Featured

April 2021 Issue of the Newsletter out now!

Dear Reader,

Greetings from The Centre for Alternative Dispute Resolution (CADR), Rajiv Gandhi National University of Law, Punjab.

We hope that you and your loved ones are safe and healthy.

We are elated to bring to you the Fourth Issue of the Third Volume of the CADR Newsletter.

The Higher Regional Court Frankfurt held that the European Court of Justice’s Achmea decision is applicable to other Intra-EU BITs as well, the European Commission suspended the ratification of the Comprehensive Investment Agreement (CIA) with China, and the Malaysian High Court appliedprinciples on arbitrator bias and an arbitrator’s duty of disclosure as restated by the UK’s Supreme Court in Halliburton. 

The Mediation world has witnessed some noteworthy developments as well. To raise international mediation standards, five international mediation training bodies have reached an understanding and signed an MOU in this regard in Singapore,  Human Relations Commission Mediation Service, which puts a system in place to address issues amongst neighbours has been launched in Ohio, and the UK government has launched a new mediation scheme to help families resolve disputes outside of court, which will be administered by the Family Mediation Council. 
All this, and more, in the Newsletter for the month of April!

It’s been a busy month for us at CADR too, as we continue serving the ADR Community with events and research.  The CADR blog witnessed yet another successful month with write-ups on topics like Emergency Arbitration and the arbitrability of debt recovery disputes. The blog continues to accept submissions on a rolling basis.

Follow this space for details!

The Newsletter initiative began with the observation that there exists a lacuna in the provision of information relating to ADR to the practicing community, and we wanted to provide a solution to the same. In keeping with that, we are glad to have many practitioners and students subscribe to the Newsletter and the Blog after the launch of the first issue.

To subscribe to the CADR Newsletter, you may send us an email at adrc@rgnul.ac.in. Additionally, you may subscribe to the CADR Blog via our homepage and you will receive a notification whenever we launch a volume of the Newsletter.


As always, we await with bated breath for your feedback on our Newsletter. We hope to hear from you soon!
For any other query, please feel free to contact us. For more information about our activities, please follow/like us on Instagram, FacebookTwitterLinkedIn, and our Blog.

Nikita Aggarwal
Aditya Mathur
Executive Editors, CADR Newsletter
Centre for Alternative Dispute Resolution (CADR)
Rajiv Gandhi National University of Law, Punjab.

Featured

March 2021 Issue of the Newsletter out now!

Dear Reader,

Greetings from The Centre for Alternative Dispute Resolution (CADR), Rajiv Gandhi National University of Law, Punjab.

We hope that you and your loved ones are safe and healthy.

We are elated to bring to you the Third Issue of the Third Volume of the CADR Newsletter.

The Supreme Court of India held that disputes are not arbitrable once a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 is filed; it also held (in another case) that a short delay in filing appeals under Section 37 of the Arbitration and Conciliation Act, 1996 can be condoned and the Delhi High Court opined that the current legal framework is sufficient for emergency arbitration and hence no amendments are, as of now, needed in the law.

Additionally, an ICSID claim against Latvia was dismissed over failure to furnish security for costs, the Indonesia – Singapore Bilateral Investment Treaty entered into force after being ratified by both states, and the Niti Aayog is set to launch its Online Dispute Resolution (ODR) booklet.

Follow this space for details!

The Newsletter initiative began with the observation that there exists a lacuna in the provision of information relating to ADR to the practicing community, and we wanted to provide a solution to the same. In keeping with that, we are glad to have many practitioners and students subscribe to the Newsletter and the Blog after the launch of the first issue.

To subscribe to the CADR Newsletter, you may send us an email at adrc@rgnul.ac.in. Additionally, you may subscribe to the CADR Blog via our homepage and you will receive a notification whenever we launch a volume of the Newsletter.
As always, we await with bated breath for your feedback on our Newsletter. We hope to hear from you soon!

For any other query, please feel free to contact us. For more information about our activities, please follow/like us on Instagram, FacebookTwitterLinkedIn, and our Blog.

Regards,

Nikita Aggarwal
Aditya Mathur
Executive Editors, CADR Newsletter
Centre for Alternative Dispute Resolution (CADR)
Rajiv Gandhi National University of Law, Punjab.

Featured

February 2021 Issue of the Newsletter now out!

Dear Reader,

Greetings from The Centre for Alternative Dispute Resolution (CADR), Rajiv Gandhi National University of Law, Punjab.

We hope that you and your loved ones are safe and healthy.

We are elated to bring to you the Second Issue of the Third Volume of the CADR Newsletter.

The month of February has witnessed a great many exciting developments in the ADR universe.

The new IBA Rules on the Taking of Evidence in International Arbitration have been published, an SCC Tribunal dismissed a USD 6 billion Energy Charter Treaty claim against Ukraine. Additionally, the Supreme Court of India has held that the presence of an arbitration clause does not oust the jurisdiction under Article 226 in all cases.

The Mediation world has observed some noteworthy developments as well. The California Court of Appeal in a case expressed its inclination towards making pre-trial mediation mandatory for settlement of Trust Disputes, China’s Supreme People’s Court (SPC) reported a huge rise in the applications submitted to the country’s online Mediation platform.
All this, and more, in the Newsletter for the month of February!

It’s been a busy month for us at CADR too, as we continue serving the ADR Community with events and research. CADR organized The RGNUL Intra Mediation & Client Counselling Competition 2021 virtually from 19th-21st February.

The CADR blog witnessed yet another successful month with write-ups on topics like the recent landmark judgment in Government of India v. Vedanta Ltd. and the “presumption of transparency” in Investment Arbitration. The blog continues to accept submissions on a rolling basis.

Follow this space for details!

The Newsletter initiative began with the observation that there exists a lacuna in the provision of information relating to ADR to the practicing community, and we wanted to provide a solution to the same. In keeping with that, we are glad to have many practitioners and students subscribe to the Newsletter and the Blog after the launch of the first issue.

To subscribe to the CADR Newsletter, you may send us an email at adrc@rgnul.ac.in. Additionally, you may subscribe to the CADR Blog via our homepage and you will receive a notification whenever we launch a volume of the Newsletter.
As always, we await with bated breath for your feedback on our Newsletter. We hope to hear from you soon!

For any other query, please feel free to contact us. For more information about our activities, please follow/like us on Instagram, FacebookTwitterLinkedIn, and our Blog.

Regards,

Regards,

Nikita Aggarwal
Aditya Mathur
Executive Editors, CADR Newsletter
Centre for Alternative Dispute Resolution (CADR)
Rajiv Gandhi National University of Law, Punjab.

Featured

January 2021 Issue of the Newsletter now out!

Dear Reader,

Greetings from The Centre for Alternative Dispute Resolution (CADR), Rajiv Gandhi National University of Law, Punjab.

We hope that you and your loved ones are safe and healthy.

We are elated to bring to you the next Volume of the CADR Newsletter. The First Issue of the Third Volume of the CADR Newsletter is now out.

January has been an eventful month for the ADR world!

The revised International Chamber of Commerce 2021 Arbitration Rules came into force starting 1st January 2021. France’s highest court upheld the enforcement of the annulled Cairo award. Additionally, the apex court of India held that the High Courts must exercise their power to interfere with arbitration procedures under Article 226 and 227 of the Constitution only under exceptional circumstances.

The mediation world has witnessed some significant developments as well. A Social Service Organization, Catholic Charities Hawaii, rolled out a relief program to help tenants avoid eviction by providing payments for unpaid rent and mediation services. A High Court in Ireland urged a family embroiled in a dispute over hotel business to make use of mediation mechanisms for solving the same.

All this, and more, in the Newsletter for the month of January!

It’s been a busy month for us at CADR too, as we continue serving the ADR Community with events and research. The CADR blog witnessed yet another successful month with write-ups on topics like the recent landmark judgment in Enka v. Chubb or the usage of Blockchain technology in international commercial arbitrations. The blog continues to accept submissions on a rolling basis. We are also all set to soon welcome teams from across the country to the 3rd edition of the Sports and Entertainment Law Mediation Competition, 2021!

Follow this space for details!

The Newsletter initiative began with the observation that there exists a lacuna in the provision of information relating to ADR to the practicing community, and we wanted to provide a solution to the same. In keeping with that, we are glad to have many practitioners and students subscribe to the Newsletter and the Blog after the launch of the first issue.

To subscribe to the CADR Newsletter, you may send us an email at adrc@rgnul.ac.in. Additionally, you may subscribe to the CADR Blog via our homepage and you will receive a notification whenever we launch a volume of the Newsletter.

As always, we await with bated breath for your feedback on our Newsletter. We hope to hear from you soon!

For any other query, please feel free to contact us. For more information about our activities, please follow/like us on Instagram, FacebookTwitterLinkedIn, and our Blog.

Regards,

Nikita Aggarwal,
Executive Editor, CADR Newsletter
Centre for Alternative Dispute Resolution (CADR)
Rajiv Gandhi National University of Law
.

Featured

December 2020 Issue of the Newsletter now out!

Dear Reader,

Greetings from Centre for Alternative Dispute Resolution (CADR), Rajiv Gandhi National University of Law, Punjab.

We hope that you and your loved ones continue to remain well and safe. 

The Twelfth Issue of the Second Volume of the CADR Newsletter is now out.

December has witnessed a great many exciting developments in the ADR universe.

The Bankruptcy law in Brazil was amended to provide that a declaration of bankruptcy or judicial reorganization would not suspend arbitral proceedings, a petition for a writ of Certiorari was filed in the US Supreme Court to clarify if parties can seek discovery in the US for use in commercial arbitration proceedings seated outside the United States, and a ban on Russia from competing in major sporting events was upheld by the Court of Arbitration for Sport (while the term for the said ban was reduced from four to two years).

Additionally, the Supreme Court of India held that tenancy disputes under the Transfer of Property Act, 1882 were arbitrable, the Delhi High Court clarified that the provision of an emergency arbitrator under the SIAC Rules, cannot be said to be contrary to the Arbitration and Conciliation Act, 1996 and the Government of India challenged the Vodafone Arbitration Award (passed by the Permanent Court of Arbitration) in a Singapore court. In more bad news for India on the Investment Arbitration front, a three-member tribunal held that the claims of the Indian Government were not valid, and it was liable to pay USD 1.4 billion to Cairn Energy PLC.

Follow this space for details!

Each volume follows a vigorous process of compilation and is vetted twice – including by industry professionals. For more information on how we create the Newsletter, you may check our Note

The Newsletter initiative began with the observation that there exists a lacuna in the provision of information relating to ADR to the practicing community, and we wanted to provide a solution to the same. In keeping with that, we are glad to have many practitioners and students subscribe to the Newsletter and the Blog after the launch of the first issue.

To subscribe to the CADR Newsletter, you may send us an email at adrc@rgnul.ac.in. Additionally, you may subscribe to the CADR Blog via our homepage and you will receive a notification whenever we launch a volume of the Newsletter.

As always, we await with bated breath for your feedback on our Newsletter. We hope to hear from you soon! For any other query, please feel free to contact us. For more information about our activities, please follow/like us on Instagram, FacebookTwitterLinkedIn, and our Blog.

Regards,
Aditya Mathur,
Executive Editor, Newsletter
Centre for Alternative Dispute Resolution.

Featured

November 2020 Issue of the Newsletter now out!

Dear Reader,

Greetings from Centre for Alternative Dispute Resolution (CADR), Rajiv Gandhi National University of Law, Punjab.

We hope that you and your loved ones continue to remain well and safe. 

The Eleventh Issue of the Second Volume of the CADR Newsletter is now out.

It has been yet another eventful month in the world of ADR!

The Parliament of Singapore passed an amendment to its Arbitration Act to bring it in conformity with changes that have arisen in the ADR world, the English High Court granted an extension to Nigeria to challenge a USD 6.6 billion award that was held to be obtained through fraud, and a Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards was entered into by Mainland China and Hong Kong.

Additionally, the President of India promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2020, the Delhi High Court held that a petition under Section 9 of the Arbitration and Conciliation Act cannot be dismissed without giving the parties a reasonable opportunity to present their case and the Central Government asked for more time from the Delhi High Court for a final decision to decide the future course of action qua the Vodafone Judgment against India.

Follow this space for details!

Each volume follows a vigorous process of compilation and is vetted twice – including by industry professionals. For more information on how we create the Newsletter, you may check our Note

The Newsletter initiative began with the observation that there exists a lacuna in the provision of information relating to ADR to the practicing community, and we wanted to provide a solution to the same. In keeping with that, we are glad to have many practitioners and students subscribe to the Newsletter and the Blog after the launch of the first issue.

To subscribe to the CADR Newsletter, you may send us an email at adrc@rgnul.ac.in. Additionally, you may subscribe to the CADR Blog via our homepage and you will receive a notification whenever we launch a volume of the Newsletter.

As always, we await with bated breath for your feedback on our Newsletter. We hope to hear from you soon! For any other query, please feel free to contact us. For more information about our activities, please follow/like us on Instagram, FacebookTwitterLinkedIn, and our Blog.

Regards,
Aditya Mathur,
Executive Editor, Newsletter
Centre for Alternative Dispute Resolution.

Featured

The Arbitrability of Lease Agreements

-Radhika Shukla*

The Arbitration and Conciliation (Amendment) Act, 2019 is another one of India’s step towards developing a pro arbitration regime along with an attempt to promote institutional arbitration in India. However, much before this comes the gap that exists in the domestic arbitration regime with regard to arbitrability of lease disputes and the problems posed by conflicting decision in this matter.

