grant an anti-arbitration injunction in foreign seated arbitrations.

Background of the dispute

The case before the Calcutta HC concerned agreements between India-based Balasore Alloys Ltd. (Balasore) and US-based Medima LLC (Medima). The Agreement entered into in 2018 provided for an International Chamber of Commerce (ICC) Arbitration in London. Further, the purchase orders that were issued regularly provided for the application of the Arbitration and Conciliation Act, 1996 (the Act), and for the venue of arbitration to be Kolkata, India.

A dispute arose between the two entities, and Medima commenced arbitration under the ICC rules in London. At the same time, Balasore also initiated arbitral proceedings under the Act in Kolkata. In Medima’s arbitration, Balasore raised objections regarding the validity of the arbitration agreement and urged the ICC Court to decide the matter as a preliminary issue before the constitution of the tribunal. In turn, the ICC Court confirmed that a 3-member tribunal would be constituted and it would decide all objections. Hence, Balasore approached the Calcutta HC to grant an anti-arbitration injunction against the ICC Arbitration. The primary question before the Calcutta HC was whether a civil court has the jurisdiction to grant anti-arbitration injunctions in foreign seated arbitrations?

The decision of the Court

The Calcutta HC, while ruling that a civil court has the power to grant an anti-arbitration injunction in a foreign seated arbitration, held that this power has to be exercised sparingly and only under the circumstances listed in paragraph 24 of the Supreme Court’s (SC) judgement in Modi Entertainment Network v. WSG Cricket PTE Ltd. Further, the Calcutta HC while rendering this decision, rejected the Delhi High Court’s decision in Bina Modi & Ors. v. Lalit Modi & Ors which had held that a civil court lacks the power to grant anti-arbitration injunctions.

On facts, it held that Balasore is not entitled to an anti-arbitration injunction since it has failed to display how their case falls under any of the categories provided in para 24 of the judgment in Modi Entertainment Network. Therefore, the Calcutta HC ruled that there is no reason which merits the grant of an injunction against the ICC arbitration seated in London.

Applicability of principles governing anti-suit injunctions to anti-arbitration injunction

Although on facts, the Calcutta HC held that Balasore was not entitled to an anti-arbitration injunction, the basis on which it was decided that a civil court in India has the power to grant an anti-arbitration injunction in foreign seated arbitrations merits discussion. As mentioned above, the Calcutta HC while arriving at this conclusion, relied on the principles provided in para 24 of the SC judgment in Modi Entertainment which govern the grant of anti-suit injunctions.

As per the above decision, an anti-suit injunction can be granted if: (i) the proceedings are oppressive, vexatious or in a forum non-conveniens; (ii) in case the proceedings are to be allowed, then the ends of justice would be defeated; (iii) the proceedings in the foreign court (decided by the parties based on an exclusive-jurisdiction clause) would result in injustice to the parties. Therefore, looking at the decision rendered in Balasore a question arises that whether the principles governing an anti-suit injunction can also govern the grant of an anti-arbitration injunction.

A two-judge bench of the Delhi HC in Mcdonald’s India Pvt. Ltd. v. Vikram Bakshi & Ors. has considered this question before, where it held that in a case involving an anti-arbitration injunction, the governing principles could not be the same as that of an anti-suit injunction. The reason being that the Act being a complete code in itself, empowers an arbitral tribunal itself to rule on its own jurisdiction. Further, it held that the governing principles of a civil suit and that of arbitration are different. Therefore, the principles applicable to govern an anti-suit injunction could not be applied to a suit concerning anti-arbitration injunctions.

Even recently in the Bina Modi judgement, the Delhi HC held that principles of anti-suit injunction cannot be used in a dispute concerning an anti-arbitration injunction, the reason being, under the Act, arbitrations are based on the principles of party autonomy and Kompetenz-Kompetenz. A tribunal has sufficient power to rule on its own jurisdiction, and the courts should sparingly interfere when the parties have displayed a strong intention to refer their disputes to arbitration.

The legal position for grant of anti-arbitration injunctions in foreign seated arbitrations

A two-judge bench of the SC in Chatterjee Petrochem v Haldia Petrochemicals held that civil courts in India have the power to grant anti-arbitration injunctions in foreign seated arbitrations. The SC held that the grant of such injunctions should be based on the parameters mentioned in Section 45 of the Act i.e. if the arbitration agreement is “null and void, inoperative, or incapable of being performed”.

In World Sport Group (Mauritius) Ltd v MSM Satellite (Singapore) Pte Ltd, a two-judge bench of the SC upheld Chatterjee Petrochem. The SC relied on Redfern and Hunter to explain that an arbitration clause is “inoperative” and “incapable of being performed” when “it has ceased to have effect as a result, for example, of a failure of the parties to comply with a time-limit, or where the parties by their conduct impliedly revoked the arbitration agreement”.¹⁾Page 148, 5th Edition, Redfern and Hunter on International Arbitration (OUP).

Kvaerner Cementation v. SBP

A three-judge bench of the SC in Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anrheld that by virtue of Section 16 of the Act, a civil court lacks the power to look into matters related to the existence or validity of an arbitration clause (jurisdictional issues). However, the Calcutta HC made an interesting observation by noting that Kvaerner stood implicitly overruled by a seven-judge bench decision of the SC in SBP & Co. v. Patel Engineering Ltd. & Ors. The reason behind this was that the majority opinion of the SC in SBP had conclusively rejected the argument that an arbitral tribunal solely has competence, to the complete exclusion of civil courts, to determine its own jurisdiction. Therefore, the Court held that in light of the majority opinion in SBP, it may be interpreted that the dictum in Kvaerner stood implicitly overruled. However, a careful analysis of both Kvaerner and SBP reveals that both these judgements operate in totally different planes.

The main issue referred to a seven-judge bench in SBP was to decide whether the power exercised by a Chief Justice or his/her designate under Section 11 of the Act was an administrative function or a judicial function. With a majority of 6-1, the SC decided this function to be a judicial function. Further, the SC ruled that a civil court has the power to rule on a tribunal’s jurisdictional issues. However, this power of a civil court was decided only in relation to Section 11 of the Act.

The SC in SBP dealt with the powers of a civil court to rule on the tribunal’s jurisdiction. No where did the SC in SBP deal with the issue regarding the exclusion of powers of a civil court to grant an anti-arbitration injunction by virtue of Section 16. However, this was exactly the question that the SC was concerned about in Kvaerner i.e., exclusion of powers of a civil court. Therefore, both these judgments apply to whole together different aspects, and there cannot be any kind of overlap between them. Hence, Kvaerner very well stands firm and cannot be rejected on the ground that it stands implicitly overruled by virtue of SBP.

Applicability of Kvaerner to foreign seated arbitrations

The Calcutta HC in Balasore rejected Kvaerner by giving an invalid reason as explained above. However, the HC was right in rejecting Kvaerner but should have done so with a different reason i.e., by holding that Kvaerner applies to domestic arbitrations and not to foreign seated arbitrations.

Kvaerner reached the SC through Article 136 of the Constitution. It was an appeal against an order of the Bombay HC wherein the Bombay HC had upheld the district court’s decision which rejected Kvaerner’s plea to grant an anti-arbitration injunction. Hence, it can be seen that Kvaerner was a case that dealt with anti-arbitration injunctions in a domestic seated arbitration because it is only in cases of domestic arbitrations that a district court has the power to entertain a suit for grant of anti-arbitration injunctions. If it were to be a foreign seated arbitration then the jurisdiction would lie with an appropriate high court.

Kvaerner’s decision in holding that civil courts lack the power to grant such injunctions still holds ground, but this is only in context to domestic arbitrations. Therefore, the Delhi HC in Bina Modi erred in holding that a civil court lacks the power to grant an anti-arbitration injunction in a foreign seated arbitration, by relying on Kvaerner. Instead, it should have upheld the power of civil courts to grant such injunctions by relying on Section 45 of the Act and Chatterjee Petrochem. Further, while the Calcutta HC was right in rejecting Kvaerner, its reasoning behind the same seems to be flawed (as explained above).

Conclusion

The single-judge bench decision in Balasore has been appealed to a division bench. However, the division bench is yet to re-examine the question as to whether civil courts have the jurisdiction to grant anti-arbitration injunctions in foreign seated arbitrations. Therefore, the Calcutta HC still has an opportunity to rectify the errors committed by the single-judge bench. Hence, it is high time the HC 1) clarifies the applicability of Kvaerner to foreign seated arbitrations, lay to rest the apparent conflict between Kvaerner & SBP and, 2) firmly establishes the grounds on which an injunction can be granted against a foreign seated arbitration.

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The issue of limitation period applicable to the enforcement of a foreign award in India has been a vexed question for a long time because of various conflicting and diametrically opposite decisions rendered by different High Courts in India. The issue has finally been settled recently by the Supreme Court of India on 16 September 2020 in the case of Government of India v. Vedanta Ltd. (‘Vedanta Judgment’). This post briefly discusses the judicial trend on this issue and analyses the consequences of the Vedanta judgment.

New York Convention awards are enforced in India under Part II of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’). Section 47 to Section 49 of the Arbitration Act are of significance: Section 47 sets out the procedure for filing of a petition for enforcement of foreign award; Section 48 replicates Article V of the New York Convention and sets out the limited conditions on which enforcement of a foreign award may be refused; Section 49 states that a foreign award, enforceable under Section 48, would be deemed to be a decree of that court for the limited purpose of enforcement. The limitation period for instituting legal actions in India is governed by the Limitation Act, 1963 (‘Limitation Act’).

Neither the Limitation Act nor Part II of the Arbitration Act contains any specific provision prescribing a period of limitation for filing an application for enforcement of a foreign award. Articles 136 and 137 of the Schedule to Limitation Act are relevant for this purpose. This is in contrast with the legal position in China and Hong Kong where the domestic legislation specifically provides for a limitation period of two years and six years respectively for enforcement of a foreign award in Mainland China (as noted in this post).

The recurring question before the courts has been whether the limitation period for enforcement of a foreign award is 3 years (Article 137 of the Limitation Act) or 12 years (Article 136 of the Limitation Act).

Judicial Trend

The Bombay High Court in Noy Vallesina Engineering SPA v. Jindal Drugs Ltd (‘Noy Vallesina’) held that the enforcement of a foreign award takes place in two stages. The first stage of determining the enforceability of a foreign award under Section 48 of the Arbitration Act would be governed by Article 137 of the Limitation Act which provides for 3 years from when the right to apply accrues. Upon determination of enforceability, the foreign award is deemed to be a decree and its execution would thus be governed by Article 136 of the Limitation Act which provides for a period of 12 years.

The Madras High Court in M/s Bharat Salt Refineries Ltd. v. M/s Compania Naviera “SODNAC” & Anr (‘Bharat Salt’) took a contrary view where it held that the limitation period of 12 years as provided under Article 136 of the Limitation Act is applicable both for enforcement as well as execution of the foreign award. For this, the Madras High Court relied on the decision of the Supreme Court of India in Fuerest Day Lawson v. Jindal Exports (‘Fuerest Day’) where it was held that a foreign award is already stamped as a decree and can be enforced and executed in one composite proceeding. The decision in Bharat Salt was subsequently followed by Bombay High Court in Imax Corporation v. E-City Entertainment where, departing from its earlier ruling in Noy Vallesina, it held that the phrase ‘foreign award is already stamped as a decree’ as used in the case of Fuerest Day should be construed as ‘foreign award is to be regarded as a decree’ and in that event Article 136 of Limitation Act would be the applicable provision, providing a limitation period of 12 years.

Vedanta Judgment

The Supreme Court in the Vedanta Judgment has taken a completely divergent approach and the ruling of the Court on this issue is encapsulated as follows:

1. The enforcement of a foreign award under Part II of the Arbitration Act would be covered by Article 137 of the Limitation Act which provides a period of three years, starting from when the right to apply accrues.
2. Article 136 of the Limitation Act would not be applicable for enforcement of a foreign award under Part II of the Arbitration Act since it is not a decree of a civil court in India.
3. Section 5 of the Limitation Act permits condonation of delay if the court in its discretion is satisfied that there was a sufficient cause for not making the application within the relevant limitation period. Holder of a foreign award under Part II of the Arbitration Act may file an application under Section 5 of the Limitation for condonation of delay if required.
4. The holder of a foreign award is entitled to apply for recognition and enforcement of the foreign award by way of a composite petition under Part II of the Arbitration Act. If the enforcing court is satisfied that the foreign award is enforceable, then under Section 49 of the Arbitration Act, the award shall be deemed to be a decree of that court and the court would then execute the award by taking recourse to Indian Law applicable to the execution of decrees.

Analysis

By resolving the confusion created due to the inconsistent decisions of various High Courts, the Vedanta Judgment provides the long due clarity on the issue. The Vedanta Judgment needs to be seen in the context of the pro-enforcement stance of Indian courts with respect to the execution of foreign awards in India (as noted in this post).

The Supreme Court in the Vedanta Judgment, in the context of a separate issue, has reiterated the legal position that the courts should be reluctant to review the foreign award on merits and should give a narrow interpretation to grounds of refusal for enforcement of foreign award as enumerated under Section 48 of the Arbitration Act. With the enforcing courts unlikely to foray into the substance of the arbitration, losing parties in most cases have no option but to raise a sole objection on the ground of limitation to resist and delay enforcement of the foreign award. The enforcement proceeding in such cases where the losing party pleads the defence of limitation, cause the award holder to face an inordinate delay in their disposal due to the earlier prevailing lack of clarity on the applicable limitation period. The Vedanta Judgment, by settling the law on limitation period applicable to the enforcement of a foreign award, will lead to expeditious disposal of enforcement applications which are pending merely because of the issue of limitation is raised by the losing party.

The Supreme Court in the Vedanta Judgment has observed that the previously prevailing confusion regarding limitation period applicable to the enforcement of a foreign award would be a sufficient ground to condone the delay under Section 5 of the Limitation Act. This observation would ensure that all the foreign award holders who have not commenced enforcement proceedings in India within 3 years from when the right to apply has accrued are not left remediless. At least for the foreseeable future, such foreign award holders can seek condonation of delay under Section 5 of the Limitation Act on the basis of previous lack of clarity in the law.

It is pertinent to note that the Court has not delved deeper into the issue as to when the ‘right to apply accrues’ in terms of Article 137 of the Limitation Act in the context of enforcing a foreign award. The Court has not clarified when exactly the Limitation period commences for enforcement of a foreign award. It need not necessarily be the date of the foreign award and would ideally depend upon the facts of each individual case. Given the complex nature of commercial relationships between the parties and the stakes involved in international commercial arbitrations, it is conceivable that an award holder, who senses a better possibility for the satisfaction of his entire claim, might spend some time in negotiating payment terms with the losing party instead of opting for a long drawn enforcement proceeding in India where the assets of the losing party might be insufficient to cover the entire claim. In the event that the negotiation fails, it may be difficult for the courts to determine when exactly the cause of action arises for commencing the enforcement proceeding. The courts would have to adjudicate it depending upon the facts of each case.

The Vedanta Judgment does away with a lot of confusion and obscurity by pronouncing a definite position of law on the limitation period for enforcement of a foreign award. A conclusive all-encompassing judgment of the Supreme Court relating to ‘right to apply’ in the context of determining limitation for enforcement of foreign awards would be welcome.

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Before the Covid-19 pandemic, virtual witness testimonies were prevalent in specific instances, such as when witnesses could not reach the venue because of illness. Article 8.1 of IBA Rules on Taking of Evidence in International Arbitration permits virtual testimony only at the discretion of the tribunal. The Commentary on the Rules establishes that the tribunal’s decision to allow video-conference should depend upon the “sufficiency” of the reasons given.

The uncertainty of the return of normalcy has forced the parties to adapt to a new normal, by relying entirely on virtual hearings, including virtual witness testimonies. Arbitral institutions are organizing virtual hearings using various video-conferencing platforms. As parties get more comfortable with technology and realise the associated time/cost benefits, virtual witness testimonies are likely to become more prevalent.

Accordingly, there is a need to analyse the manner in which procedural safeguards such as, “due process”, would play out in virtual witness testimonies, in order to enable a fair and proper hearings.

The exact contours of “due process” vary amongst national laws, but certain broad principles, including, the right to be heard and equal treatment of parties are universally accepted. While the principle of the right to be heard entails that each party should have an opportunity to present its case and defend against opposition’s case, the concept of equal opportunity entails that a party should not be less favourably treated than its counterparty.

Understanding the prevalent due-process concerns

One prevalent due process concern is that witnesses may be coached using concealed means of communications during virtual witness testimony. Moreover, the credibility of virtual testimony, particularly in cross-examinations, has been questioned as the practice involves analysing body language and non-verbal cues of the witness, such as eye gestures, gesticulation, and expressions, which becomes difficult during virtual hearings.

However, modern technology combined with logistical best practices has alleviated these concerns. Using HD video quality ensures that facial expressions and body gestures are clearly visible. As opposed to an in-person hearing, video-conferencing provides a closer-up view of the witness and allows for video replays (if recording permitted) for analysing body language. Through the installation of rotating or 360-degree view cameras, parties/tribunals may monitor the witness and ensure that he or she is not accessing other devices or persons for being coached. Separately, software applications/extensions may be used for blocking other web-pages for communication while the hearing is in progress.

These tech-solutions coupled with logistical best practices provided by the Seoul Protocol on Video Conferencing in International Arbitration, (“Protocol”) address a majority of these concerns. The Protocol’s requirements include: a reasonable part of the interior of the (witness’s) room to be visible and giving testimony on an empty desk, which would further eliminate risks of witness coaching. The safeguard to opt-out of the videoconference, if the tribunal deems it unfair to either party, ensures a safe back-up.

However, certain shortcomings of the virtual testimonies still need to be addressed. Virtual hearings may be more time-consuming in cases requiring bulky documents to conduct cross-examination. Moreover, there are issues of unreliability of technology. For instance, the right to be heard may be impacted when the connection is lost during a cross-examination leading to the loss of momentum and enabling the witness to re-evaluate their answers in the extra time. Virtual cross-examination may also not be helpful if there are audio/video distortions/ freezing of images/ time-lags. Further, concerns regarding equal treatment may arise where one party presents evidence and cross-examines in person, while the counterparty is expected to take evidence by virtual hearing.¹⁾See, for instance, Sino Dragon Trading Ltd (“Sino Dragon”) v. Noble Resources International Pte Ltd (“Noble Resources”) [2016] FCA 1131. Sino Dragon argued that the technical glitches arising in witness testimony given via video-conference violated principles of equal treatment of parties, opportunity to be heard and public policy. The Federal Court of Australia held that there was no lack of equality because, (i) the mode of taking evidence was chosen by Sino Dragon; (ii) the technical difficulties were due to act/omission of Sino Dragon; (iii) the evidence of Sino Dragon was not excluded because of technical difficulties; (iv) the technical difficulties more acutely disadvantaged Noble Resources as they arose while cross-examination of Sino Dragon’s witness. Overall, no “real unfairness” was caused to Sino Dragon, and hence the challenge was unsuccessful.