ARBITRABLITY OF LEASES

The determination of arbitrability of disputes was clarified in the case of Booz Allen & Hamilton v. SBI Home Finance Ltd, , wherein the court laid down the types of disputes that may not be covered under arbitration, one of them being “eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes“. This judgement highlights that while the court opened the doors of arbitration to many fields, it attempted to balance and protect the rights of many vulnerable groups, including but not limited to tenants that are given special protection under the law.

It is this approach of the court which was then followed when the matter came up before for discussion in the case of Himangni Enterprises v Kamaljeet Singh Ahulwalia , wherein the court outrightly held that lease disputes are questions of public policy and no arbitration agreement can allow for resolution of such matters. These matters impact third party rights (rights in rem) and since tenants tend to enjoy statutory protection against eviction and other benefits under law, the dispute is beyond the scope of arbitration. The court relied on the case of Natraj Studios Pvt. Ltd. v. Navrang Studios and Anr. , to opine on the matter of public policy involved in arbitration and how a tenancy regulation is meant to further the social welfare approach of the government and must therefore be protected against such abuse.

It was found that tenants cannot be left at the whim of a private forum which is incapable of understanding and resolving the issues faced by tenants. Additionally, the court refused to allow a special statute to incorporate arbitration as a dispute resolution mechanism solely cause it was silent on it.

However, the aforementioned two judge bench case was questioned in the case of Vidya Drolia v. Durga Trading Corporation , wherein the court held that the court in Himagni had misinterpreted the ratio of Booz Allen. Only those tenancy matters which are governed by special statutes stand excluded by the Arbitration Act while all others can be covered under the scheme of arbitration. The court extensively relied on the 246th Law Commission Report and the insertion of Section 11(6A), which expressly stated that judicial intervention in the case of arbitration agreements must be limited to only determining the validity of an arbitration agreement and if the same exists, the matter must be referred to arbitration.[1] It is this approach which still remains the reason behind pro-arbitration amendments and decisions, thereby not just promoting it as a mechanism of dispute resolution but also ensuring that parties that have initially agreed to it do not try to squeeze their way out of the same.

The court elaborated on the aforementioned positions in law and the fact that no specific exclusion of arbitration exists in the Transfer of Property Act, 1882 and that adequate protection is provided under Section 114 and 114A of the Transfer of Property Act, 1882.[2] To sum it up briefly, the court stated that rights under section 114 and 114A  are sufficiently balanced to protect the interests of both the tenant and the landlord, wherein there is a mechanism for prevention of forfeiture, collection of costs of a dispute etc., to ensure they are not protecting tenants at the costs of the lessor and this section provides for remedies which may be provided for by an arbitrator as well. This protection plays an important role as it determines the scope of relief which an arbitrator can award. A statute providing equal protection to the parties in question will not be seen or read as favouring or benefitting one over another. Having explained the two contrary positions of law that exist in the judicial perspective today, we go on to examine the possible implications of the arbitrating lease disputes and why it is not solely a matter of public policy

PUBLIC POLICY

Public policy as a maxim has been elaborated  upon in the case of BCCI v. Cricket Association of Bihar & Ors,, . The court stated that although the phrase has a place in legal parlance, it has not been explained exhaustively on account of its dynamic nature and its need to be ever evolving. The court relied on the case of Murlidhar Agarwal v. State of Uttar Pradesh, wherein it was held that judges are vested with this duty to understand and interpret public policy in accordance with what is for the welfare of the people at that specific point, rather than remaining within the narrow view of precedents. It was held that principles governing public policy are and must remain capable of modification and expansion as new concepts come in and replace old, obnoxious, and oppressive notions of public policy.

Even while considering the meaning of the term public policy under S.34 of the Arbitration Act, the court has relied on giving it a liberal meaning so that resolution of disputes through arbitration is not rendered useless and redundant on account of such rigid notions of policy.[3] These meanings, while for the welfare of the public, must be allowed to vary from time to time to keep up with the times and needs of justice. The court summarized the basic principles of fairness, justice, transparency that must reflect in arbitral process and as long as a judicial enquiry is made into the matter, by ensuring fair opportunity to each side, a liberal view must be taken when arbitration matters are being considered.[4]

The conclusion that can be drawn from the above cited cases and the judicial interpretation given to the phrase public policy states that there is no exhaustive or rigid definition of the phrase and the judges are vested with the power to recognize and apply such principles. Any private arrangement that violate the basic principles of this stands to be struck down. Public policy, as a concept needs to be fluid and as per the present circumstances and must not derive its meaning from archaic concepts and notions of society and dispute resolution.

RIGHT IN PERSONAM

In the case of Booz Allen, the court distinguished between rights in rem and rights in personam. These rights were discussed and elaborated upon in the case of R. Viswanathan v. Rukn-ul-Mulk Syed Abdul Wajid, wherein the court explained that rights in rem implies rights imposed upon all and enforceable against all whereas rights in personam implies a duty against an identifiable person or class of persons.

This distinction plays an important role in arbitration as only when a party is claiming for rights in personam can arbitration be preferred. Arbitration, in essence, is a private forum agreed to by the parties for dispute resolution and this forum cannot be granted jurisdiction to decide on matters that extend to any third parties. Protection of rights in personam is of utmost importance and is one of the primary limitation of any alternate dispute resolution mechanisms. It is imperative for any regime to limit the powers of these mechanisms so that vulnerable parties are not victims on account of abuse or misuse of power.

SPECIFIC FORUM

The question of excluding those matters from arbitration that have designated forums came up in the case of HDFC Bank Ltd. v. Satpal Singh Bakshi,  wherein the court held that merely cause debt recovery tribunals exist for specific matters, it cannot be assumed that arbitration stands excluded. Rather, it is the question and scope of relief which has often been the determining factor for whether arbitration stands excluded or not.

For instance, in the case of Kingfisher Airlines Ltd. v. Prithvi Malhotra Instructor,  the court held that since rights of workmen in an industry stand to be affected, these matters can be subjected only to the tribunal created under the act.

The author acknowledges that the creation of specific forums and the rationale behind the same ought to be respected and utilised, however, for situations wherein parties do not have one specific forum, complete ouster of arbitration must not be blindly pursued. The relief that can be awarded by an arbitrator is limited to the contract and allowing it to extend beyond the two parties would harm the intent of arbitration.

WAY FORWARD

The author suggests that disputes under the Specific Relief Act, 1963 which seal the contractual rights between two parties can be considered as capable for arbitration as they do not stand limited by the reasons mentioned above. However, in case where the rights of a third party stand to be impacted, civil ligation will be the appropriate mechanism. This determination will lie on the court which allows arbitration in case an objection is received and even at the time of enforcement of the awards, in case it is found that the matter was not capable of being arbitrated upon or is against the public policy of the country.

Arbitration in lease disputes will not only aid India’s pro arbitration approach but also lead to quicker resolution of such disputes and clear much of the back log in the civil courts. At the same time, in case any arbitration is made in any matter which is found to be beyond the scope of the tribunal, the court retains its power to prevention enforcement of the award.

Therefore, while it is important for courts to adapt and align themselves to the pro-arbitration approach of India, it is equally essential for them to carefully delineate these issues, whilst the legislature does not comment on it. Misuse of arbitration will not only lead to additional costs for the economy but also set India back in its attempt to become a hub for arbitration.

As has been mentioned above, judicial intervention in such matters must be on limited grounds and they must not readily invalidate agreements. If the initial stage allows for the matter to be referred to arbitration, it must be adopted in matters wherein the dispute and the relief falls squarely between the two parties involved or does not impact any third party.

CONCLUSION

Having studied in detail the manner in which lease arbitrability is dealt with in India, the author believes that the anomaly created by these two judgements must be resolved. Two judgments passed by two benches of similar strengths have added to the confusion of arbitrability of lease disputes, more so at a time when India aims to be an arbitration hub.

The approach and rationale adopted by the both the courts is sound in reason but either they completely closes down the reach of arbitration in the field or opens it up in a way which shall harm certain stakeholders. The court needs to strike  a balance between protection of rights and promotion of arbitration to ensure no stakeholders lose out in the process and no party misuses this option of civil litigation as well, having agreed to the contrary previously.

The Supreme Court is yet to rule on the arbitration of lease disputes, when not governed by specific statutes other than the Specific Relief Act, 1963 and the Transfer of Property Act, 1882 and perhaps that will resolve this conundrum and pave a way to a more pro-arbitration India.


* The Author is a Fifth Year student at National Law University, Jodhpur. She can be reached via email at radhikashukla3012@gmail.com or via LinkedIn.

[1] Law Commission of India, Report No. 246, at pg. 16, available at https://lawcommissionofindia.nic.in/reports/Report246.pdf

[2] Vidya Drolia v. Durga Trading Corporation, AIR 2019 SC 3492, para 12, available at https://main.sci.gov.in/supremecourt/2018/26779/26779_2018_Judgement_28-Feb-2019.pdf

[3]ONGC v. Saw Pipes Ltd., 2003 5 SCC 705, para 92.

[4] ONGC v. Weetsern Geco International Ltd.,2014 9 SCC 263.


Featured

September 2020 Issue of the Newsletter now out!

Dear Reader,

Greetings from Centre for Alternative Dispute Resolution (CADR), Rajiv Gandhi National University of Law, Punjab.

We hope that you and your loved ones continue to remain well and safe. 

The Ninth Issue of the Second Volume of the CADR Newsletter is now out.

As we enter the eighth month since the World Health Organization (WHO) declared SARS-CoV-2 as a global pandemic, we are humbled to note that the ADR community has marched on in its indomitable quest to resolve and adjudicate disputes across the world.

The People’s Republic of China recently published a policy paper allowing foreign arbitral institutions to set up shop in Beijing, the Supreme Court of India settled the law on limitation to enforce foreign awards in India and the High Court of Jammu & Kashmir has decided to set up an international arbitration centre with offices in both Srinagar and Jammu.

Additionally, the Permanent Court of Arbitration (PCA) ruled in favour of Vodafone and against the Indian Government, holding it in violation of the Fair and Equitable Standard (FET) under the Netherlands-India Bilateral Investment Treaty (BIT), the watershed Singapore Convention on Mediation and the Japan-Singapore Convention on Mediation came into force. All this and more in the September Issue of the Newsletter!

Each volume follows a vigorous process of compilation and is vetted twice – including by industry professionals. For more information on how we create the Newsletter, you may check our Note

The Newsletter initiative began with the observation that there exists a lacuna in the provision of information relating to ADR to the practicing community, and we wanted to provide a solution to the same. In keeping with that, we are glad to have many practitioners and students subscribe to the Newsletter and the Blog after the launch of the first issue.

To subscribe to the CADR Newsletter, you may send us an email at adrc@rgnul.ac.in. Additionally, you may subscribe to the CADR Blog via our homepage and you will receive a notification whenever we launch a volume of the Newsletter.

As always, we await with bated breath for your feedback on our Newsletter. We hope to hear from you soon! For any other query, please feel free to contact us. For more information about our activities, please follow/like us on Instagram, FacebookTwitterLinkedIn, and our Blog.

Regards,
Nikita Aggarwal,
Permanent Managing Editor, Newsletter

Centre for Alternative Dispute Resolution.

Featured

Call for Blogs

Greetings, from CADR, RGNUL!

The Editorial Board of the Centre for Alternative Dispute Resolution, RGNUL (CADR-RGNUL) invites blog posts from legal practitioners, academics, research fellows, undergraduate and postgraduate students.

ABOUT THE CADR BLOG

The CADR Blog is aimed towards integrating insights from the professional and the academic world. To that extent, the Blog publishes articles on contemporary issues plaguing and developing in ADR.

CALL FOR ARTICLES

The CADR Blog runs on a rolling basis and accepts articles for submission throughout the year. After an overwhelming response to the inaugural Call for Blogs, CADR is pleased to invite submissions on all topics related to ADR in the form of articles, case comments etc.

General Submission Guidelines:

  1. Co-authorship is limited to a maximum of two authors.
  2. All submissions must be in Times New Roman, font size 12 and Spacing 1.5.
  3. Word limit for all submissions is between 800 – 2500 words. This stipulation is, however, flexible at the Editor’s discretion in exceptional cases.
  4. All submissions should be accompanied with a cover letter specifying the author’s name, designation, institute, contact number and email address for future reference.
  5. All entries should be submitted in .doc or .docx format.
  6. The submissions must be original, unpublished and an outcome of the author’s own efforts. The authors must also include a declaration as to the bona fides of their submission in their email. A sample declaration to that effect can be: “The article is an original work of the author(s). I(We) certify that my(our) submission is original, has not been published elsewhere, and is not under review or consideration elsewhere.”
  7. Authors must acknowledge and give due reference to any source. Plagiarism is strictly prohibited, and articles found to be plagiarized will not be considered for publication.
  8. On submission, authors shall be deemed to have divested the copyright to CADR. However, all moral rights shall vest with the author(s).
    For a detailed elaboration of the manner of content the Editorial Board is looking for, please refer to the CADR Blog Submission Guidelines here.

Citation Format

In keeping with the informal tenor of Blog posts, unlike research articles, we prefer hyperlinks over footnotes and endnotes. Use of footnotes/endnotes should be limited to offline sources only. We request the authors to use “The Bluebook, A Uniform System of Citation” (20th Ed.) for the same.

Submission Deadline

The blogs are invited on a rolling basis. All submissions must be emailed to submissions.cadr@rgnul.ac.in with the subject “Submission for CADR Blog: [Name of Article]”.

Contact Details
For any queries, please contact the Editorial Board at submissions.cadr@rgnul.ac.in or adrc@rgnul.ac.in.

Featured

CADR International Webinar Series on Mediation: A Peek into the Post COVID-19 Scenario

Dear Readers,

Greetings from CADR, RGNUL!

We are pleased to announce the launch of the ‘CADR International Webinar Series on Mediation‘ , whereby we will be hosting sessions involving discussions on the Post COVID-19 scenario for Mediation.

We begin with the first discussion on 1st September 2020 on the topic – “Mediation: International Perspective vis-à-vis COVID-19“, hosted by Ms. Arlene Kiefer
(Member of PRIME DISPUTE, Advocate Prime Dispute, Brazilian Court of Justice).

Thereafter, we will have the second session on ‘Mediation: Indian Perspective vis-à-vis COVID-19‘, hosted by Mr. Veeraraghavan Inbavijayan (Advocate/International Arbitrator and Mediator, Chennai).

On 2nd September, we will have a session on ‘Mediation: The Way Ahead‘, hosted by Ms. Iram Majid (Director, Indian Institute of Arbitration and Mediation, New Delhi) and Ms. Akhila Raj (Accredited Mediator of SCMA, Associate of CiArb, Associate of Asian Institute of Alternative Dispute Resolution, Alliance
University, Bangalore).

For more details and registrations, head here.

In case of any issues, drop us an email at adrc@rgnul.ac.in 

We are ecstatic to host the speakers and look forward to having them with us.

The Webinar series is free to attend subject to completion of Registration.

The Webinar series shall be hosted on Cisco WebEx. The event link shall be sent upon completion of registration.

We look forward to this initiative and to provide you with discourses which are contemporary, relevant, and build capacity.

Warm Regards,

The Centre for Alternative Dispute Resolution Team,

Rajiv Gandhi National University of Law, Punjab

Retrospective Taxation Regime and India-UK BIT: A Glance through the Cairn Case

Gunjan Bahety and Tanmay Joshi*

Introduction

An investor Treaty is an agreement between two or more states to protect investments made by eligible investors. Through Bilateral Investment Treaties (BITs), governments guarantee to safeguard investors’ rights such as the right to be free from expropriation without just compensation, assurance that the government will abide by its contractual commitments and fair and equitable treatment. It provides a procedure for initiating Investor-State Arbitration to seek redress against the host nation if the investor believes that his substantive rights have been infringed. The Investor-State disputes setup has shown exponential growth in the last decade.

Many host countries, which consider this mode of dispute resolution to be pro-investors have raised concerns over the taint of sovereignty attributed to international institutions that bypass the host state’s regulatory powers. In recent times, India has witnessed major setbacks due to obligations under various BITs.. In the Cairn case, India’s stance on the BIT program garnered a lot of criticism as it was held to have infringed the India-UK BIT, 1994. For these reasons, India is keen on achieving a balance between the state’s regulatory powers and the protection of foreign investment.[1]

This article aims to analyze the complications of investor-state dispute resolution vis-a-vis the Cairn case[2] and suggest alternative ways.

Factual Matrix of Cairn Case

In 2006, Cairn UK Holdings Limited (CUHL) transferred some shares of its own subsidiaries (Cairn India Holdings Limited (CIHL)) to Cairn India Limited (CIL), which was associated with the oil and gas industry. In 2015, the Income Tax Department (ITD) issued notice for reassessment under sections 147 and 148 of the Income Tax Act, 1961, to CUHL because during the transaction in 2006, certain taxable income had escaped from assessment. CUHL initiated arbitration against the Indian Government under the India-UK BIT on the grounds that the ITD had violated the guarantees of protection against expropriation and fair and equal treatment. Soon thereafter, a “draft assessment order” was passed to assess a principal tax outstanding on the transaction and impose interest and penalties. CUHL appealed to the Income Tax Appellant Tribunal (ITAT) against the order. Although the order was upheld, the demand for interest, rejected. During the proceedings, CUHL’s shares were seized by ITD, the exercise of the ownership rights over shares was disallowed and some part of the shares was sold. The Tribunal held that India didn’t comply with the obligations under the BIT and directed it to compensate the CUHL for the shares sold.

Relief in Retrospective Taxation Regime and Counter-productivity of Investor-State Arbitration in Energy-Related Disputes

The Supreme Court in the Vodafone case[3]discharged Vodafone from paying any demand by way of capital gain tax and directed a refund of INR 25 billion deposited vide an interim order. Thereafter, through Finance Act, 2012, Section 9(1)(i) of the IT Act, 1961 was amended in which it was clarified that the word “through” would include inter alia- “by means of”, “in accordance” or “by reason of”. It was also clarified that,

“an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India”.[4]

This amendment was applied retrospectively in the Cairn case. The action of the Indian Government was based on this very contention. However, Cairn contended that there was no tax on indirect transfer before the amendment. They also argued that the Amendment of 2012 constituted infringements of the BIT.

The 2012 Amendment was not only criticized for its retroactive application but also its ambiguities. The ill-reputed retrospective implementation of taxation legislation has advanced three investment treaty arbitrations, out of which two have been decided against India.

To draw a balance between the twin pillars of protecting foreign investment and the state’s regulatory powers, the Government reviewed its 2003 model on BIT. As a result, in 2015, a novel draft Model Indian BIT was released which stressed on the state’s regulatory powers. The new Model BIT in India is the outcome of extensive public engagement and review by the Law Commission of India. It resolves a number of semantic and conceptual issues that arose from the 2003 version’s interpretation.

Perplexity lies between the state’s sovereignty over taxation and its commitments under international treaties. It is difficult to determine the precedence of these commitments. However, in matters related to tax disputes, particularly in complicated international energy-related transactions, national laws like taxation, corporate, and others become of quintessence relevance. A thin line may be drawn and the boundaries of international law may be derived if conceived, but it is not going to be a cakewalk. Subjective interpretation of a BIT conflict in determining the sovereignty and international commitments is a hindrance in achieving consensus among the foreign investors and the host states.

Investment Arbitration Tribunal is undoubtedly a productive way to resolve matters, but sometimes it takes a step ahead because generally, the arbitrators do not come from the local community. As a result, it might take efforts from the international arbitrators to understand local issues, laws, customs, economy, culture to arrive at better solutions which are customized to their needs. Generalization of the Unilateral Arbitration Clause in investment arbitration can make people suspicious about the arbitral award. Complexity occurs where an arbitral award is challenged by foreign investors outside the jurisdiction of India.

The Implemented Measures

It is justifiable to think that this mode of dispute resolution can be maligned due to investor bias. Often, leading arbitration cases are an outcome of ‘regulatory chill’, i.e., the state’s reluctance to enact regulatory or public policy reforms as a result of arbitration. BIT provisions constraint the right of a state to regulate. However, through the Model BIT, India has mitigated these concerns.

BIT Model addresses the risk of ‘regulatory chill’ through Article 2.4, which explicitly excludes the disputes arising out of tax-related issues. Under Article 11, the investors need to abide by all the relevant local laws, administrative guidelines and policies. To combat the potential investor bias, it has incorporated changes by abolishing several substantive provisions. It has not eliminated the accountability of a state. Article 3 talks about substantive obligations (in line with customary international law) to be fulfilled by a state. Article 15 talks about the multi-tier dispute resolution procedure wherein an investor has to exhaust all the local remedies, after which a claim is submitted and the parties have to settle the dispute within six months. However, it is silent on the inclusion of the “Most Favored Nation” clause. Moreover, neither has it talked about “Fair and Equitable Treatment”, nor about “Full Protection and Security”.

India is one of the prominent stakeholders in this fast-growing world. It has refrained from signing the International Centre for Settlement of Investment Disputes (ICSID) Convention because it is leaned towards developed countries and India does not have a right to action even if the convention violates its public policy.

Nonetheless, ICSID is the foremost institution that provides for the annulment of an investment arbitral award under Article 52(1). India needs to reconsider joining the ICSID as it has signaled a lack of trust in investor-state arbitration due to the rulings in White Industries v. India[5](the first investment award against India), Vodafone, and Cairn cases.

Active public participation should be encouraged because the possibility of accepting a decision increases with participation. The inclusion of non-disputing parties will enhance the fairness of the decision. Due to the inordinate delay caused by Indian courts, it has taken years for the proper implementation of an arbitral award. It is possible in the Cairn case that India appeals against the arbitral tribunal’s decision. Eminent scholars have suggested ‘Mediation’ as an alternative because it builds the best chances to reconcile the relationship.

In Mediation, the parties are in the driving seat whereas in Arbitration, the Arbitrator exercises control over the outcome of the matter. Sometimes, the Adjudicators fail to consider that the relationship between two parties has to be built in such a manner, that their cultures and traditions are taken care of. In 2016, the Government of India formed a committee under the chairmanship of Justice BN Sri Krishna to expedite the Government’s commitment to make India an international arbitration hub. The Committee recommended moving away from Investment-State to state-state arbitration.The Committee strongly suggested mandatory negotiations, conciliations and ombudspersons, which minimize investor-state disputes and shape the consensual solutions among the parties. The Committee also put specific emphasis on Mediation due to its cost-effective nature. However, these alternatives are far-reached due to the unenforceability of mediation settlements. Although parties can convert mediation settlement into arbitration awards, there is no such record of an arbitral award enforced by a state.[6]

The New Developments

Cairn has threatened the Indian Government that noncompliance with the arbitration award would lead to seizure of its foreign assets. In a letter addressed to the Indian High Commission in London, Cairn reminded that the award is enforceable against India owned assets as it is party to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. In the line with this convention, Cairn has registered its case against India in the courts of the US, the UK, France, Singapore, the Netherlands and Quebec. These actions may “make it easier to seize assets and enforce the arbitration award”.[7] Cairn has also filed a suit in the US District Court to make Air India liable by contending that it is a company owned by the Indian Government and the nominal difference between India and Air India is illusory.  

The official statement of the government said that it is open to resolve this case amicably. The government has also welcomed the meeting between Cairn’s CEO and former finance secretary to try to find a solution. However, dispute is far from resolution as Cairn has initiated a case to seize Indian assets rather than waiting for an alternative.  

On the other hand, Cairn has proposed investing the entire award money in India if the government agrees to enforce the award. The government, on the contrary, is unlikely to accept the proposal, arguing that it would imply accepting the verdict, which it has appealed.

Conclusion

The interface between India’s sovereign rights and limitations by international obligations has raised the state’s skepticism of this mechanism. Cairn case is a bitter awakening of restrictions placed by international commitments on state’s sovereign rights to regulate tax affairs. Nevertheless, it is recommended that India should keep up with investor-state arbitration. Foreign incoming investments can play a significant role in enhancing India’s economy. India has shown an exceptional interest in luring investors by amending BIT landscapes. It is acceptable that Investor-State Arbitration is suffering from a legitimacy crisis, but with the implementation of some sweeping changes, the regime can be improved.


*The authors are fourth-year students at Maharashtra National Law University, Nagpur.

[1] Cairn Energy PLC and Cairn UK Holdings Limited v. The Republic of India (Cairn) PCA Case No. 2016-17

[2] Id.

[3] Vodafone International Holdings B.V. v. UOI Civil Appeal No. 733/2012.

[4] Section 4(a), The Finance Act, 2012.

[5] Supra note 10.

[6] Vodafone Case Civil Appeal No. 733/2012.

[7] Article 1, New York Convention on Recognition and Enforcement of Foreign Arbitral Awards.

Party Autonomy & Public Policy Vis-À-Vis Indian Parties Choosing a Foreign Seat of Arbitration

Mr. Tariq Khan and Nakashvir Singh Aulakh*

Party autonomy is the single most important aspect of arbitration. It is the fact that the parties can choose the mode, medium, and governing law which makes arbitration the most preferred form of dispute resolution mechanism in recent years. The Supreme Court of India, time and again, has upheld party autonomy in arbitration and has even called it to be the backbone of arbitration.

However, there have been various conflicting precedents of Indian courts regarding autonomy of domestic parties in choosing a foreign seat of arbitration. The Bombay High Court in Addhar Mercantile Private Limited v. Shree Jagdamba Agrico Exports Private Limited, (“Addhar Mercantile”) relying upon a Supreme Court judgement of TDM Infrastructure Pvt Ltd v. UE Development India Ltd., held that two Indian parties cannot choose a seat outside India. Additionally, there have been judgements which have not directly dealt with the issue but land very close. One such judgement is KLA Construction Pvt. Ltd. v Kajima India Pvt. Ltd, where the Uttarakhand High court followed that a ‘foreign element’ is an important element for Indian parties to have a foreign seated arbitration. Another similar judgement of Reliance Industries Limited v. Union of India, where the Supreme Court made a decision on challenge to the award involving two Indian Parties and a foreign seat of arbitration on the basis that the award was valid in India. However, in Sasan Power Ltd. v. North American Coal Corpn. (India) (P) Ltd., the Madhya Pradesh High Court held that the domestic parties are free to choose a foreign seat of arbitration. The High Court stressed upon the Supreme Court decision in Atlas Exports Industries v. Kotak & Company, where the court refused to nullify the arbitration agreement merely because the seat of arbitration was in a foreign country. Subsequently, the Delhi High Court delivered a judgement on similar lines in GMR Energy Limited v. Doosan Power Systems India Private Limited.

Different jurisdictions have different approaches in allowing domestic parties to choose a foreign seat. On one side of the stretch, there are countries such as England (Section 1(B) of the English Arbitration Act, 1996) and Singapore[1] which allow domestic parties to choose a seat outside. On the other side, jurisdictions such as China[2] and the United States[3] do not allow domestic parties to choose a foreign seat without having a foreign element to the dispute.

Primarily, countries preventing domestic parties to have a foreign seat of arbitration have three major arguments. First, the countries like the US and China choose a direct supervision of every domestic dispute. Second, jurisdictions argue that it protects weaker parties. Lastly, in order to prevent domestic parties to bypass the local law, as was argued in Addhar Mercantile.

PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited

The Supreme Court, in a recent judgement of PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited, (“PASL Wind”) delivered a significant verdict with regards to party autonomy and foreign arbitral awards. Two Indian companies, PASL Wind Solutions Private Limited (“PASL”) and GE Power Conversion India Private Limited (“GE”), entered into an agreement for the sale of converters. A dispute arose as to breach of warranties relating to the converters and the parties entered into a settlement agreement. The agreement included a dispute resolution clause providing for arbitration in Zurich under ICC Rules, but subject to Indian substantive law. A dispute arose under the settlement agreement and the Tribunal issued an award in GE’s favour.


GE went to Gujarat High Court to enforce the award under Section 47 of the Arbitration and Conciliation Act, 1996 (the “Act”) and, and also for interim relief under Section 9. PASL argued, inter alia, that the award was against public policy of India since it contravened the provisions of Indian Contract Act, 1872. The Gujarat High Court held that two Indian parties are permitted to choose a foreign seat of arbitration, and that the award from such an arbitration may then be enforced in India as a foreign award. However, the Court held that Indian parties settled abroad would not be entitled to interim relief from the Indian courts in support of the arbitration under Section 9 of the Act. The Supreme Court of India upheld the judgement except the High Court’s finding that interim relief would not be available to Indian parties who had chosen a non-Indian seat.

Public Policy and Arbitral Award

Section 34(2)(b)(ii) of the Act states that an arbitral award may be set aside by the Court if the arbitral award is in conflict with the public policy of India. Section 48(2)(b) talks about refusal of enforcement of a foreign arbitral award if it’s in is in conflict with the public policy of India. However, “public policy” is not defined in the act. It is difficult to offer an exact definition of public policy. In one English judgement, a judge commented on the public policy saying, “It is never argued at all but where other points fail.”[4] Across time, it has been described as “untrustworthy guide”, “variable quality”, “uncertain one”, “unruly horse”, etc. Primarily, duty of a Court of Law is to enforce a promise which the parties have made.

Setting Aside Foreign Awards

Part II of the Act deals with enforcement of foreign awards. Chapter I and II deals with enforcement of the New York Convention and the Geneva Convention awards. Section 48 (Chapter I of Part II) provides for setting aside of foreign arbitral awards. The Supreme Court of India, in Vijay Karia v. Prysmian Cavi E. Sistemi Srl and Ors., provided for two pronged clarifications with respect to judicial interference in enforcement of foreign awards. Whereby, firstly, Justice R.F. Nariman, citing the minimal intervention policy of courts in arbitration matters stated, “The Policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award in the extremely narrow grounds of Section 48.” Secondly, it put forward three grounds where court may refuse to enforce a foreign award. These were conditions affecting jurisdiction, party interest and public policy.

Conclusion

The Supreme Court of India, in Renusagar Power Co. Ltd. v. General Electric Co, formulated a threefold test in order for a foreign award to get enforced in India. It said that the enforcement would be denied if the award is against the following – i) the fundamental policy of Indian law, ii) the interests of India, and iii) justice or morality. Another ground of patent illegality for enforcement of a foreign award was added in Oil and Natural Gas Co. v. Saw Pipes by the Supreme Court. However, it was soon refuted in McDermott International Inc v. Burn Standard Co. Ltd, as the court observed that the courts must not delve into facts of the case. It was in line with general spirit of arbitration and other Supreme Court decisions (such as Vidya Drolia v. Durga Trading Corporation, Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. or Vimal Kishor Shah v. Jayesh Dinesh Shah) on role of courts in an arbitration appeal.

The recent PASL wind judgement clears the uncertainty around the party autonomy in choosing a foreign seat of arbitration. The judgment has paved a way for domestic parties to choose a foreign seat of arbitration. The legislature must take note of this and incorporate the same into the Act. It has also affirmed India’s position as an arbitration friendly jurisdiction by not letting the much misused public policy argument in the way of enforcement of a foreign award. Additionally, it will allow a two-tiered appeal to the losing party after the award. The losing party can challenge at the courts in India at the time of enforcement and also before the judicial bodies at the foreign seat. Besides Indian parties looking for a neutral venue, it will also help foreign corporations with Indian entities to settle their dispute close to their principal place of business. Consequently, parties no longer need engineer contracts to incorporate a foreign entity in order for the arbitration to be of international nature against the risk that a foreign award in a domestic arbitration might be pronounced void. The arguments of some jurisdictions for not allowing party autonomy are not in line with the general principles of arbitration. First,  it is absolutely unmerited on part of the courts to force another level of supervision when the parties chose to resolve the dispute privately. Secondly, to assume all domestic dispute involves parties with unequal bargaining powers is unwarranted. Lastly, judgements like Addhar Mercantile undermine the concept of seat. By simply choosing a foreign seat, a party is neither making a choice of the applicable substantive law nor it is trying to bypass domestic laws.


*The article has been authored by Mr. Tariq Khan, Principal Associate at Advani and Co. and Mr. Nakashvir Singh Aulakh, a third-year student at Rajiv Gandhi National University of Law.

[1] Robert Merkin & Johanna Hjalmarsson, Singapore Arbitration Legislation Annotated 2 (2009); Law Reform Committee, Sub-Committee on Review of Arbitration Laws, Report ¶ 16, (1993).

[2] Wei Sun & Melanie Willems, Arbitration in China: A Practitioner’s Guide 101-103 (2015);

[3] Gary B. Born, International Commercial Arbitration 162-163 (2d. ed. 2014); Ensco Offshore Company v. Titan Marine, 370 F. Supp. 2d 594 (S.D. Tex. 2005).

[4] Richardson v. Mellish, [1824] 2 Bing 119, 152 per Burrough J. as cited in A Redfern, M Hunter, N Blackaby & C Partaside, Redfern and Hunter on International Commercial Arbitration 10.85 (2009).

Intricacies of Enforcement of International Arbitral Award concerning Cairn Energy Dispute

Shreya Ahuja and Yasha Goyal*

Abstract

Enforcement of arbitral awards has always been a challenge under the Indian regime. Foreign awards are enforceable under part II of the Arbitration and Conciliation Act, 1996. With progress in arbitration and various amendments, foreign companies are inclined towards investing in India. Although, there have been multiple cases of lacunae in enforcement. One such case is the investment arbitral award, wherein the parties even after getting the award face difficulty in enforcing it. In this article, we discuss the Cairn energy case. The enforcement of the award for this entity is subject to resistance on the ground of technicalities under Indian law and the ground of public policy. The catch is the definition of ‘public policy’ is not restricted and hence it is upon the discretion of Indian courts to determine.

Introduction

India has come a long way and is now recognized as an arbitration pro-nation. However, certain actions of the nation still ensure that India is the last choice when it comes to investment arbitration.  In the recent decision of the Cairn energy arbitration dispute, the British Giant won an arbitral award against India on retrospective taxation imposed by India. The Cairn Energy v. UOI.,[1] dispute is pertaining to the applicability of retrospective taxation. India imposed the tax liability on  Cairn Energy and they challenged the same as a breach of the Bilateral Investment Treaty (“BIT”). The Permanent Court of Arbitration (“PCA”) ruled that the retrospective demand of tax was in contravention of the Bilateral Investment Treaty signed between UK-India containing a provision of ‘Fair & Equitable’ treatment (“FET”).[2] The FET clause is interpreted according to the treaty. However, by the general notion of international law, FET means a state has to respect and protect the property of other nation-states.[3] In this regard, India argued tax avoidance by Cairn violated the legality provisions of municipal laws in India. However, the PCA decided in favor of Cairn stating the International Customary Law prevails over the municipal laws of the host state and routinely under-investment tribunals such trivial acts do not violate legality provisions of host state municipal laws.[4]

In the present case, despite, the award made by the tribunal there still is room for uncertainty in the enforcement of the award in the host state.  

Legislative constraints to enforcement

The challenges to enforcement likely to be faced by this investment arbitral award in India are:

Firstly, India is not a signatory to the International Centre for Settlement of the Investment Disputes (“ICSID”) that offers a confident mechanism of dispute resolution among the signatories for enforcement of an award. India being a non-signatory implies that it does not have the obligation to recognize the BIT arbitral award.

Secondly, to enforce a foreign award under the Arbitration & Conciliation Act, 1996 (“the Act”) the award is not directly deemed a ‘decree’ of court ready to be enforced. It is first scrutinized by the court as per provisions of sections 44 and 48 of the Act. Only after meeting the requirement, a foreign award is considered as a decree liable to be imposed. Under section 44 an award has to be ‘commercial’ and arising out of a reciprocating territory of the Geneva Convention or New York Convention[5].

Thirdly, apart from fulfilling the requirement under section 44A Civil Procedure Code, 1908 (“CPC”) of a ‘foreign judgment’ it has to specify requirements under section 13 of CPC. Such judgment has to be pronounced by ‘court’ and a BIT award fulfills neither of the criteria of ‘award’ and pronouncement by the ‘court’. Further, the BIT award cannot be treated as a ‘foreign award’ under section 44A of the CPC.

 Judicial interpretation on ‘commerciality’ of investment arbitration

Also, the applicability of the Act on the BIT awards is questionable as per the Indian Judiciary. As section 44 of Part II of the Act defines foreign awards, the Delhi High Court in the matter of UOI Vs. Vodafone Plc.,[6] wherein the GOI pleaded for a restrain of investment arbitration. The court observed Investment Arbitration is different from commercial disputes. The commercial disputes arose from the contractual liability while the Investment Arbitration is the issue revolving around the public international law. The BIT is signed between two nations to fulfill their mutual obligations wherein if one of the parties breaches such treaty the other party can invoke BIT clause against it.

Although, the BIT provided an agreement between a private investor and host state yet there is no established ‘commercial’ relationship between the two as per the Delhi High Court.[7]

Hence, the Investment arbitration is not the same as the commercial dispute that is within the scope of the Act.

However, the International position does not accede to the above position. The investment treaty arbitration is treated as “commercial” arbitration under the New York Convention. Article 27.5 of the 2016 Model BIT states that the claim under BIT shall be considered to arise out of a commercial relationship for Article I of the New York Convention.

Scope of ‘public policy’ as a ground of opposition

The Indian position at the arbitral proceedings was that the Cairn Energy transaction was not according to the Indian Municipal Laws. The transactions were structured to be tax-avoidant and in violation of the applicable law and regulation.[8] The above contention will also be raised when the same matter reaches for enforcement before courts in India. As any award against the laws of the country can fall under the ground of public policy under sections 34 and 48 of the Act. In this regard, the Supreme Court in Renusagar Power Electric Company v. General Electric Company.,[9]  laid down the grounds on which the foreign Arbitral award could be refused on the ground of public policy. The said criteria form a part of public policy:

1.   Fundamental Policy of the Indian Law or;

2.   The interests of India or;

3.   Justice or morality

The court observed violation of public policy is not only limited to a contravention of law but it has to be something more than that.[10] In the particular case Foreign Exchange Regulation Act, (“FERA”),1974, was enacted in the national economic interest which was violated. The court also observed that awards passed in disregard to the superior court shall also be construed as a violation of the public policy of India.

Further also in the case of Cruz City 1 Mauritius Holdings v. Unitech Limited.,[11] the court observed violation of fundamental policy shall be such affecting the uncompromising core values of the nation. The policy shall form an understructure to the values and principles governing the nation.

Similarly, in the Cairn energy, there is a violation of the Indian tax laws and therefore it is a matter of national importance as any decision against it would also question the sovereignty of India on the matters of taxation.  Hence, the arbitral award could be a challenge on the grounds of ‘public policy’. Section 48 and section 34 of the Act states that the enforcement of the foreign arbitration can be refused if the enforcement of such an award is contrary to the public policy of India.[12]

A wide interpretation of public policy has been criticized by the international community. The change brought by the 2015 amendment act has narrowed the scope of ‘public policy’. Explanation 2 of section 34(2) restricted courts to interfere with the arbitral awards on the ground of public policy by dwelling into the merits of the case. Further, in Vijay Karia v. Prysmian Cavi E Sistemi SRL and Ors.,[13] it is discussed that mere violation of the Indian law would not render the award unenforceable.[14] The violation shall be such that affects the integral values and principles of Indian laws.

Hence, the ground to challenge the enforcement based on public policy has been narrowed down significantly. This would pave way for Cairn energy to enforce its award in India.

Conclusion

However, one of the major problems that Cairn Energy would face for enforcing the award is the applicability of the Arbitration and Conciliation Act. As only ‘commercial’ arbitration is dealt with by the act. The parties would have to prove that their matter is ‘commercial’ in nature. Further, even after the application of the arbitration and conciliation act the enforcement can be challenged on the grounds of public policy as India in the arbitration proceedings at the first instance had stated that the transactions of the cairn energy are against the Indian Municipal law. Consequently, India has challenged the award in appeal in the Netherlands based on a violation of its sovereignty. Meanwhile, Cairn Energy has registered in 12 other nations where assets of India are located for enforcement of the award in such other nations.

Alternatively, the pro-arbitration approach of the courts in current years might prove to be in favor of Cairn Energy. A swift dispute resolution mechanism and protection of investors is the top priority of investors before entering a host state. At this juncture, a developing nation is in more need of such investments and increases its foreign reserve. Therefore, such intricacies in the enforcement of awards and discretion with the grounds of refusal on public policy are matters which hinder the process of growth. The resistance and hurdles placed by India therefore will one day backfire with lesser opportunities for growth and international relations.


* The authors are fourth-year B.A.LL.B students at Institute of Law, Nirma University.