A close-up view of the parties may also lead to over-interpretation of the visible gestures or actions. For instance, a miniscule-time lag in answering a question or visibility of sweat on the face may be over-interpreted.²⁾Stuke v. ROST Capital Group Pty Ltd [2012] FCA 1097, where, in context of giving evidence by video-link, the Federal Court of Australia discusses as follows: “And what if there is a delay in giving a response to a critical question? It may be impossible to tell whether the delay is due to evasiveness or uncertainty on the part of the witness or merely to difficulties with the transmission.”

In my opinion, amidst these challenges, safeguarding the right of due process should be a dual responsibility of both the participants of the arbitral process (parties, arbitrators, institutions) and the courts enforcing the award. To minimize issues of unreliability/misuse of technology, parties (to the extent it can be afforded) should implement the logistical/technological best-practices, including installation of rotating cameras, communication blocking software, etc. Counsel should make a judgement call on whether to remotely take a clinching testimony, i.e., one which would affect the award. Tribunals may order to opt-out of videoconference where connectivity issues persist.

If, however, participants fail to remedy due process breaches internally, courts must ensure that grounds to challenge or resist enforcement dynamically interpreted in order to address due process violations owing to unreliability/misuse of technology.

Witness Examination by Video in India

While the legislation is silent on video-conferencing, the recording of witness testimony through video-conferencing has been permitted by the Indian Supreme Court, where the presence of witness is required, but the witness cannot appear without an unreasonable amount of delay, expense or inconvenience. (State of Maharashtra v. Dr. Praful Desai, (2003) 4 SCC 601.)

Accordingly, in cases where witnesses have had poor health conditions, financial burden, were aged or resided abroad, testimonies have been taken through videoconferences. (See The State of Maharashtra v. Chandrabhan Sudam Sanap, 2018 SCC OnLine Bom 6576; Zaishu Xie & Another v. The Oriental Insurance Company Ltd. & Others, 2014 (207) DLT 289; Amitabh Bagchi v. Ena Bagchi, 2004 SCC OnLine Cal 93.)  At the same time, the courts have given directions for conducting a videoconferencing examination including, (i) proper identification of witnesses; (ii) the appointment of a technical coordinator; (iii) ensuring access of documents to witnesses; and (iv) presence of an officer to ensure witness is not coached. The Court has further caveated that the cross-examinations should be finished in one-go, without granting adjournments. Although, High Courts have also noted the unsuitability of virtual cross-examination where there are voluminous documents. (R Shridharan v. R Sukanya, 2011 (2) MWN (Civil) 324.)

Likewise, the courts have been largely positive towards video testimonies in arbitrations. The Calcutta High Court directed a witness present in Russia to present himself for a cross-examination through videoconference. (Saraf Agencies Private Limited v. Federal Agencies for State Property Management, 2018 SCC OnLine Cal 5958.) The Madras High Court went one-step further and encouraged parties from different parts of the country to conduct entire arbitration via videoconference. (Axis Bank v. M/s Nicco UCO Alliance Credit Limited, 2017 SCC OnLine Mad 33928.) More recently, the Delhi High Court, in the case of Rategain Travel Technologies Private Limited v. Ujjwal Suri, recognizing the possibility of conducting virtual arbitral proceedings, stated, “the arbitral tribunal may consider conducting the hearings and recording of evidence by video-conferencing, if considered feasible”. (Rategain Travel Technologies Private Limited v. Ujjwal Suri, High Court Of Delhi, O.M.P (MISC) 14/2020, May 11, 2020.)

In light of these judicial precedents, it may be reasonable to conclude that the Indian courts may continue taking a positive view towards video testimonies in arbitration. Taking inspiration from above-cited decisions, in order to further eliminate risks of witness coaching, either the representative of an institution or the counterparty may be present in the same room as witness. Moreover, parties should be encouraged to keep the virtual cross-examinations brief and conduct them in one session.

Enforcement of awards in India

For due process purposes, a party may challenge or resist the enforcement of an award on grounds of, inability to present one’s case or the tribunal’s lack of compliance with the procedure contemplated in the agreement.

A common instance where an award may be successfully challenged or resisted on the ground of inability to present one’s case, is where no opportunity was given to a party to deal with an argument which goes to the root of the case. (Vijay Karia and Others v. Parysmian Cavi E Sistemi SRL and Others (“Vijay Karia”), 2020, SCC OnLine SC 177;  Ssangyong Engineering and Construction Company Limited v. NHAI (“Ssangyong”), 2019 SCC OnLine SC 677.) In Vijay Karia case, the Supreme Court propounded that the test to determine if a party has been unable to present its case is – “whether factors outside the party’s control have combined to deny the party a fair hearing.”

Further, the ground of violation of “public policy” may also be invoked by courts sua sponte to set aside or resist enforcement. However, the Indian Judiciary has been taking a pro-enforcement approach by narrowly interpreting the ground of public policy.

Given the pro-enforcement approach of the Indian judiciary, the courts are unlikely to set-aside/resist enforcement of domestic/foreign awards, unless there has been an “apparent” due process violation during virtual testimony. Accordingly, enforcement challenge to an award based on virtual witness testimonies would be successful when fairness has been visibly impacted, and not when grounds made out are hyper-technical. In my opinion, such a standard, although high, aims to strike a balance between fairness and ensuring that parties do not indulge in speculative litigation. The standard would also assist in reducing due process paranoia, i.e., “a perceived reluctance by arbitral tribunals to act decisively in certain situations for fear of the arbitral award being challenged on the basis of a party not having had the chance to present its case fully”.

Conclusion

The due process concerns in virtual testimonies are yet to be fully resolved. In my opinion, until such resolution, the decision to take virtual testimonies should be taken carefully – technological capabilities of participants, importance of witness, are relevant considerations in such decision-making. Furthermore, in my opinion, where virtual testimonies are taken, implementation of technological/logistical solutions coupled with vigilance of courts is necessary to avoid due process concerns.

Disclaimer: The material/opinion expressed is exclusively my own and does represent the views of my employer or any other firm.

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In a bid to make its legal regime international arbitration-friendly, India has repeatedly amended its principal legislation, i.e. the Arbitration and Conciliation Act, 1996 (the ‘Act’), over the last five years. The most recent one, the Arbitration and Conciliation (Amendment) Ordinance, 2020 (the ‘2020 Amendment’), came into force on 4 November 2020 seeking “to address the concerns raised by stakeholders after the enactment of the Arbitration & Conciliation (Amendment) Act, 2019 [the ‘2019 Amendment’]”. I had earlier discussed on this blog the concerns raised by the 2019 Amendment from the standpoint of international arbitration. This post aims to serve as an update by analysing the two changes introduced by the 2020 Amendment.

Amendment to Section 36(3): Additional grounds for an unconditional stay on enforcement

Section 36 falls under Part I of the Act and deals with the enforcement of domestic arbitral awards. Part I of the Act applies where the place of arbitration is in India (Section 2(2) of the Act). If the seat of arbitration is outside India, Section 36 of the Act would not be relevant – the enforcement of that award would be subject to conditions set out in Section 48 in Part II of the Act. No amendments have been made to Section 48 of the Act. Nonetheless, from an international arbitration practitioner’s standpoint, the amendment to Section 36(3) of the Act carries relevance from two aspects – substantive and procedural.

The Substantive Aspect

The 2020 Amendment adds a new Proviso to Section 36(3) of the Act. It reads as follows:

Provided further that where the Court is satisfied that a prima facie case is made out,-—

(a) that the arbitration agreement or contract which is the basis of the award; or

(b) the making of the award,

was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.

While the new Proviso is a positive step, there are four key issues here that may require attention. First, for a court to make an order under Section 36(3) (or the new Proviso) of the Act, there must be an application under Section 36(2) of the Act. That application is further dependent on the pendency of an application challenging the award under Section 34 of the Act. Interestingly, Section 34 does not contain any express provision for setting aside an award or refusing its enforcement if “the arbitration agreement or contract which is the basis of the award” was induced or effected by fraud or corruption. As per Section 34(2)(b)(ii) of the Act, the only ground (in cases involving allegations of fraud or corruption) to refuse enforcement is where “the making of the award” was induced or affected by fraud or corruption. Therefore, one might argue that if a ground is not available for setting aside an award, how can it be available to an applicant seeking a stay of its enforcement. Secondly, whether an arbitration agreement or a contract is affected by fraud or corruption is a matter of fact and ought to have been debated by the parties during the arbitration proceedings. In most cases, it would have been inquired in detail by the tribunal. To second-guess the tribunal’s reasoning and reappreciate the evidence would be contrary to the Proviso to Section 34(2A) of the Act, which states that “an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.” Thirdly, a possible counter-argument may be that Section 34(2)(a)(ii) provides for setting aside an award where “the arbitration agreement is not valid under the law to which the parties have subjected it” and therefore, an arbitration agreement induced by fraud or corruption will be void under Indian law. But that again begs the following question: given that Section 34(2A) prevents the court from setting aside an award in an international commercial arbitration even when the award is vitiated by patent illegality on the face of it, how could the enforcement of the same award be stayed for an illegality based on fraud or corruption? Moreover, to identify such illegality may not be a straightforward exercise. While corruption in the “making of an award” may be identified by evaluating the tribunal’s conduct and is more a matter of procedure, corruption in procuring the underlying contract is a matter of merits and would, thus, require more than just prima facie evaluation of evidence. Lastly, the mandate to unconditionally stay the enforcement in cases of corruption seems to lack logic or reasoning, especially when, in other situations, the court can exercise its discretion to put any applicant to such terms, as it deems fit, before granting any stay order.

The Procedural Aspect

The temporal scope of Section 36 of the Act was the subject-matter of some controversy in the past after it was amended by the Arbitration and Conciliation (Amendment) Act, 2015 (the ‘2015 Amendment’). It took some back and forth between the Indian government and the Supreme Court of India to conclusively resolve that issue (see previous pots on this blog here, here, and here). With the 2020 Amendment, it seems that judicial intervention in revisiting the same issue would not be needed. The Explanation to the new Proviso to Section 36(3) of the Act makes it abundantly clear that the said Proviso shall have retrospective effect and shall be deemed to have been inserted with effect from 23 October 2015 (i.e., the date on which the 2015 Amendment came into force). This is also in conformity with the decisions in BCCI v Kochi Cricket Pvt. Ltd. and Hindustan Construction Co. v Union of India where Section 36 of the Act was held to be retrospective in its applicability. The 2020 Amendment further states that the new Proviso would apply to all court proceedings, irrespective of whether the court or underlying arbitral proceedings commenced before or after 23 October 2015. The 2020 Amendment, therefore, settles the debate from a procedural aspect by formally acknowledging the maintainability of an application for stay of enforcement on the grounds mentioned in the newly added Proviso to Section 36(3) of the Act, irrespective of when that application was filed.

Although the 2020 Amendment brings clarity to the temporal scope of the newly added Proviso to Section 36(3) of the Act, it raises two potential concerns. First, in cases where an application under Section 36(2) of the Act is pending adjudication before a court, the applicants will now have to make fresh applications based on the grounds listed in the new Proviso. This is likely to involve delays and increased costs unless the courts can sua sponte take notice of this new Proviso and dispense with the filing of fresh submissions. Secondly, in cases where applications under section 36(2) already stand dismissed, the applicants would claim to have a fresh cause of action to file a new application based on a legal ground that is deemed to have existed since 23 October 2015 in the statute but could not be relied upon earlier. Given the tendency to take one’s chances in an already lost cause, especially in Indian courts, it would not be surprising to see some applicants trying to take a second shot at the same pie. Since it is not difficult to rule out such abusive behaviour, the revival of already decided cases using the new Proviso may be cautiously handled by the courts.

Amendment to Section 43J of the Act

In my previous post, I had highlighted how the 2019 Amendment outrightly disqualified foreigners (such as a foreign scholar, or a foreign-registered lawyer, or a retired foreign officer) from being an accredited arbitrator under the Act. This was because of the limitations imposed by the Eighth Schedule to the Act, that was introduced by the 2019 Amendment. The Eighth Schedule specified the qualifications, experience, and norms for accreditation of arbitrators and these norms were largely biased in favour of Indian lawyers, cost accountants, government officers, etc. The 2020 Amendment directly addresses that concern by removing the Eighth Schedule altogether from the Act and replacing it with “the regulations.” It means that the accreditation of arbitrators will now be governed by the criteria laid down in these “regulations.” However, what these “regulations” might be, who would make them, by when they would be released, are some of the questions that have been left unanswered. It is only hoped that scholars, practitioners, and key stakeholders will be consulted in finalizing these regulations to prevent any further controversy on this issue. It is likely, in my view, that these regulations will ensure inclusivity through diversity rather than fall prey to the same limitations in the Eighth Schedule.

Conclusion

What is evident is the intent of the Indian government in streamlining its arbitration regime through a flurry of amendments in the last few years, particularly after a stalemate of 19 years since the Act was enacted in 1996. On a positive note, it confirms that the concerns of the international arbitration community are reaching the ears of Indian policy-makers, who are not only taking them into account but are keeping an open-minded approach in rectifying past errors when needed. Until the next amendment, we can keep our fingers crossed.

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On 3 November 2020, the Gujarat High Court rendered a decision in GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited where it held that while two Indian parties can choose a foreign seat of arbitration, they would not be entitled to seek interim measures from Indian courts under section 9 of the Arbitration and Conciliation Act 1996 (the “Arbitration Act”).

Background to the dispute

The dispute arose out of a settlement agreement executed between two Indian companies, GE Power Conversion India Private Limited (“GE”) and PASL Wind Solutions Private Limited (“PASL”). The settlement agreement provided for arbitration in Zurich under the ICC rules of arbitration. In 2017, PASL referred certain disputes under the settlement agreement to arbitration. In the arbitration proceedings, GE raised a preliminary objection that both parties being Indian, the choice of a foreign seat was invalid. This objection was rejected by the Sole Arbitrator, and the decision of the Sole Arbitrator was not challenged by GE. The Sole Arbitrator made a final award in favour of GE, directing PASL to make payments to GE.

GE then commenced enforcement proceedings before the Gujarat High Court seeking enforcement of the award as a foreign award in India. At the same time, GE also made an application under section 9 of the Arbitration Act seeking security from PASL, pending the enforcement of the award.

The High Court’s decision

The three main issues before the Court were: (i) whether the award could be enforced as a foreign award in India under Part II of the Arbitration Act, (ii) whether the enforcement of the award could be refused on the ground that it was contrary to the public policy of India, and (iii) whether GE’s application for interim measures under section 9 of the Arbitration Act was maintainable.

On the first issue, the High Court held that the award was a foreign award under the definition of “foreign award” in section 44 of Part II of the Arbitration Act. The definition of “international commercial arbitration” in section 2(f) in Part I, which requires at least one of the parties to the arbitration to be a foreign national or entity, is not relevant for determining the applicability of Part II of the Act. Part I and Part II of the Arbitration Act are mutually exclusive (as held in BALCO). Section 44 exhaustively sets out the requirements for an award to qualify as a foreign award, and the nationality of the parties is not a relevant consideration. However, the award should be made in a New York Convention Member State. In this case, the award was made in Zurich.

On the second issue, the High Court held that the award was not contrary to the public policy of India. PASL had contended that the award was contrary to the public policy of India because the choice of a foreign seat by Indian parties was violative of section 28(a) read with section 23 of the Indian Contract Act 1872 (the “Contract Act”), section 28 of the Arbitration Act as well as the Supreme Court’s decision in TDM Infrastructure Pvt Ltd v. UE Development India Ltd.

The Court held that section 28(a) of the Contract Act, which provides that an agreement that absolutely restricts a party from enforcing its contractual rights “by the usual legal proceedings in the ordinary tribunals” is void to that extent, is inapplicable. This is because Exception 1 to section 28 of the Contract Act provides that section 28 will not render an arbitration agreement, which results in jurisdiction being conferred on another forum, illegal. Further, since the Arbitration Act does not per se prohibit two Indian parties from choosing a foreign seat, there is no breach of section 23 of the Contract Act.

As regards section 28 of the Arbitration Act, which sets out the rules applicable to the substance of a dispute when the place of arbitration is in India, the High Court, relying on BALCO, held that this only reflects the conflict of law rules applicable in India. When the arbitration is seated outside India, the conflict of law rules of the seat would be applied to determine the law applicable to the substance of the dispute. TDM Infrastructure was held to be inapplicable on the ground that it prevents two Indian parties from derogating from provisions of Indian law in cases where the arbitration is seated in India.

On the third issue, the High Court held that GE’s application under section 9 was not maintainable. Section 2(2) of the Arbitration Act provides that Part I applies where the place of arbitration is in India, and section 9, subject to an agreement to the contrary, also applies to international commercial arbitrations seated outside India. Since a foreign seated arbitration between two Indian parties does not fall within the definition of “international commercial arbitration”, section 9 is not available to the parties. The language of section 2(2) of the Arbitration Act being unambiguous, its scope cannot be extended to apply section 9 in cases of enforcement of a foreign award (not being an award made in an international commercial arbitration).

Comments

Freedom of Indian parties to choose a foreign seat

The decision is a welcome one because it supports parties’ freedom of contract in the matter of choosing a foreign seat. There has been much confusion over whether two Indian parties can choose a foreign seat of arbitration, and the position taken by different Courts has not been consistent, as discussed previously on this blog here.