[1] Cairn Energy PLC and Cairn UK Holdings Limited v. The Republic of India, https://jusmundi.com/en/document/decision/en-cairn-energy-plc-and-cairn-uk-holdings-limited-v-the-republic-of-india-final-award-wednesday-23rd-december-2020 ( last visited, April 2021

[2] Duane Morris LLP,Cairn Energy v India: A lesson in BIT rights and enforcement, Lexology (Feb 11, 2021). https://www.lexology.com/library/detail.aspx?g=5fc468b6-42cc-4ce6-8392-03d44419a063

[3] OECD, Fair and Equitable Treatment Standard in International Investment Law(2004).

[4] Cairn Energy PLC and Cairn UK Holdings Limited v. The Republic of India, https://jusmundi.com/en/document/decision/en-cairn-energy-plc-and-cairn-uk-holdings-limited-v-the-republic-of-india-final-award-wednesday-23rd-december-2020 ( last visited, April 2021).

[5] Arbitration & Conciliation Act,1996 § 47-48 (2020).

[6]Union of India v. Vodafone Group PLC United Kingdom & Anr, C.S. (S) 383 / 2017, High Court of Delhi.

[7] Id.

[8] Supra note, 4.

[9] Renusagar Power Electric Company v. General Electric Company, AIR 1994 SC 860.

[10] Id.

[11] Cruz City Mauritius Holdings vs. Unitech Limited, 2017 239 DLT 649

[12] Arbitration & Conciliation Act,1996 § 34-48 (2020).

[13] Vijay Karia v. Prysmian Cavi E Sistemi Srl, 2020 SCC OnLine SC 177.

[14] Id.

India as an International Commercial Arbitration Hub Vis-À-Vis Its Conflict of Laws System

Kulsoom Farhat Khan and Vinisha Jain*

Abstract

International Commercial Arbitration (“ICA”) as the method of dispute resolution has become a conventional practice over the past few years and due to this growth, the idea of becoming the hub for ICA is garnering traction in developing countries. Bahamas has recently enacted its 2020 Bill that aims making it ‘the seat and venue of choice’ for international commercial arbitration and is said to have cloned Mauritius’s 2013 Act. India is no stranger to this trend and it is also striving to become an ICA hub. However, there are several challenges and problems to this accomplishment and the authors have particularly focused on the potential challenge that imperfection in the conflict of law rules in India might pose.

Introduction

India has passed the Arbitration & Conciliation (Amendment) Act, 2021. The amendment is aimed at fostering ICA in India and attracting ‘eminent’ international arbitrators to India. This is yet another endeavor towards actualizing the vision of making India an appealing destination for foreign companies for ICA. Although the diligence and constant improvement in its direction shall undoubtedly lead to fruition, however it still has a further way to go to reach the popularity of the arbitration institutions of Singapore, Hong-Kong etc. One of the areas that require attention of the law-makers is the position and application of conflict of law rules in arbitration proceedings in India. The private international law principles which are in the form of the conflict of law rules determine the applicable law in disputes involving persons from different countries or involving a foreign element. For instance, in a case that involves a dispute requiring determination of personal laws of the parties involved, the principle of lex domicilii is applied. It refers to the law of the place where such persons are domiciled. There are numerous such principles that need to be applied in ICA cases in certain circumstances. This article analyzes why the controversies and imperfections in the conflict of law rules in India need to be removed to ensure a pull towards India as the ICA hub.

Relevance of Conflict of laws in ICA

The application of conflict of laws rules are particularly relevant in ICA when the parties fail to expressly or impliedly choose the law that they want  their contract or dispute to be governed by. In this regard, Article 28 of the UNCITRAL Model Law provides the tribunal with the discretion to decide upon such conflict rules which it considers applicable. This provision is mirrored in institutional rules and national legislations for arbitration such as Rule 31.1 of Singapore International Arbitration Centre (SIAC) Rules and Section 28(1)(b)(ii) of Indian Arbitration and Conciliation Act, 1996 (“the Act”) allowing the Tribunal to apply the conflict rules it considers appropriate. This approach is in line with the delocalization theory of arbitration which seeks to free arbitration from the parochial clutches of one national legal system. The main attributes of this theory is that the arbitration is detached from the procedural rules of the place of arbitration (lex fori) or any specific national law. Thus, it gives liberty to the arbitrator to apply the system of conflict of laws best suited in a given case giving effect to the intentions of the parties such as the system with fewer restrictions on choosing the proper law of the agreement. The arbitrator is at liberty to either cumulatively apply all the conflict of laws systems connected to the dispute, international conflict of laws system or even decide the applicable law without applying any conflict rules at all. The last method although gives huge liberty to the arbitrator in doing away with the formal rules of conflict of laws but it also opens more scope for arbitrary decisions by the tribunal in absence of application of a concrete accepted rule but only what the arbitrator deems appropriate. Applying the conflict rules hence not only puts a necessary circumscription to what law the arbitral tribunal can apply to the merits of the case, but also provides a legal basis to the proceedings. Thus, application of conflict of law rules is still the most preferred option. Conversely, the localization theory proposes the traditional approach of applying the conflict of laws system of the seat or forum of the arbitration vide the rule of lex fori and discourages the liberal methods such as cumulative application of conflict rules. This approach can as well be adopted by the courts but the modern arbitration promotes denationalization leading to reinforcement of party autonomy and application of laws that give effect to the intention of the parties rather than strictly following the law of the seat.

In cases related to ICA, the conflict of laws principles of lex contractus (law of the main contract), lex nexus (law of closest connection) and lex fori (law of the forum before which the dispute is brought) have been applied by the courts generally to analyze as to which law shall be the applicable law in the given circumstances where no express choice has been made by the parties.

Legal Position in UK and Singapore

The Supreme Court of UK in the recent case of Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb discussed a clear approach towards determining the proper law of arbitration. The country has a well-developed and codified system of Conflict of Laws. The English courts decide the issue of conflict of laws with respect to contracts by applying Rome Regulation I. Since it expressly excludes arbitration agreement from its scope of application, the Court had to take resort to common law principles. It thus found that the proper law would be the same as the law of the main contract if expressly chosen by the parties. In the absence of such choice, the law having the closest connection with the arbitration agreement shall be the proper law of the arbitration. The Court applying the test found the law of the seat to be most closely connected and thus held it to be the proper law of the arbitration.

The Singapore Courts also follow a well-defined approach of doctrine of characterization of the issues for choice of the applicable law purposes. The procedural aspects are governed by lex fori while the substantial issues are further characterized and the connecting factors of such category indicate the law applicable. The conflict of laws system is up to date and yet evolving to meet the best standards of justice. This was reflected by the judgment of BCY v BCZ which applied the closest connection test to determine the governing law of the arbitration agreement and rejected the former approach of equating law of seat as the proper law of arbitration taken up by the court in the judgment of First Link Investments v. GT Payment previously.

India’s Position

Indian Courts do not apply any uniform practice in respect of conflict of law rules. The Private International Law system is underdeveloped in the country as firstly, there is no proper codified law reflecting the conflict of laws rules and secondly, there is no systematic approach which has led to irregular and abrupt decision of courts pertaining to choice of law issue.

Indian Supreme Court in the case of NTPC v. Singer held that law governing the main contract will be construed as the substantive law governing the arbitration agreement. Only if there is no express choice then the test of ‘closest connection’ needs to be applied. Applying the test, the Court found the law of the seat to be the most closely connected and hence the proper law of the arbitration agreement. However, in the case of HSBC PI Holdings Limited v. Avitel Post Studioz Limited, the Bombay High Court adjudged the law of the seat to be the governing law of arbitration even when there was an express choice of proper law of the main contract.

These contradicting approaches only show how there is a lack of a definite and proper approach to determine the conflict of law issue. It is due to the absence of a proper legislation on the Conflict of Laws Rules adopted by India. Although, Section 28(b)(iii) of the Act empowers the Arbitral Tribunal to decide the rules applicable to the substance of the dispute it considers appropriate given the circumstances, but it fails to define the approach for the courts on how to take into account the conflict of laws rules to determine the law applicable to the substance of the dispute. It thus gives more scope of interpretation to courts which has thus lead to contradicting decisions made by the Courts in this regard on the same issue.

Analysis

India has numerous benefits to offer as a seat for ICA, cost efficiency alongwith adequate infrastructure is probably the most appealing factor. However, some of the other contributing factors that are taken into account while choosing the seat are the efficiency of the local arbitrators, the national arbitration laws and strength of surrounding legal jurisprudence. The ‘conflict of law’ rules of a country have a subtle but direct effect on all these three factors in the cases where they need to be applied to determine the substantive or proper law.

India has set up the New Delhi International Arbitration Centre (NDIAC) with the view to make India the ICA hub. This institution has travel quite further to prove its worth in the current global competition. Where countries like Thailand and United Kingdom have codified laws on conflict rules and others like Singapore have defined systematic approaches for resolving conflict of laws issues, India seems to have only a blur idea leading to irregular application in complex cases. Therefore, similar to SIAC Rules, the codified rules of NDIAC must provide for an objective, unambiguous and systematic application of conflict of law rules.

Conclusion

India needs to take efficient steps in developing the conflict of laws rules and consider their codification especially now when it strives to become the hub for International Commercial Arbitration. The panel of arbitrators if decides to apply the conflict of laws rules of the seat of the arbitration in determining the proper law of the arbitration agreement then it would face difficulties in identifying the not so developed jurisprudence of the private international law of India. This infirmity would frustrate the initiative of making India the hub of ICA. Thus, it is crucial to mend and develop the conflict of law rules in India to prevent any challenges that it might pose for the desirability of India as a hub for ICA.


*The authors are fourth-year students at Institute of Law, Nirma University, Ahmedabad.

Binding Non-Signatories to International Commercial Arbitration Agreements: An Arbitrator’s Dilemma

Ashwin Sasikumar and Husain Attar *

Introduction

One of the main goals of International Commercial Arbitration is to provide a measure of certainty with respect to the resolution of international commercial disputes; in terms of the governing laws, procedures, and forum. Yet with arbitration becoming ubiquitous in international commercial practice, difficult legal questions increasingly arise before domestic courts. One for instance is the Group of Companies Doctrine (“The Doctrine”). This Doctrine in particular was developed by a number of International Chamber of Commerce (ICC) Arbitration Tribunals & French Courts. This doctrine states that “when an arbitration agreement is signed by a company member of a group of companies, the same agreement is then also binding upon & entitles other non-signatory members of that group of companies”.

The main problem regarding the Doctrine is in relation to its contractual nature of arbitration. An arbitration agreement is a contract. Whether a company that has not yet consented to the agreement, yet is a party to it, is a question to be determined, though not exclusively, by the proper law of contract. Indian courts have been called upon several times to consider this issue. Since companies are separate individual legal entities, it is  arduous to persuade the court that one or more separate legal entities be treated as a single legal entity under the Doctrine, for the purposes of jurisdiction. This article attempts to analyze the different takes adopted by various Courts, Indian as well as International while dealing with this controversial issue. 

Making a Case for the GOC Doctrine through a Multi-Jurisdictional Analysis

Consent is the bedrock of international arbitration. Given that Arbitration is the route adopted to seek recourse from the lengthy process of courts; the concept rests fundamentally on the consent of both the parties to the agreement in refraining from approaching the court and consenting towards Arbitration.  International treaties and national laws have invariably called for consent as a requisite precondition to arbitration. The New York Convention & The UNCITRAL Model Law on International Commercial Arbitration require a written arbitration agreement for the purpose of recording consent of parties to the agreement, for an arbitral award to be enforceable.

However, on some occasions, an arbitration agreement is extended towards Non-Signatories whenever it’s deemed necessary for that particular party to be a part of the proceedings. It is in this context that the Doctrine comes into picture.

Despite seeing eye to eye on the determination of consent, countries still don’t have a unified stand when it comes to the form of arbitral consent that is deemed valid.

Switzerland

Courts in Switzerland, generally, do not stress upon the condition of consent, propounding the probability of accepting non-signatories into arbitration. The Supreme Court of Switzerland has expressed that a Non-Signatory to an Arbitration Agreement can only be admissible in certain circumstances because it deviates from the principle of “Privity of Contracts” and that such circumstances may arise when the non-signatory expresses by any such conduct of its own, its willingness to be bound by the arbitration agreement by repeatedly participating  in the performance of the agreement. This indicates that the Courts in Switzerland are not completely against the Doctrine as long as it incorporates the common intent of both the parties.

USA

The Courts of the United States, usually tend to adopt a more liberal approach when it comes to the acceptance of non-signatories into arbitration agreements. This is because, according to the public policy of the United States, arbitration agreements are treated as contracts & the US judiciary has long used the equitable estoppel doctrine to enforce contracts. This same doctrine has been used by American Courts to compel arbitration by or against non-signatories under the Federal Arbitration Act (FAA) so often that the doctrine has become known as “arbitral estoppel” in this context.

 

The Need to be Wary while Applying the GOC Doctrine- An International Experience

United Kingdom

The UK Courts have a rather conventional approach towards the Doctrine and have completely rejected its application. One of the reasons which is attributed to the outright rejection of the Doctrine in the English Law is due to the paramount importance given to the doctrine of privity of contract. For instance, the Queen’s Bench division of the High Court of England and Wales in the case of Arsanovia Ltd. & Ors. v. Cruz City 1 Mauritius Holdings, said that “English law requires that an intention to enter into an arbitration clause must be clearly shown and is not readily inferred”. English law does not take the implied consent to arbitrate into consideration or the pre-contractual negotiations/agreements while interpreting the meaning of the written terms of contracts. Thus, there have been no instances where an English Court has agreed to extend an arbitration agreement to a non-signatory on the basis of implied consent, largely due to the fact that it places paramount importance on the doctrine of privity of contract. 