In Atlas Export Industries v. Kotak & Company, the Supreme Court held that two Indian parties can choose a foreign seat, but that was a decision under the earlier Arbitration Act of 1940 which was repealed by the Arbitration Act of 1996. The decision in Atlas Export was relied on by a Division Bench of the Madhya Pradesh High Court in Sasan Power Limited v. North American Coal Corporation India Pvt. Ltd. to hold that two Indian parties can choose a foreign seat under the Arbitration Act of 1996 as well. The decision of the Madhya Pradesh High Court was challenged before the Supreme Court, but the issue whether two Indian parties could choose a foreign seat was not addressed by the Supreme Court – the Supreme Court on facts concluded that the agreement was between two Indian parties and one foreign party, and as such this was not a relevant issue. The decision of the Madhya Pradesh High Court, having merged with the decision of the Supreme Court, lost its precedential value.

The issue was indirectly considered in another Supreme Court decision – Reliance Industries Limited v. Union of India where Indian parties had agreed to London as the seat of arbitration. The question before the Court was whether the parties had impliedly excluded the application of Part I of the Arbitration Act by choosing a foreign seat and a foreign law to govern the arbitration agreement. The Supreme Court proceeded on the basis that the choice of London as the seat of arbitration was valid, but the question whether Indian parties could choose a foreign seat was not directly considered.

In the absence of an authoritative decision by the Supreme Court, different High Courts have taken different positions. The Delhi High Court in GMR Energy Limited v. Doosan Power Systems India Private Limited upheld the choice of a foreign seat by Indian parties while the Bombay High Court in Addhar Mercantile Private Limited v. Shree Jagdamba Agrico Exports Pvt. Ltd. took the opposite approach.

The GE case, by upholding the parties’ right to choose a foreign seat, would hopefully contribute to strengthening this legal position, which also gives effect to the principle of party autonomy.

Non-availability of section 9 remedies

Perhaps the most significant aspect of the GE case is the ruling that the section 9 remedy of seeking interim measures is not available in case of a foreign seated arbitration between two Indian parties. While Indian parties choosing a foreign seat would be entitled to have their award enforced as a foreign award in India under Part II of the Arbitration Act, they would not be entitled to avail of the section 9 remedies which are (subject to a contrary agreement) available to parties in an international commercial arbitration seated outside India. This would mean that a party that anticipates or receives an unfavourable award would be at liberty to dispose of the assets and defeat the rights of the award holder, and the Indian courts would be powerless to grant any interim measures for the protection and preservation of the assets. A civil suit before the Indian courts for such measures of an interlocutory nature would not be maintainable because interlocutory measures can only be granted when they are in aid of the final relief sought.

Indian parties opting for a foreign seat of arbitration would have to carefully weigh the pros and cons of having their award enforced as a foreign award in India vis-à-vis having no recourse to Indian courts under section 9 of the Arbitration Act for interim measures of protection.

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Despite traditionally being considered unsuitable for arbitration, recent practice evidence that the concrete lines separating antitrust disputes and arbitration have blurred. Ever since the US Supreme Court approved arbitrability of antitrust disputes in Mitsubishi Motors v Soler (“Mitsubishi Motors”) (discussed here and here), similar understanding has been accepted in EU (Eco Swiss v Benetton), England (Microsoft Mobile OY (Ltd) v Sony Europe Limited), discussed here), Germany (Judgement 8 O 30/16, discussed here), Switzerland (Tensacciai v Freyssinet Terra Armata), France (SNF v Cytec, discussed here), New Zealand (Gvt. of New Zealand v Mobil Oil), Italy (Nuovo Pignone SpA v Schlumberger), Sweden (Systembolaget v Absolut Company), Canada (Murphy v Amway, discussed here), among others. That said, a similar pro-arbitration stance concerning antitrust disputes is not mirrored in several jurisdictions, including India. This post examines the arbitrability of antitrust disputes in India, in light of the recently expounded “four-fold test” by the Supreme Court of India (“SCI”) in Vidya Drolia v Durga Trading Corporation (“Vidya Drolia”).

Indian standpoint

The arbitrability of antitrust disputes has not been directly addressed in any case in India to date. The closest an Indian court has come to deliberate on the issue was in Union of India v Competition Commission of India (2012). In this case, the Delhi High Court decided an objection to the maintainability of proceedings before the Competition Commission of India (“CCI”) in light of an existing arbitration agreement between the parties. The Court upheld the jurisdiction of the CCI, and opined that the scope of proceedings before the CCI and the focus of its investigation would be different from the scope of enquiry before the arbitral tribunal. The Court also held that the mandate of the arbitral tribunal was limited to the contractual clauses, and it would not have the mandate nor the expertise to conduct an investigation necessary to decide antitrust issues between the parties. As a result, though the Court did not comment on the objective arbitrability of antitrust disputes, it latently implied that the adjudication of antitrust claims was not suitable for arbitration.

Arbitrability, otherwise, has been discussed in several Indian cases, most notably in Booz Allen and Hamilton v SBI Home Finance (2011) (“Booz Allen”) (discussed here). In Booz Allen, the SCI listed six categories of disputes which were non-arbitrable in India. However, it did not include antitrust disputes. Thereafter, in Ayyasamy v Paramasivam (2016), the SCI mentioned a category of disputes that were generally treated as non-arbitrable, which did include antitrust disputes (para 9). As the primary issue in Ayyasamy pertained to the arbitrability of fraud (discussed here and here), the categorisation of antitrust disputes as non-arbitrable was not a binding pronouncement.

Applying the “four-fold test” to antitrust disputes

In an attempt to streamline the test for arbitrability in India, on December 14, 2020, the SCI in Vidya Drolia expounded a “four-fold test” to determine when a dispute shall not be arbitrable in India:

(i) when the cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem;

(ii) when the cause of action and subject matter of the dispute affects third party rights; have erga omnes effect; require centralised adjudication;

(iii) when the cause of action and subject matter of the dispute relates to inalienable sovereign and public interest functions of the State; and

(iv) when the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).

The SCI, by expressly acknowledging that subordinate rights in personam arising from actions in rem are arbitrable, paved the way for private adjudication of statutory claims in India. Applying this test, the SCI overruled Himangni Enterprises v Kamaljeet Singh Ahluwalia (2017) (discussed here) and held that landlord-tenant disputes, governed by the Transfer of Property Act, are arbitrable in India. Therefore, the arbitrability of antitrust disputes in India will depend upon the non-satisfaction of the aforementioned “four-fold test”.

Ordinarily, antitrust disputes carry a public character and concern adjudication of actions and rights in rem. This is reflected in Section 19 (1)(a) of the Indian Competition Act, 2002 (“Act”), which allows any person, regardless of whether or not such a person has suffered any damage, to approach the CCI to inform about contraventions of the Act. However, importantly, Section 53N of the Act also allows any aggrieved party to claim compensation arising from the in rem findings of the CCI, thereby requiring adjudication of subordinate rights in personam of the aggrieved parties. Similarly, antitrust claims arising in the context of pre-existing contractual relationships such as franchise agreements, joint-venture agreements, or distribution agreements will also require adjudication of subordinate rights in personam. In such cases, (i) and (ii) of the “four-fold test” will not be satisfied as the adjudication would concern rights inter se between the parties.

In this regard, a reference can be made to Murphy v Amway (2013), wherein the Canadian Federal Court of Appeal (“FCA”) ruled that a private claim for damages brought under Section 36 of the Canadian Competition Act is arbitrable. The FCA, to reach this conclusion, relied upon Seidel v Telus Communications (2011), in which the Supreme Court of Canada had distinguished between Section 171 (which allowed only the person who suffered damages to initiate a claim) and Section 172 (which allowed anyone to initiate a claim) of the Business Practices and Consumer Protection Act, 2004, and concluded that though claims under Section 172 would not be arbitrable, claims under Section 171 could go to arbitration. Drawing a parallel to India, private antitrust claims under Section 53N of the Act and pre-existing contractual relationships should similarly be arbitrable.

Moreover, as private antitrust claims do not ordinarily concern inalienable and sovereign functions of the State, (iii) of the “four-fold test” will also not be satisfied. In fact, inalienable and sovereign functions of the State are exempt from the mandate of the Act itself. Section 54 of the Act provides that enterprises may be exempted from the application of the Act if such exemption is necessary for public interest or such enterprise is engaged in the performance of sovereign or inalienable functions of the State.

The impediment to the arbitrability of antitrust disputes will still arise owing to the satisfaction of (iv) of the “four-fold test”. As CCI is a specialised statutory forum enjoying exclusive jurisdiction over antitrust disputes (Section 61 of the Act), it makes antitrust disputes non-arbitrable. This renders even subordinate rights in personam arising out of the Act to be non-arbitrable. The rationale behind this criteria, as highlighted by the SCI in Vidya Drolia, is to protect the special rights created by statutes and give effect to the legislative intent of stipulating an exclusive forum for the determination of such rights and liabilities.

Nevertheless, the suitability of this criteria to determine the arbitrability of disputes is questionable as arbitrators can give effect to the special rights and obligations created by the Act by applying the mandatory antitrust laws to the disputes. The SCI, in Vidya Drolia, acknowledges that considerations such as the need to apply mandatory law, the public policy objective of the statute, and the complexity of disputes do not preclude arbitration (paras 39-41). Parties have the freedom to appoint arbitrators with expertise in antitrust law, such that their rights can be efficiently determined. This was also highlighted in Mitsubishi Motors, wherein the US Supreme Court opined that arbitrators can be trusted to accord suitable remedies to the aggrieved parties by applying the substantive antitrust laws of the country (473 US at 635). Therefore, the creation of a specialised forum, i.e., the CCI, should not be the sole factor to preclude arbitration in antitrust disputes.

However, given that courts in India have previously strictly applied these criteria to hold disputes as non-arbitrable (see here, here, and here), it is likely that antitrust disputes will also be held as non-arbitrable in India.

Arbitrability in the international context

Non-arbitrability is a ground, distinct from public policy, for refusing enforcement under Section 34 (2)(b) (Part I; domestic awards) and Section 48 (2)(a) (Part II; foreign awards) of the Indian Arbitration & Conciliation Act, 1996 (“IACA”). Both the Sections provide similarly worded provisions. Importantly, the SCI in Vidya Drolia began its analysis with the caveat that the judgement does not examine or interpret the transnational provisions of arbitration in Part II of the  IACA (para 7). Therefore, in view of Vidya Drolia, the “four-fold test” is only applicable to arbitrations under Part I of IACA, and not to foreign awards.

In light of the “four-fold test,” the position in India concerning arbitrability of domestic antitrust disputes resembles the position in the US prior to Mitsubishi Motors, wherein the need for specialised adjudication of antitrust disputes precluded arbitration (American Safety doctrine). In this regard, it was pointed out by the US Supreme Court in Mitsubishi Motors that even if antitrust disputes are not considered arbitrable domestically in the US, they must be held to be arbitrable in the international context, with respect to international arbitration awards. It was stated that “concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties’ agreement, even assuming that a contrary result would be forthcoming in a domestic context” (473 US at 629).

Similarly, it is likely the test to gauge the arbitrability of disputes for foreign awards in India, under Section 48 (2)(a) of the IACA, will be narrower than the “four-fold test” for domestic awards (similar to the distinction between domestic and international public policy, discussed here). A narrower test is sensitive to the need to give effect to transnational agreements, international comity, and predictable framework for global business and trade.

Abhisar Vidyarthi is Advocate enrolled with the New Delhi Bar.

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In this installment of Kluwer Arbitration Blog’s “Interview with our Editors”, we highlight India’s position in the field, by speaking with Madhukeshwar Desai and Neeti Sachdeva of Mumbai Centre for International Arbitration (MCIA). Madhukeshwar, its CEO, and Neeti, its Registrar & Secretary-General, jointly present MCIA’s journey since its establishment in 2016. They also discuss how the Indian arbitration landscape continues to evolve into a mature arbitration hub.

Madhukeshwar and Neeti, thank you for joining us on the Kluwer Arbitration Blog. We are glad to have you here to share your unique perspectives with the international arbitration community.  

1. Could you briefly introduce our readers to MCIA and your roles there?

Madhukeshwar Desai (“MD”): Most successful financial centres across the world boast of an international arbitration institution that is independent, credible, and that enjoys the support of the domestic market. Until the MCIA was set up in 2016, Mumbai, an important Indian and global financial centre, lacked a world-class arbitral institution.

Furthermore, the vast majority of arbitrations conducted in India were not institutional but ad hoc. MCIA, thus, was set up with the aim to bring international best practices in institutional arbitration to India, while recognising the nuances of the Indian domestic market. To that end, we created the MCIA Rules 2016 (“MCIA Rules”) which reflect international best practices and are also attuned to the Indian market. We believe they are the only institutional rules that do so. The MCIA Rules are implemented in a consistent, fair, and transparent manner via the arbitrations that we administer.

MCIA is also resolute in its mission to catalyse a vibrant ecosystem for arbitration in India that benefits all stakeholders- from the arbitrators to the lawyers, law firms, central and state governments, businesses, and other clients.

For example, we launched the YoungMCIA, to bring young talented lawyers into the arbitration world; hosted many training programs on our own and in collaboration with the best and the brightest from India and elsewhere; and organised events across India and other jurisdictions to elevate and expand the conversation around arbitration in India.

As the CEO, I concern myself with all matters related to the running of the institution except for those relating to the MCIA Rules and its implementation. As the Registrar and Secretary General, Neeti is in charge of the Secretariat where she is responsible for the due implementation of the MCIA Rules and for marketing the institution more broadly.

2. In 2021, MCIA will complete its first five years. According to MCIA’s “4^th Edition Report” until its third-year since establishment (2018-2019), it had administered 8 cases and hosted over 650 arbitration sessions. You have recently released the Annual Report 2020. Could you provide some highlights from the report for our readers?  

MD:  MCIA has seen more than a 150% growth in the total number of cases being administered by us. We have received 12 new matters in the calendar year 2020 of which 9 arose from contracts containing an MCIA arbitration clause. Significantly, the parties are increasingly choosing to incorporate clauses pointing to MCIA into their contracts.

Equally significant is the fact that three recent arbitrations were referred to MCIA by Indian courts: the Supreme Court of India referred two ad hoc arbitrations to be administered by the MCIA under the MCIA Rules with the parties consent, and the Bombay High Court referred yet another ad hoc arbitration to be conducted in accordance with the MCIA Rules.

These are important precedents that will go a long way in promoting institutional arbitration in India.

Importantly, also heartening is the increasing geographical diversity in the venue and seat of disputes we are administering. This year, we had parties from across India such as Agra, Amritsar, Bengaluru, Gujarat, Hyderabad, Indore, Jharkhand, Kolkata, Noida, and Telangana. Additionally, the MCIA is administering two international arbitrations with at least one party from Mauritius in both cases.

In 2020 alone, the MCIA received disputes worth over USD 180 million. We think that this is just the start of what we hope to be continued exponential growth going forward.

3. What are the top three advantages of having a case administered under MCIA Rules?

Neeti Sachdeva (“NS”): Institutional arbitration over ad hoc arbitration: MCIA has played a transformative role in promoting the culture of institutional arbitration in India. The first and foremost advantage of having a case administered under the MCIA Rules is having the arbitration conducted under specialized rules agreed to by the parties which reflect international best practices, including, but not limited to, oversight and scrutiny by the institution; provisions for expedited arbitration and emergency arbitration; all of which would be missing in a regular ad hoc arbitration.

The second advantage would be the cap on maximum administrative and arbitrator fees incurred by the parties during the entire arbitration. Under the MCIA Schedule of Fees (“Schedule”), the total fees are calculated on an ad valorem basis and the Schedule reflects the minimum as well as the maximum fees that the parties will have to pay for the resolution of a dispute under the MCIA Rules. In the Indian context, this gives parties a clear understanding of what the arbitration will cost if they were to invoke the arbitration agreement.

The third advantage, that ties in with the first one, is the process for appointment of arbitrators for two reasons: (i) If one of the parties in an ad hoc arbitration is uncooperative, one has to approach the court for the appointment which is both time-consuming and expensive. In an MCIA administered arbitration, under the MCIA Rules, the MCIA Council has the power to appoint, hence is efficient, fast, and cost-effective; (ii) The MCIA Council comprises some of the world’s leading arbitration practitioners, who are equipped to identify the right arbitrators, with the necessary specialization, for each dispute.

4. Indians are amongst the top nationalities to arbitrate at international arbitral institutions and that is reflected in recent case-load reports of SIAC (where India stood at the first place) and ICC (where the number of cases with an Indian party tripled from the previous year, thus, taking it from the fifteenth place in 2018 to the second place in 2019). While Singapore and Hong Kong have established themselves as leading arbitration jurisdictions in the region, India continues to play catch-up.  What more could the legislature and the executive do to create the right environment to make India an attractive international arbitration hub?

MD: The foundation is being laid by the executive and legislative branches to strengthen India’s position as a favourable jurisdiction for arbitration. Even if one looks at Singapore or Hong Kong, they did not become recognised centres for international arbitration overnight – it took them more than two decades to arrive at the recognition that you refer to. I believe that India is on a similar journey, but one that will hopefully get us to the destination sooner, given the clear direction from the government, the courts, and the users of arbitration in India. MCIA, on its part, looks forward to playing a significant role in accelerating that journey.

NS: There is a clear and concerted effort from the government, and the legal community to move towards institutional arbitration and make India a favourable seat for arbitration. There is no doubt that the MCIA has benefited greatly from this.

5. What is your take on the Indian judiciary’s performance in promoting a) the arbitration culture in India, and b) enforcement of foreign arbitral awards in India? 

NS: Like the legislature and the executive (as discussed above), the Indian judiciary continues to show its commitment towards promoting arbitration culture in India and in particular, institutional arbitration. We see this in the judgments from the courts. We also see this when the Indian courts repose faith in MCIA’s work and refer cases to us for both, the appointment of arbitrators as well as administration. As mentioned above, to date, the Supreme Court of India has referred three matters to us. Of these, one is an international dispute where MCIA was entrusted with the responsibility of appointing the tribunal. The other two cases have been recently referred to MCIA for administration under its rules. Both these cases involve significant business houses of India.

In addition to this, the Bombay High Court has also referred two cases to be administered under MCIA rules. One of these cases was referred to MCIA in 2020 and involves a multi-million dollar claim.

6. You have recently announced “Call for Arbitrators” to expand MCIA’s list of eligible arbitrators. Could you tell us more about your arbitrator roster?

NS: As noted above, we have recently had an influx of cases and we expect more cases to come our way. In anticipation of that, we put out a ‘Call for Arbitrators’, so that we are adequately prepared for the role that we have to play in terms of appointing tribunal members.