With legislative developments having taken place all over the world which makes it easier to bind non signatories to an arbitration agreement (For e.g., The recent development of Article 11 (bis) of the Spanish Act 60/2003 of 23 December 2003.), a blanket exclusion of the Doctrine by the English Courts is problematic. A balance must be struck between the interpretation of arbitration agreements & misinterpreting consent where there is none.

USA

The United States finds place in both the positive & negative aspects on the application of the Doctrine, due to the absence of uniformity throughout the country when it comes to the application of the Doctrine.

Due to the absence of a clear and uniform federal rule in relation to “arbitration estoppel” some courts like the Ninth and Eleventh Circuits have rejected the application of the said doctrine to international arbitration agreements not because of a principled rationale or public policy, but rather on the basis of a reading of Article II of “The New York Convention” that requires an agreement to be in writing and to be signed by the concerned parties; while The Supreme Court and all the other circuit courts have recognized that domestic arbitration agreements may be invoked by or against non-signatories on the basis of equitable estoppel in certain circumstances, pursuant to cither state or federal law. Thus, the approach of the United States in relation to the Doctrine requires some serious review and uniformity throughout the Country.

The Application & Interpretation of the Group of Companies Doctrine by the Indian Courts

In India, the Doctrine was recognized by the Supreme Court in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. wherein it was found that, companies which were not signatories to an arbitration agreement were only to be held liable in the case of composite transactions. Later, it was exemplified by the apex court in MTNL v. Canara Bank when the proposition was applied to include a non-signatory to an arbitration agreement. No common rule, nonetheless, was provided which would tie all the Non-Signatory group companies to an arbitration agreement. Thus, common ownership and autonomy were not proven to be found adequate to bind non-signatory group companies. Instead, the Apex Court considered certain additional components whose presence would tie non-signatory group companies. Those components are a common intention, negotiation or execution of the contract being referred to by non-signatory group companies.  The Apex Court concluded that any non-signatory group company which stands to gain from the contract should likewise be pledged by the arbitration agreement it contains.

The MTNL and Chloro Controls decisions has strengthened India’s pro-arbitration interpretation and at the same time elucidated the framework to apply the Doctrine to arbitration agreements.

Attempting to Solve the Arbitrator’s Dilemma with Proper Utilisation of the Doctrine.

Despite the constant criticism of the doctrine, it doesn’t easily dismiss the corporate structure and is just applicable in conditions where the evidence unbiasedly focuses on the non-signatories intent to be bound. Similarly, whilst the doctrine is criticized on the point that it can be abused and can be misappropriated, principally, the doctrine cannot be challenged on the point of shunning the intent of the parties, as intention of the party is the criterion of the doctrine. The doctrine demonstrates the “Principle of Implied Consent”.

In essence, the Doctrine merely seeks to determine whether or not the non-signatories, signatories & the parties, meant for the non-signatory to be bound by the agreement based on the actions of the parties. The company which is the non-signatory, belonging to the same group company with the signatory, is just one perspective signifying the presence of an intent. Indian courts in their pronouncements while accepting the doctrine have upheld the Implementation of the Doctrine by quoting the expression “party and any person claiming through or under him” u/s 8, 35 & 45 of “The Arbitration & Conciliation Act, 1996”.

Considering the International Application & Interpretation of the Doctrine, Indian courts while applying the doctrine should avoid the due process risk of non-signatories to the agreements being bound by awards solely on the premise that they are non-signatories who are a part of a same group company, bound by the agreement. Indian Judiciary ought to likewise reconsider the “Test of Intent” and reformulate it in a more rigid way so that the fact of a principal agreement and intertwined auxiliary agreements doesn’t give a premise to bind a non-signatory. The “Test of Intent” ought to rather look more carefully at the reasoning behind the forms of activities & any intent on parties to differentiate the activities and responsibility among group establishments.

Conclusion

Arbitration has become the most preferred mode of dispute resolution in the commercial world. Almost, all the commercial disputes have arbitral clauses envisaged in their agreements and more and more businesses prefer to resolve their disputes through arbitration as it provides party autonomy.  The Doctrine might be a step towards the right direction as it ensures that there are no multiple proceedings taking place. This situation often arises in domestic as well as international arbitrations. The main object of the arbitration is to decide the disputes efficiently and within a quick & efficient time span, this object can be achieved only when the disputes are resolved as far as possible in a single arbitral proceeding. However, it is likewise significant that the Legislature in a revivalist mode doesn’t invalidate the foundation of Arbitration, that is consent, because it is consent which gives the Arbitration process its legitimacy.


* Ashwin is a fourth-year student at Government Law College, Mumbai and Husain is a forth-year student at Maharashtra National Law University, Aurangabad

Emergency Arbitration: A New Phase in the Indian Arbitration Regime

Mehek Wadhwani and Rishi Raj*

INTRODUCTION

The highly debated issue raised in Future Retail Limited v. Amazon.com Investment LLC was put to rest by the Hon’ble Delhi High Court as it upheld the validity of the appointment of Emergency Arbitrator (hereinafter “EAr”). The issue raised due to non-compliance of the Shareholders Agreement, which prohibited Future Retail from selling its assets to the enlisted entities, resulted in invoking the Emergency Arbitration (hereinafter “EA”) clause by Amazon LLC before Singapore International Arbitration Centre (SIAC). The EA comes into the picture when the parties don’t have sufficient time to wait for the formation of an Arbitral tribunal to obtain interim relief. While the concept of EA has not been defined in the Arbitration and Conciliation Act, 1996 (hereinafter “A&C Act”), it is neither expressly deemed to be invalid or contrary to the Act.

LEGAL STATUS OF EA

The parties to the abovementioned suit had chosen the SIAC arbitration rules, making it to be the curial law for their arbitration. Rule 2 of the SIAC defines an Arbitral Tribunal to include EAr. Further, Rule 30 envisages that the parties may seek interim relief from either a tribunal, an emergency arbitrator, or a court of competent jurisdiction, thus keeping the substantive rights of the parties to approach courts for relief under section 9 of the A&C Act available. The issue before the court for consideration was whether the appointment of EAr was contrary to the A&C Act.

The court relied on the observations of the Apex court made in National Thermal Power Corporation v. Singer Co. & Ors. and concluded that since the parties had expressly chosen the SIAC rules as the curial law, the same would be applicable, provided that they are not in conflict with the public policy of India or any mandatory requirement of the act. The court went a step ahead to note that by virtue of Section 2(8) of the A&C Act, the rules of SIAC, including the provision for EA would be applicable as the parties had expressly incorporated the said rules in the arbitration agreement. Accordingly, Section 2(1)(d) of the Act was considered to include EA. Further, the court reiterating the party autonomy being the brooding and guiding spirit in arbitration, opined that the parties to the arbitration agreement were free to agree on different laws governing their proceedings, to avail interim relief from the EAr on the one hand, or from the courts under A&C Act on another hand. 

Further, the court clarified that parties by an agreement could decide the inapplicability of section 9 along with Sec 27, 37(1), and 37(2)(b). The term “even if the place of arbitration is outside India” in proviso section 2(2) was highlighted by the court, indicating that the exemption applies to international commercial arbitrations as well. As a result, the court upheld the validity of EA and the appointment of EAr under SIAC rules, adjudging that it was not contrary to any mandatory provisions of the A&C Act. Since, there was nothing in the act that could invalidate the whole process of EA, the same could not be surmised merely because it did not fall under the definition of ‘Arbitral tribunal’.

VALIDITY OF AWARDS PASSED BY EA

This was not the first time the validity of interim relief granted by EAr was challenged in India. Sec 48 of the A&C Act provides the conditions for enforcement of foreign awards but does not provide a clear path for the enforcement of emergency awards. In the leading case of HSBC v. Avitel, the Bombay High Court was considered to be the torchbearers in cases wherein interim relief was provided by the courts in accordance with the Emergency Arbitrator’s order. The court did not only uphold the award of EA but also granted interim relief. In Raffles Design International Pvt. Ltd. v. Educomp Professional Education Ltd. & Ors., the Court held that section 9 cannot be used by the parties to enforce emergency awards but can only be filed for interim relief. Further, it was held that amendment to section 2(2) had widened the power of courts to grant interim reliefs, and it was clear that Section 9 of the Act is applicable to International Commercial Arbitration held outside India. Thus, the fact that the parliament did not accept the recommendations of the 246th Law Commissions’ report had no bearing in the interpretation of the provision in the A&C Act. By mutual agreement the parties could agree to a remedy such as EAr and the same has been valid under Indian law and the EA order constitutes an interim measure under Section 17(1) of the A&C Act enforceable as an order of the Court under Section 17(2) of the A&C Act.

A NEW PHASE IN THE INDIAN ARBITRATION

While the domestic arbitration institutes contained provisions for EA, the absence of explicit recognition under the A&C Act remained a hurdle in the implementation of this internationally recognized concept in India. The previous arguments invalidating the orders passed by EA are less likely to find favour with the courts post this crucial development. This precedent will serve to defeat the arguments that are based solely on the anvil of the dichotomy between the awards passed ‘arbitral tribunal’ and ‘emergency arbitrator’ under the Act. The new phase in the Indian Arbitration, with recognition of EA and the attached prospect of expeditious resolution of disputes will certainly help the country in its journey of establishing itself as a globally accepted arbitration hub. It is noteworthy that the decision of the court does not call for amendments in the act, opining that the current framework sufficiently accommodates the concept. However, to ensure that this new phase of development is not stalled amidst conflicting judgments it is necessary that the law be amended.

 GLOBAL SCENARIO

Several other international arbitration institutions, besides SIAC, have made accommodations in their rules to provide for the appointment of an EAr, intending to provide interim relief.  While on one hand the SIAC, Stockholm Chamber of Commerce, Swiss Chambers Arbitration Institution, Netherlands Arbitration Institute, Mexico City National Chamber of Commerce, provide for both the expedited formation of the Arbitral tribunal and EA, on the other hand, the institutions including the London Court of International Arbitration, the International Centre for  Dispute Resolution of the American Arbitration Association, Hong Kong International Arbitration Centre, and the International Chamber of Commerce provide solely for EA. The UNCITRAL Model Law also indirectly covers EA under the definition of ‘arbitration’ provided thereunder. 

CONCLUSION 

While formal recognition of EA under the A&C Act by the legislature is recommended, the decision by the Hon’ble Delhi High Court is a positive development that helps strengthen the arbitration set up in India. The desirability of recognizing the legality of EA lies in the fact that it would help accord legal sanctity to the Rules relating to EA and the emergency awards under the international arbitration institutions and this gives momentum to the party autonomy. It would ensure quick relief for the parties to the arbitration seeking interim relief and help decrease judicial intervention. Thus, the act ought to be amended to give statutory recognition to the status of EA in India to ensure certainty in the law.


* The authors are students at Maharashtra National Law University, Aurangabad.

A CASE FOR ARBITRABILITY OF DEBT RECOVERY DISPUTES

Saikishan B Rathore*

Owing to the unprecedented effect of the global pandemic, debt recovery has proven to be a herculean task. The interests of both the parties are at stake in this process. By delaying repayment of loans, the interests of lenders as well as the collection agencies which solely depend on the lenders for recovery assignments are adversely affected. On the other hand, compelling the borrower to repay the loan in addition to the attributed interest at a time where businesses have been drying up, is another challenge. Adding to the woes of the debt recovery process in India, the Supreme Court has rejected arbitrability of debt recovery disputes. The 3-judge bench in the recent Vidya Drolia case ruled that the Debt Recovery Tribunals have exclusive jurisdiction to settle such disputes, thereby interdicting the application of the Arbitration and Conciliation Act, 1996.

In this context, the author attempts to make an argument for the arbitrability of debt recovery disputes by pointing out the fallacies in the Vidya Drolia judgement, in order to not only settle the disputes expeditiously but to also ensure that neither party’s interest is absolutely compromised.

Evolution of the law prior to Vidya Drolia

The Supreme Court in Booz Allen v. SBI Home Finance Ltd. dealt with this issue by holding that disputes that arise out of rights in personam would be amenable to arbitration, whereas disputes arising out of rights in rem would be resolved by Courts and other public fora. In A Ayyasamy v. A Paramasivam, the court further held that once the nature of the rights is determined, the test for determining arbitrability is whether the dispute is covered by any special legislation. It was settled that when there is exclusive jurisdiction conferred on any forum by a statute, and the intent of the Legislature has been to provide distinctive remedies through the special forum, the dispute cannot be subjected to arbitration.

However, the specific question regarding arbitrability of debt recovery disputes came up for the first time before the Delhi High Court in HDFC Bank v. Satpal Singh Bakshi. The Court had to decide whether the proceedings initiated under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (hereafter ‘RDB Act’) excludes the provisions of the Arbitration and Conciliation Act, 1996. The Court answered the question in the negative being of the opinion that notwithstanding the judicial fora established by the State for the administration of justice, the parties are at liberty to choose an alternate redressal mechanism to settle their inter se disputes. Any dispute resolution mechanism, after all, is nothing but the means for determination of lis or resolution of conflicts between parties.

Hence, the Court upheld the autonomy of parties to submit their disputes to arbitration upon a valid arbitration agreement, thereby adopting a progressive position on arbitrability of disputes. However, this victory was short lived as the Supreme Court in Vidya Drolia v. Durga Trading Corporation (hereafter ‘Vidya Drolia’) has overruled the judgement of the Delhi High Court.

Four-Fold test: Progressive intent but regressive application

In Vidya Drolia, the Supreme Court propounded a four-pronged test to determine arbitrability of a dispute. A dispute would be amenable to arbitration when, the dispute relates to actions in personam; the dispute neither affects third party rights nor requires centralized adjudication; the dispute should not involve inalienable sovereign and public interest functions of the State; and the dispute is not expressly or by necessary implication rendered non-arbitrable under mandatory statutes.