While anyone may choose to apply, we engage in a robust selection process before adding individuals to the list. The criteria we use is broadly based on, but not limited to those listed below, in no particular order of importance:

• The number of cases the applicant has acted as an arbitrator
• The number of years at the bar (if an advocate)
• Area of expertise
• Accreditation from bodies of repute, such as the CIArb
• Jurisdiction/location

We will continue to accept applications on a rolling basis from both Indian and international practitioners. We maintain an internal list and do not publish it.  Nor do we make this list available to anyone outside the MCIA.

7. How does YoungMCIA galvanize the energy of students and fresh graduates to promote institutional arbitration in India?

MD: India does not have a dedicated arbitration bar, but it does have a large number of young people that want to establish a practice that is predominantly arbitration-driven. To that end, the YoungMCIA creates a community and a safe space where students and young professionals gather to share thoughts, exchange ideas, and interact with like-minded individuals. In a pre-Covid world, most YoungMCIA events were a combination of training exercises – such as the ‘Lifeline of an Arbitration’ series (now done virtually) and social gathering aimed at facilitating interactions with senior members of the bar, who may otherwise be inaccessible to young practitioners.

We now have over 1300 YoungMCIA members, a strong community that galvanize the Young MCIA, and not the other way around.

Thank you for your time and perspectives – we wish MCIA continued success!

This interview is part of Kluwer Arbitration Blog’s “Interviews with Our Editors” series.  Past interviews are available here.  

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The “2019 in Review: India” started with a quote from Jeff Bezos that the 21^st century belongs to India. Little did we know then that, one year later, Jeff Bezos’ Amazon would be fighting tooth and nail in a SIAC arbitration and related litigation in the Indian courts to claim a share of the burgeoning Indian market.

Despite the Covid-19 pandemic, 2020 (like 2019) has been an eventful year for the Indian arbitration landscape. This post considers some major recent developments on key topics. The three branches: the judiciary, executive, and legislature continued taking significant measures to reform the domestic and international arbitration landscape in India. While important judgments were delivered by courts across India, institutional arbitration continued making inroads in India. Similarly, the government continued its spree to amend the arbitration law. Overall, the developments paint a positive picture of India’s consistent efforts to ground itself as a pro-arbitration jurisdiction. Of course, there is a scope for improvement and the journey continues.

New India-Brazil BIT

As covered in a prior post, India and Brazil signed a BIT at the dawn of the new decade to usher in a new era of BITs. The BIT is noteworthy for its departure from the widely used investor-state arbitration mechanism in favor of state-state arbitration with a focus on dispute prevention. A noticeable feature of this BIT is the restriction on an arbitration tribunal in awarding compensation, which resembles shades of the WTO dispute settlement mechanism.

The Invalidity of Unilateral Appointment of a Sole Arbitrator

Historically, the unilateral appointment of a sole arbitrator was rife in the Indian arbitration ecosystem, especially in domestic arbitrations. This gave unreasonable power to one party and created a power imbalance between the parties in an arbitration. However, as discussed, in this post, the Indian Supreme Court (“Supreme Court”), in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. made unilateral sole arbitrator appointments invalid under the 2015 amendments to the Indian Arbitration and Conciliation Act, 1996 (“Act”). The judgment was delivered towards the end of 2019 and continued to influence several arbitration proceedings in 2020 (and in 2021) such as the Delhi High Court’s judgment in Proddatur Cable TV Digi Services v. Siti Cable Network Limited (2020) and City Lifeline Travels Private Ltd v. Delhi Jal Board (2021). There is still a need for further clarity on other aspects of the appointment of an arbitrator. The exercise is underway as the Supreme Court in Union of India v Tantia Construction (2021) has referred the issue to a larger bench while opining that once the appointing authority itself is incapacitated from referring the matter to arbitration, it may not appoint an arbitrator.

Choice of Seat or Venue

The choice of a seat or place of arbitration is critical. Arbitration-related disputes often land in courts when the choice of seat or venue is debatable. As discussed in this post, the Supreme Court’s decision in Union of India v. Hardy Exploration and Production (India) Inc., (2019) (“Hardy Exploration”) was criticized for failing to delineate the concepts of place, seat, and venue. The Supreme Court in BGS SGS Soma JV v. NHPC Ltd., (2019) (“BGS SGS”) provided the much-needed clarity. It laid down a test for determining the venue and seat of arbitrations. It went on hold Hardy Exploration as per-incurium for failing to follow the Supreme Court’s seminal decision in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services. The BGS SGS decision was expected to put a lid on this issue. However, subsequently, in Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.(2020), when the rival contentions were based on the findings of Hardy Exploration on one hand and BGS SGS on the other, the Supreme Court chose to rely on neither of these decisions to come to its conclusion. This lack of clarity is likely to lead to further litigations in India.

Anti-Arbitration Injunctions

The Delhi High Court has taken divergent views on the issue of a civil court’s jurisdiction to grant anti-arbitration injunctions. In Mcdonald’s India Private Limited v. Vikram Bakshi and Ors. (2016) (“Mcdonald’s”), a division bench of the Delhi High Court held that civil courts had jurisdiction to grant anti-arbitration injunctions where it was proved that the arbitration agreement was null, void, inoperative, or incapable of being performed. However, in Bina Modi and Ors. v. Lalit Modi and Ors (2020), a single judge of the Delhi High Court concluded that a civil court did not have the jurisdiction to entertain suits to declare the invalidity of an arbitration agreement or injunct arbitral proceedings. In an appeal against the single judge’s decision, the division bench, relying on Mcdonald’s, set aside the single judge’s judgment. As discussed in this post, this judgment conforms to the previous Supreme Court judgements which have held that a civil court in India has inherent jurisdiction to grant injunctions in restraint of arbitration.

The Negative Effect of Kompetenz-Kompetenz

The arbitration between Devas v Antrix has been in the news for various reasons, the latest being the stay granted by the Supreme Court on the execution of the award in November 2020. The doctrine of Kompetenz-Kompetenz grants power to arbitrators to decide upon their own jurisdiction. However, the negative effect of Kompetenz-Kompetenz allows the courts to consider a jurisdictional challenge only on a prima facie basis while allowing for a complete review only by an arbitral tribunal. In the context of this arbitration, this post argues for a positive Kompetenz-Kompetenz with concurrent jurisdiction between national courts and the arbitral tribunal (with a condition of issuing a partial award on jurisdiction before considering issues of merits).

NAFED v. Alimenta S.A.: Opening a Pandora’s Box on Enforcement of Foreign Awards?

In 2020, the Supreme Court issued two significant judgments relating to the enforcement of foreign awards in India. While these judgments analysed the same legal provision regarding enforcement, they adopted contrary approaches and not surprisingly, reached diametrically opposite conclusions. As this post discusses, the earlier judgment in Vijay Karia v. Prysmian Cavi E Sistemi Srl (delivered in February 2020) eschewed reviewing the merits of the award in enforcement proceedings. However, just two months later in National Agricultural Co-operative Marketing Federation of India (NAFED) v. Alimenta S.A., the Supreme Court extensively reviewed the merits of the award and held it to be unenforceable. The fate of future enforcement proceedings could hinge on which precedent is relied upon by the enforcing court.

Clearing the Mist on Arbitrability of Fraud

Raising allegations of fraud had become a frequently used shield for respondents in Indian arbitrations. Unfortunately, various cases over the years did not provide much succor for the claimants, for whom the battleground would shift from tribunals to courts, where the recalcitrant respondent would argue on the basis of the (alleged) fraud that the dispute is no longer arbitrable. Ultimately, the Supreme Court in Avitel Post Studioz Ltd. v. HSBC PI Holdings (“Avitel”) laid down what would exactly constitute the “serious allegations of fraud” exemption to the arbitrability of disputes. This post discusses the pros and cons of Avitel.

Clarity on the Limitation Period for Enforcement of Foreign Awards

As discussed in this post, the Supreme Court, in the case of Government of India v Vedanta settled the debate on the applicable limitation period for enforcement of a foreign award in India. The Supreme Court held that the enforcement of a foreign award under Part II of the Act would be covered by Article 137 of the Limitation Act, which provides a period of three years, starting from when the right to apply accrues. The Supreme Court also made a passing remark and reaffirmed in this case that the courts should stay away from reviewing the merits of a case in enforcement proceedings. It echoed that the courts should only look at such cases from the narrow prism of Section 48 of the Act, which enumerates the limited grounds of refusal for enforcement of a foreign award.

Indian Parties Choosing a Foreign Seat of Arbitration

In the absence of any authoritative ruling by the Supreme Court on the issue of Indian parties choosing a foreign seat of arbitration, various High Courts have taken inconsistent positions over the years. In the latest decision dealing with this issue, the Gujarat High Court in GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited held that two Indian parties can choose a foreign seat of arbitration. As discussed in this post, the award in such arbitrations would be a foreign award under the Act. Significantly, the remedy of seeking interim measures from Indian courts in such a scenario would not be available.

Transitioning into 2021

2020 kept the domestic and the international arbitration community involved in India engaged. As 2020 came to an end, a few developments that started taking shape last year will define how 2021 proves for India to position itself as an arbitration hub.

Following are a few arbitration developments in India that are already attracting eyeballs of the international and domestic arbitration community alike.

The 2021 Amendments

The 2021 amendments to the Act (passed by the Lower House of the Indian Parliament on 12 February 2021) came on the heels of the 2019 amendments. The amendments were earlier promulgated by way of an ordinance in November 2020. As discussed in this post, the highlights include:

• amendment to Section 36(3) of the Act that allows a court to unconditionally stay a domestic award where it is prima-facie satisfied that the underlying arbitration agreement or contract which is the basis of the award or the making of the award was induced by fraud or corruption.
• the deletion of the controversial eighth schedule (that had onerous qualification requirements to be appointed as an arbitrator) to the Act that was introduced in 2019 but was never entered into force. In this regard, the amendment provides that norms for accreditation of arbitrators will be specified by the Arbitration Council of India.

150% Growth in MCIA’s Caseload

India’s home-grown institution, the Mumbai Centre for International Arbitration (MCIA) has released its Annual Report for 2020 where it reports having registered more than 150% growth in the total number of cases being administered by it. The sentiments are further boosted by recent referrals that the Supreme Court and the Bombay High Court have made to MCIA. Please read more about MCIA from its CEO and secretary-general/registrar here in our recent “Interviews with Our Editors” series. The post lays down MCIA’s journey in the last five years of its existence and how MCIA is registering more cases under its rules with every passing year.

Recognition and Enforcement of SIAC Emergency Arbitrator’s Award

As noted above, Amazon is currently involved in legal proceedings with Indian entities including Future Retail and Reliance Retail. Amazon commenced an emergency arbitration under the SIAC Rules, which culminated in the Emergency Arbitrator inter alia enjoining Future Retail from proceeding with its agreement with Reliance Retail. This arbitration is seated in Delhi, India. The related court proceedings before the Delhi High Court raise important questions as to the validity and enforcement of emergency arbitrations in India-seated arbitrations. As discussed in this post, none of the previous cases relating to the enforcement of emergency arbitration awards in India had the seat in India. In another positive development, a single judge of the Delhi High Court held that the provision for emergency arbitration under the SIAC Rules is not contrary to any mandatory provisions of the Act. However, an appeal against this decision is pending.

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On 20 February 2021, the King’s Forum on IDR and Triumvir Law organised a virtual fireside chat with Mr. Salman Khurshid (former Indian Minister of Foreign Affairs) and Dr. Aniruddha Rajput (India’s Member of the International Law Commission). The fireside chat was part of the webinar series on ‘Investment Arbitration in India’. During the conversation, Prof. Dr. Holger Hestermeyer navigated the panellists through a series of current issues that have arisen in the Indian investment arbitration landscape. We take this webinar series as an occasion to provide the readers of the Kluwer Arbitration Blog with an overview of the past, the present, and the potential future of investment arbitration in India.

Generally, India is a big player in foreign direct investment. It is among the top 10 investment importing countries and among the top 20 of investment exporting countries. To date, the country has been involved in 25 investment arbitrations as a respondent State (11 of which are still pending). Three decisions, of which two were rendered recently, stand out: White Industries v. India, Vodafone v. India (I) and Cairn v. India. Whereas the former dispute predominantly dealt with issues arising out of India’s allegedly slow judiciary, the latter two arose out of disputed measures as to retrospective taxation.

The past

The first bilateral investment treaty (BIT) India signed was the India-UK BIT in 1994. Yet, India never became a signatory State to the ICSID Convention. Whereas it seems like the predominant reason for this decision was the little exposure of India to investment disputes, in 2000, the Indian Council for Arbitration recommended that India should refrain from becoming a signatory to ICSID. As discussed in this blog, two of the major reasons were the perception of ICSID being pro-developed countries and the lack of option for domestic courts to review investment awards. The author of the blog also argues that the time has come for India to join the ICSID Convention. This, however, remains highly unlikely.

Whereas the first investment disputes arising out of the Dabhol Power Plant project (Maharashtra) were brought against India in 2004, they were ultimately settled (see Bechtel v. India, Standard Chartered Bank v. India, Offshore Power v. India, Erste Bank v. India, Credit Suisse v. India, Credit Lyonnais v. India, BNP Paribas v. India, ANZEF v. India, ABN Amro v. India). It appears that the White Industries award (2011) constitutes the starting point of the government to feel the need for action. The dispute arose of allegations against the efficiency of India’s judiciary. The arbitral tribunal found India in breach of the obligation to provide for an effective means to assert claims and ordered India to pay USD 4 million in damages to White Industries.

In the following years, the cancellation of telecom licences led to several claims under various BITs. In 2014, the government was replaced, and the new government decided to address the investment arbitration regime. The first step was to work on a model BIT, which was published in late 2015 (discussed here). Notwithstanding the relative backlash, the model BIT still allows for recourse to investment arbitration. However, in 2017, the government took its most drastic step to reduce India’s perceived vulnerability by terminating most of India’s existing BITs (58 out of 84).

At the same time, the government abolished an FDI approval process with the Foreign Investment Promotion Board (which has been met with both approval and disapproval) and is now allowing the relevant ministries to approve foreign direct investment in India if necessary.

The present

In September 2018, India signed a new BIT with Belarus and nine months later, in June 2019, another BIT with Kyrgyzstan. Both BITs provide for the possibility of investors having recourse to investment arbitration. The most noteworthy development happened a year later, namely, on 25 January 2020 when India signed a new BIT with Brazil. In the words of this blogpost, the new BIT ‘is noteworthy for its departure from the widely used investor-state arbitration mechanism in favour of state-state arbitration’. The dispute resolution mechanism included in the BIT, therefore, resembles two mechanism included in the very early days of investor-State dispute resolution; that is,  claims commissions combined with diplomatic protection. An earlier piece on this blog discusses the BIT more in depth. Another piece analyses the BIT from the Indian and Brazilian Model BIT perspective.

With regards to present challenges in the Indian investment arbitration landscape, the enforcement issue should not go unexplained. Naturally, the ICSID enforcement regime of Article 53(1) ICSID Convention is not applicable in India. Recently, the Delhi High Court held in two cases (Union of India v Vodafone Group PLC United Kingdom & Anor (2017) and Union of India v Khaitan Holdings (Mauritius) Ltd & Ors (2019)) that whereas India has signed the New York Convention, it issued a ‘commercial reservation’. The High Court stated that investment arbitrations are not commercial in nature and, therefore, cannot be enforced using the New York Convention. The same rationale applies as to whether the Indian Arbitration Act (the Act) is applicable: as an investment arbitration constitutes neither an international commercial arbitration nor a domestic arbitration, the enforcement regime of the Act is inapplicable. This constitutes a major deficiency and a shortfall that must be addressed. On the other hand, this could also be seen as a tactic to discourage foreign investors from bringing treaty claims against India and/or to induce them to settle their disputes with the State (see for example, the Nissan dispute) instead of having to commence a fierce battle for enforcement of a potential award in their favour. This may be a result of India’s experience as a respondent state, culminating in a protectionist and State-centric orientation.

Consequently, the historical development of India’s investment arbitration policy can be roughly divided into five periods:

• First, India showed scepticism (e.g., by not ratifying the ICSID Convention). The regime was of no particular importance to the administration.
• Second, India showed openness (e.g., by concluding BITs).
• Third, as of 2010, India participated in ISDS as it increasingly became a respondent State in investment arbitration disputes. This prompted a rethinking of India’s approach to investment arbitration by the new government.
• Fourth, in 2015, India entered into a protectionist phase (e.g., many BITs were terminated).
• Finally, India is now in a State-centric phase of uncertainty and backlash. At least the uncertainty might soon end, once the administration positions itself in the UNCITRAL WGIII debate.

The future

It is not decided what the future holds for investment arbitration in India. On the one hand, one could see the current status as opposition to the investment arbitration regime as a whole. The Indian government does not appear to move towards ratifying the ICSID Convention. Moreover, its BIT with Brazil excludes investment arbitration in total. Additionally, investment awards cannot be enforced in India, currently. The government even explores the possibility of creating specialist-courts that hear potential investor claims. One may conclude that India’s experiences as a respondent State in investment arbitration has pushed the State into a rather protectionist and State-centric state of mind.

On the other hand, its 2016 Model BIT as well as the BITs with Belarus and Kyrgyzstan do provide for the possibility of investors having recourse to an investment arbitration tribunal. Of course, the decision is not part of a two-sided coin (investment arbitration yes or no). The on-going UNCITRAL WGIII discussions on a systemic reform of the investment arbitration system include further options: adding an appellate mechanism to the current system or establishing a standing body called multilateral investment court. India’s current position is not set in concrete. The government wishes to contribute to all workstreams and to stay involved in the process – a decision will be reached at a later stage depending on the scope of the available options.

While India may have its subjective reasons for opposing international investment law, on the one hand, and investment arbitration, on the other, one should not forget the benefits of both regimes. Since the 90’s, India has emerged as a local superpower. India continuously seeks to attract and promote foreign direct investment (FDI) and Indian investors are nowadays highly active on a global scale. In order to attract FDI, India must also protect the investment and investor when actually in the country. Incidentally, the active Indian investor will be protected on an equal footing in the host State. Perhaps, and hopefully, India will eventually re-enter the period of openness while being a more pro-active actor in shaping the investment arbitration regime. India now has the experiences necessary to lead itself and other countries away from a State-centric and protectionist era and into one that further strengthens the enforcement of a global rule of law.

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