Applying this test (the fourth point specifically) to debt recovery disputes, the Supreme Court observed that though the rights in question are in personam, the exclusive jurisdiction vests in the Debt Recovery Tribunal created by a special legislation. Hence, by virtue of necessary implication in the RDB Act, the Court held that there exists an implicit prohibition on arbitration of debt recovery disputes. At this juncture, the author argues that notwithstanding the praise showered on this judgement by the legal fraternity, the application of the four-fold test is incoherent for the following three reasons:

Firstly, there is no explicit legislative intent in the RDB Act to oust jurisdiction of Arbitral Tribunals. The special legislation in this case was enacted with the intent to redirect the cases pending before the Civil Courts, three years prior to the enactment of the Arbitration and Conciliation Act of 1996; thereby, no implicit prohibition of arbitration can be deduced from the statute. Moreover, as suggested by the various reports that led to the legislation in 1993, the debt recovery process was introduced in India primarily to reduce the burden on Civil Courts and provide for an alternative mechanism. Thus, there is potentially no explicit or necessary implication that interdicts arbitration of debt recovery disputes.

Secondly, the RDB Act is not a welfare legislation. The Supreme Court in M/S Emaar MGF Land Limited v. Aftab Singh, denied the arbitrability of consumer disputes because the Consumer Protection Act is a welfare legislation and the rights of the consumer(s) are in rem. However, in RDB Act the rights of the two parties are woven inter se and thus, as per section 8(1) of the Arbitration and Conciliation Act, 1996 upon the existence of a valid arbitration agreement, the parties ought to be allowed to settled the dispute via arbitration.

Thirdly, the Delhi High Court’s view upholding party autonomy is good in law. This argument is supported by the fact that the RDB Act does not confer wide powers on the Debt Recovery Tribunals. The Civil Courts still continue to exercise considerable amount of jurisdiction in ancillary matters of the debt recovery process. Thus, by allowing parties to opt for arbitration the dispute is confined to one forum in contrast to two forums and more importantly, the burden on the Civil Courts is further reduced (which necessitated the setting up of Debt Recovery Tribunals in the first place).

Conclusion

The Supreme Court’s ruling in Vidya Drolia to the extent that arbitrability is ousted merely because of the existence of special forum is a regressive take on the parties’ freedom to opt for alternative dispute resolution mechanisms. It is unequivocally argued that the reasoning of the Supreme Court is flawed as there is no discernible legislative intent behind the RDB Act to prohibit resolution by arbitration. Moreover, the Debt Recovery Tribunals which were established to reduce the burden of Civil Courts, are itself overburdened with cases. By allowing arbitration of such disputes, the burden on both the fora can be effectively reduced. Thus, it is the author’s firm opinion that the Supreme Court ought to reconsider its decision and allow arbitrability of debt recovery disputes for the expeditious disposal of cases as per the parties’ choice.


*The author is a third-year student at Gujarat National Law University, Gandhinagar. He can be reached via his LinkedIn.

Arbitration and Conciliation (Amendment) Act, 2021: Hits and Misses

Ayushi Dubey & Yash Jain*

Excerpt

The recent Amendment in the Arbitration and Conciliation Act, 1996 (“the Act”) aims to reinforce the automatic and unconditional stay on the enforcement of the arbitral award. Additionally, it removes the Eighth Schedule which specified certain qualifications, experience, and accreditation norms for arbitrators. The Amendment is seen both as a progressive and regressive step in the current arbitration regime of India. The omission of the Eighth Schedule promotes party autonomy and will empower Indian parties to choose foreign arbitrators. On the other hand, the automatic and unconditional stay on enforcement of arbitral award invites additional judicial interference and will result in unnecessary delay in their enforcement.

In the article, the authors have tried to critically analyse the recent Arbitration and Conciliation (Amendment) Act, 2021 and its impact on the current arbitration regime of India in light of statutory history and judicial pronouncements. 

Introduction

Over the last decade, the arbitration policy of India has seen a flurry of amendments taking the regime towards the pro-arbitration approach. The most recent one was introduced on March 11, 2021, when the Arbitration and Conciliation (Amendment) Act, 2021 (“2021 Amendment”) acquired presidential assent. It has been deemed to come into force from November 04, 2020, when the President of India promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2020

The 2021 Amendment has introduced primarily two significant changes, firstly, to grant an automatic and unconditional stay on enforcement of arbitral awards, where the underlying arbitration agreement, contract or arbitral award is induced by fraud or corruption. Secondly, to omit the Eighth Schedule of the Act by specifying through regulations, the qualifications, experience, and norms for accreditation of arbitrators. 

Automatic Stay on Appeal

The 2021 Amendment seeks to amend the Act by addition of another proviso to Section 36(3), making it imperative for the courts to grant an unconditional stay on the execution of a domestic arbitral award if the court is prima facie of the opinion that the arbitration agreement or contract or the award itself was affected by fraud or corruption. The Amendment will have a retrospective effect and  shall be deemed effective from October 23, 2015.

Background

A party to an arbitral award can seek to set it aside for the grounds given under Section 34 of the Act. Further, prior to the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment”), an automatic and unconditional stay under Section 36 of the Act was granted when an application under Section 34 of the Act was made. This meant that the enforcement of an arbitral award that is challenged would stay until the application under Section 34 of the Act is decided. This resulted in the delay of enforcement of the arbitral award. 

The delay in enforcement of the arbitral award was not only used as a weapon by the losing party but was also against the sheer objective of the Act i.e. speedier dispute resolution. Thus, the 2015 Amendment made it crystal that an application under Section 34 would not automatically make the award unenforceable. The Amendment clarified that a separate application seeking a stay on the enforcement of the award would have to be filed and if the court is satisfied it may for the reasons to be recorded grant the stay. 

Unclear Stand of Prospective or Retrospective Applicability

The 2015 Amendment, to a certain extent, managed to clear the fog surrounding the position of the automatic and unconditional stay on an arbitral award under Section 36 of the Act. However, the B.N. Srikrishna Committee Report noted that there is an ambiguity concerning the applicability of the Amendment, and opined that the Amendment has prospective applicability. Contrary to the report, the Supreme Court in  Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. (“BCCI”) observed that though the 2015 Amendment is prospective, the applicability of Section 36 of the Act as amended by the 2015 Amendment will be retrospective. Withal, the Arbitration and Conciliation (Amendment) Act, 2019 (“2019 Amendment”) introduced Section 87 which provided that the 2015 Amendment would only apply to arbitral proceedings that  commenced on or after October 23rd, 2015, and not retrospectively. 

The constitutional validity of Section 87 as introduced by the 2019 Amendment was challenged before the Supreme Court in the matter of Hindustan Construction Company v. Union of India, (“HCC”). The Apex court observed that the insertion of Section 87 in the Act will re-establish the view of the automatic stay on arbitral awards under Section 36 upon the filing of an application under Section 34 of the Act and thus rescind the Supreme Court’s view in BCCI and the very object of the 2015 Amendment. Therefore, the court struck down the insertion of Section 87 of the Act by the 2019 Amendment for being arbitrarily discriminatory. 

Current Position

The Supreme Court’s decision in BCCI and HCC had cleared the position regarding the automatic and unconditional stay on arbitral awards and were applicable until the 2021 Amendment again reversed the position by bringing back the automatic and unconditional stay on enforcement of arbitral awards. The Amendment is seen as a step backwards as it will take the pro-arbitration regime of India in the reverse direction. It will bring back the perversity in Section 36 of the Act which was corrected by the 2015 Amendment and judicial decisions after much deliberation.  

Revisiting Fraud and Arbitration

The 2021 Amendment is a progressive development in the interplay between fraud and arbitration as it solidifies the Supreme Court’s stand on the arbitrability of fraud. The courts in India have expanded the concept of arbitrability of fraud in various instances. In the recent case of Vidya Drolia v. Durga Trading Corporation, wherein it was observed that the courts can check the prima facie validity of an agreement while deciding the application under Sections 8 and 11 of the Act. However, there is less discussion on the impact of fraud on the enforcement of arbitral awards. 

Further, the Apex Court in the case of Venture Global Engineering v. Tech Mahindra (“Venture Global”), observed that the whole arbitration process can be declared void ab initio when the allegations of fraud are proved. Nonetheless, the 2021 Amendment will answer the issue that arose after Venture Global i.e. whether it would be right to quash the whole arbitral proceedings when the allegations of fraud are proved, by providing the parties with an opportunity to seek an unconditional stay on the enforcement of arbitral award when the court is prima facie of the view that the award was affected by fraud or corruption. 

Qualification of Arbitrators

The 2021 Amendment is a pivotal step for future arbitrators in the country. The 2021 Amendment has substituted Section 43J of the Act which was added vide the 2019 Amendment. Under the 2019 Amendment, Section 43J provided for the capabilities, experience, and standards for accreditation of arbitrators, as determined in the Eighth Schedule of the 2019 Amendment. The Eighth Schedule laid down an exhaustive list of professional qualifications that an arbitrator must possess. Besides, it also administered general norms that would apply to an arbitrator for accreditation.   

Even though the Eighth Schedule confers an exhaustive list of qualifications, the 2019 Amendment was nonetheless scrutinised unequivocally because of the presentation of such standards as were considered to be extremely prohibitive and contrary to the idea of the arbitration itself, which has consistently been characteristically connected with party autonomy. Additionally, it was noticed that the 2019 Amendment ruled out foreign qualified professionals to be designated in India-situated arbitrations, that would intensely bargain the opportunity of parties to choose arbitrators of their choice. 

Mindful of this scenario, the 2021 Amendment has looked to correct the mischief of the 2019 Amendment, wherein it recognises the qualification guidelines as a matter of strategy and administrative technicalities that cannot be prescribed in the statute itself. Furthermore, time and again, the Supreme court and the High courts have reiterated and upheld the principle of party autonomy. The principle indicates that the parties to an agreement can mould and devise mechanisms for the settlement of disputes and can customize the procedure according to their needs. Notably, the 2021 Amendment promotes the cardinal principle of party autonomy in arbitration proceedings by omitting the Eighth Schedule from the Act. The parties will now have greater flexibility to appoint foreign arbitrators aided by UNCITRAL Model Law provisions, eventually widening the scope of qualification of arbitrators. Thus, it will promote India in becoming a hub of international arbitration and will attract eminent arbitrators in the country. 

Conclusion

Automatic and unconditional stay on enforcement of arbitral award upon the filing of an application under Section 34 of the Act has time and again been seen through scepticism by the judicial authorities. Nonetheless, the 2019 Amendment had settled the situation to an extent. However, the re-establishment of the automatic and unconditional stay by the 2021 Amendment, though in good faith, will result in unnecessary delay in the enforcement of arbitral awards through additional judicial intervention. Thus, the Amendment in Section 36(3) though introduced to serve the interest of the parties would be misused by the losing party.  The automatic and unconditional stay on the enforcement of arbitral award will drag the parties to the courts, resulting in cumbersome litigation which investors usually want to avoid. Thus, the far-reaching effects of automatic and unconditional stay will also engulf foreign investors and will manifest India as an arbitration-unfriendly regime among foreign investors. 

Further, the omission of the Eighth Schedule from the Act is seen as a favourable move that will help in expanding the landscape of arbitration in India. As accreditation of arbitrators will upgrade confidence in the framework, it is fundamental that the standards for accreditation are outlined considering the accepted procedures of arbitral accreditation institutions throughout the world. Moreover, the regulations for qualification of the arbitrators must be framed with a comprehensive approach without being limited to connection with government posts or being restrictive in nature. The Central government must notify the regulations contemplated by the 2021 Amendment as quickly as possible, thereby, giving effect to the 2021 Amendment in its entirety. 

The 2021 Amendment to an extent has both rectified and nullified the changes made through the 2019 Amendment. On one hand, it has moved a step forward by doing away with the Eighth Schedule and on the other hand, it has created a hurdle in the prompt conclusion of arbitral proceedings by re-introducing automatic and unconditional stay under Section 36 of the Act. 


* The authors are Fourth year students of B.A.LLB (Hons.) at Institute of Law, Nirma University, Ahmedabad.  They can be reached via LinkedIn at Ayushi Dubey and Yash Jain.

Unconditional Stay on Arbitral Award- Assessing the Arbitration and Conciliation (Amendment) Act, 2021

Avesh Harshan*

Abstract

In order to make India an arbitration-friendly regime at an international level, there have been many amendments that have been incorporated into the Arbitration and Conciliation Act, 1996(“the Act”) especially over the past few years. The latest being the Arbitration and Conciliation (Amendment) Act, 2021 which has amended Section 36 and Section 43 J of the original act. This article will analyse of pros and cons which will follow the amendment and also throw light on how the amendment will affect the setting aside of the arbitral awards.

Introduction

The much-anticipated Arbitration and Conciliation (Amendment) Act, 2021 (“the 2021 Amendment”) was notified by the Central Government on 11th March 2021. This Act has replaced the Arbitration and Conciliation (Amendment) Ordinance, 2020 (“the Ordinance”) which was promulgated by the President on 4th November 2020. The 2021 Amendment has been deemed to have come in effect from 4th November 2020 itself.

By way of the 2021 Amendment, two major changes have been brought about. Firstly, Section 36 has been amended which provides for an unconditional stay on the enforcement of an arbitral award. Secondly, Section 43 J has been substituted and Schedule 8 has been omitted which deals with the aspect of appointment of Arbitrators.

Analyzing Section 36

Before the Arbitration and Conciliation (Amendment) Act, 2015 (“the 2015 Amendment”), the party challenging the enforcement of arbitral award could avail the benefit of an automatic stay by challenging the said arbitral award under Section 34 of the Act. However, through the 2015 Amendment, Section 36 of the Act was amended which now provided for a conditional stay of the arbitral award by the courts and also ensured that the arbitral award in question was enforceable even though an appeal against it was pending in the court. There was also no ground provided for an unconditional stay of the arbitral award till the appeal pending under Section 34 of the Act was disposed of. In 2019 the Supreme Court overruled this in the case of Hindustan Construction Company v. Union of India. In the present case, the arbitral award which was passed in favour of the petitioner were challenged under Section 34 of the Act. The newly inserted Section 87 provided for an automatic stay on the execution proceedings, the petitioner contended that this would lead to further delay in the enforcement of the arbitral award. While striking down Section 87 of the Act as unconstitutional for being manifestly arbitrary, it was clarified that unless a separate application for stay of arbitral award is filed by the award-debtor, there can be no automatic stay of arbitral award under Section 34 of the Act.

The Ordinance and now the 2021 Amendment has now introduced two grounds through which an unconditional stay can be granted to an arbitral award under Section 36(3) of the Act which is: (i) when the party proves prima facie that the agreement or contract based on which the award has been granted was induced by fraud or corruption; (ii) or the arbitral award so granted was induced by fraud or corruption.

The relief under Section 36 would apply only to those arbitrations which are seated in India and therefore, such arbitral awards would be subjected to provisions under the Code of Civil Procedure,1908(“CPC”). Order VI Rule 4 of CPC provides for the parties to specifically plead and prove in case of a plea of fraud and this position has also been confirmed by the Supreme Court. Even though the provisions of the CPC are not applicable to the arbitration proceedings, the courts on the other hand have taken a different view on the same and held that if there is an instance of fraud in arbitration, it should be pleaded and proved. It is to be noted here that in a Section 34 proceeding, the plea of fraud cannot be taken for the first time. Hence, the nature of Section 34 is not in the form of appeal, and so the court cannot review the appeal on merits in proceedings under Section 36.

In addition to this, the 2021 Amendment has also been given a retrospective effect with respect to the 2015 Amendment. This implies i.e., the 2021 Amendment would be applicable on all the arbitration proceedings and even to those arbitration proceedings which commenced prior to or after the enactment of the 2015 Amendment. The reason behind this being that an extra plea cannot be raised in pending Section 36 applications and such a plea is likely to be rejected. This understanding would help extend the 1996 Act’s aim by enabling the award holder to reap the rewards of the arbitral award.

The most concerning facet of this amendment is that it conjures up the notion of corruption for the purpose of granting an automatic permanent stay on an arbitral award. And if the court later agrees with the arbitral tribunal’s decision, the award will not be implemented until the final judgment is pronounced. And, since the Act does not have a definition of fraud, half of the time spent on arbitration would be spent determining whether the award comes into the scope of fraud or otherwise.

With the above said, introducing the above provision would only add to the ambiguity, and the courts would be swamped with applications seeking to decide the extent of the amendment. This will negate the purpose of the Act, which was to provide as little judicial interference as possible. In the contemporary time when majority of contracts and agreements incorporate an arbitration clause to avoid the hurdles of litigation, this amendment will seek to fail the fundamental aspect of arbitration process, as the delivered award can be subjected to an order of indefinite stay. This would in turn can potentially harm the “Arbitration- Friendly” image of India.

Section 43 J and Schedule 8

The Arbitration and Conciliation (Amendment) Act, 2019 saw the addition of an additional clause J to Section 43 and Schedule 8. Clause J to Section 43 provided for qualifications, experience and norms for accreditation of arbitrators whereas Schedule 8 laid down criteria for qualification and experience of an arbitrator. That move was heavily criticized for two main reasons. Firstly, the government-appointed authority would regulate the arbitrations that would ultimately question the autonomy of the parties. Secondly, the appointment criteria laid down in Schedule 8 would narrow down the scope of the appointment of arbitrators in Indian seated arbitrations. However, the provisions of these provisions would be applicable only in case an application under Section 11 was made.

The 2021 Amendment took note of these criticisms and subsequently Section 43J was substituted and the Schedule 8 was omitted from the Act. With the removal of Schedule 8, it would now open a broad prospect for the appointment of Arbitrators in the Arbitration proceedings. This move would now allow even foreign lawyers to be the arbitrators.

Conclusion

While omitting Schedule 8 and substitution of Section 43J would bring India one-step ahead in its pro-arbitration stance, the amendment to Section 36 may have a negative impact. As a result of the recent changes, courts must also find a balance between dealing with matters of fraud or corruption and still ensuring that no side uses it as a means of delaying the enforcement. If not well implemented, this move could jeopardize India’s efforts to develop its pro-arbitration stance.


* The author is a student at National Law University & Judicial Academy Assam. He can be reached via LinkedIn.

The Scope of Arbitrability of IPR Disputes in India

Kavya Arora and Aryaman Kaushik*

Introduction

Gradually over the years, the Arbitration Act, 1996 has developed substantially, which has resulted in less interference by the courts. It has provided for a friendlier and independent body, which lays down its effective rules and regulations. Because of this, the methods of alternative dispute resolution have gained much popularity in the commercial and the business sectors. Most of the parties associated in these transactions prefer arbitration over the other types of dispute resolution systems as it gives freedom from the lengthy procedure of litigation. Arbitration has picked up pace and especially Institutional Arbitration is now becoming very important for all the sectors that are currently in the growing phase in India when we look in the context of globalization and liberalization. Even though, there have been numerous amendments over time, the act still has a long way to go so as to gain a foothold in India. 

Arbitrability of IPR Disputes

Intellectual Property Disputes are commercial in nature and also have an international ambit attached to it because these rights are often protected over multiple jurisdictions. These rights are given to people for their creations. They can be owned, sold, brought or even bequeathed. These are not exhaustible and tangible. IP owners tend to be inclined towards traditional courts, because the true capabilities of other dispute mechanisms like arbitration and mediation has not been fully utilized. But, the mechanism of arbitration and mediation can be a new way to resolve such disputes. Since, this protection is available for only a period of time, speedy mechanism is the key.

Many legal systems haven’t allowed arbitration for IPR disputes, because of the rights been granted by the sovereign power. The authority which issued these rights, have the power, to adjudicate upon these matters. However, it has been broadly accepted that such disputes can be referred to arbitration and like IPR disputes, other commercial arrangements can also be resolved through arbitration. Alternative mechanisms have been referred to IPR matters by the WIPO as well, by setting up of WIPO Arbitration and Mediation Centre which is  an international non-profit dispute resolution system. It is advantageous because it is neutral, cost efficient, saves time and also enables private parties to settle their IP disputes out of courts, be it domestic or cross-border.

India’s stand on IP disputes is logical but a little complicated, as the confusion arises because of the policy dispute regarding rights in rem and personam. IPR are considered right in rem as the owner has exclusive rights over his property. A right in rem can be exercised against the whole world which is opposed to a right in personam which is exercised against an individual. Different courts over time has disputed upon the fact that whether right in rem are arbitrable or not. But, it has been resolved for the time being that IPR disputes can be resolved through alternative mechanisms and has also rejected the blanket ban of arbitration over the same.

The important factor that enables a party to choose arbitration in IPR disputes is the criticality of time. Factors such as patent terms that are limited and the technology which could become out of date fast should be considered. Because of the time taken by the courts to pass a judgement, the scope of appeal goes against the interest of the parties as it will only prolong the case. Hence, this is where arbitration comes in the picture where it provides these sectors advantages that are particularly valuable for them in the long run. The only main obstacle that arises when you use arbitration to resolve the intellectual property right matters is the subject matter arbitrability.

It’s a known fact that IP Arbitrations are rare because IP disputes in frequent cases do not involve a pre-existing contractual relationship. But, on the other hand, arbitration has a requirement of a contractual agreement to arbitrate. There are some countries that do not allow the arbitral tribunals to adjudicate on the matters of patent invalidity. Thus, the grounds of arbitrability of disputes pertaining to intellectual property are very narrow and should not restrict the parties in any manner for basically planning and conceptualizing in advance for how and intellectual property could be structured successfully and what are the factors that should be taken into consideration for this framework.

Existing Jurisprudence

The Supreme Court in the case of Shreevardhman Rice & Gen Mills v. Amar Singh Chawalwala, held that IPR disputes are mostly fought between the parties over the issue of temporary injunction. It takes a huge amount of time to grant the same, so the court suggested that the provision under Order XVII Rule 1(2) CPC should be strictly adhered to and the decision over temporary injunction must be granted within 4 months.

Expert officers and an understanding in technology are required to preside over the disputes of copyright and patent law. In Bajaj Auto Ltd. v. TVS Motor Company Ltd., it was further held that in the disposal of such cases, the parties have to go through unwarranted delay and a costly litigation which defuses the main purpose of the case. Opting for ADR mechanisms in commercial cases would benefit the parties. ADR might also help in narrowing down the issues for contestability in a litigation process. 

All disputes regarding right to personam could be referred to arbitration while disputes pertaining to right in rem are to be referred to courts and tribunals because in such cases the dispute arise out of special statue or the courts have exclusive jurisdiction. The same was upheld in the case of Booz-Allen & Hamilton Inc. v. SBI Home Finance Ltd. & Ors. However, in A. Ayyasamy v. A. Paramasivam & Ors, the Supreme Court laid down that the mechanism of Arbitration cannot be used in the matters pertaining to IPR. The same was only obiter dictum and no reasoning was put down for the same.

This decision cannot be read as a bar of ADR on IP disputes as right in rem can be distinguished in IPR with the help of legislative clarifications. It enables a case to be referred to arbitration when the IPR dispute involves right in personam. In the case of O.N.G.C v. Saw Pipes, the consideration of public policy was set down while adjudicating over a dispute of IPR as the protection of IP is territorial in nature. The issue faced was that the award would only be binding on the parties and not on any third party.

The Bombay High Court in Eros International Media Limited v. Telemax Links India Pvt Limited, held that where it is specified in the contract between parties that the disputes arising out of such contracts would be referred to ADR, even if, such disputes are regarding IPR, it would be considered right in personam and could be referred to ADR mechanisms because in such cases one party is seeking a relief from the other party and not from the world at large. To conclude the same, the quasi-judicial bodies were made to share the burden and to provide for an expert testimony and the same can be used in the determination of validity of an intellectual property.     

The High Courts of Delhi, and Madras, have held repetitively that as far as rights in personam are concerned the disputes are arbitrable in the matters concerning intellectual properties. The Supreme Court in Vikas Sales Corporation v. Commissioner of Commercial Tax, has held that patents and copyrights are rights in rem. The same was upheld by the SC in Common Cause v. Union of India, that infringement of these are an infringement of rights in rem.

There are certain types of disputes under IPR that are arbitrable like the dispute regarding the rights under a patent licence. However, disputes which involves the question of validity of a patent is not arbitrable and the same has been explained by Mustill and Boyd, while differentiating between rights in personam arising out of rights in rem like the first type of dispute which is arbitrable and rights in rem per se which are not arbitrable like the second type of disputes. There are certain scholars like Marc Blessing, who argue that all the disputes regarding IPR are arbitrable and the limits are imposed as per the public policies in the international affairs, which means that the limits are not expressly providing under law, rather, they are self-imposed.

Challenges

The idea pertaining to arbitrability of IPR disputes is a fairly developing concept which has been changing over time due to the difference in opinion of various High courts as well as the Supreme Court. But, this mode has proved to be effective and advantageous over the years, however, there are some hurdles have been present in the complete interpretation and adaptation of arbitration in the different fields of law.

Some cases may affect the rights of the third party because of oppression and mismanagement and therefore, such disputes are rendered to be non-arbitral by the courts. Another problem is regarding the applicability of foreign laws over the arbitration agreement between two Indian parties. It was held by the Bombay HC, that choosing foreign law to govern the arbitration agreement is against the public policy of the country.

However, the Madhya Pradesh HC held that the same is not against the public policy and can be allowed. The biggest challenge that this field is facing is that, it becomes extremely difficult to get injunctive relief and punitive damages. It is the most challenging part to overcome, as an IP holder requires his case to be resolved speedily.

Also, parties do not generally agree to refer their IP disputes to arbitration because of the issues relating to territorial jurisdictions and rights in rem. Therefore, in order to promote this filed of dispute resolution in commercial cases, there has to be a clearer view of judiciary regarding the subject matter.         

Recommendations

Although, there has been a lot of progress over time in this particular field, the authors believe that the following recommendations can speed up the dispute resolution process in India:

Alterations in essential enactments ought to be made, so that the doubts which are corrupting the minds of the people who wish to settle their disputes through assertion can proceed with the same. What we need is to thoroughly consider the restrictions on arbitrability and to really survey the adequacy of discretion in IP matters. The expanding IP questions, on both public and global level, represent a test to the current lawful structure to adapt to them, and with all its promising outcomes up until this point, intervention can be our response to these difficulties presented to the IP system, are likewise critical. Quick activity here is fundamental to set apparitions of the past to rest.

IPR structures a vital constituent of business exchanges and are contained in the heap of rights in that. To ipso facto announce them non-arbitrable would dilute the motivation behind the Arbitration Act, 1996. Moreover, it would impede the viability of business mediation and negligence party self-governance. In fact, it is critical to keep ‘rights in rem’ past the scope of assertion. Considering the reformist changes of the 1996 Act as of late, this could be accomplished through administrative explanations. For instance, both the United States of America and Switzerland grant the mediation of patent encroachment claims, given that the resulting grant is enrolled with the important patent position or board.

This at the same time shields the corresponding interests of powerful intervention of IPR debates and public interest in ‘rights in rem’. A comparable authoritative arrangement could be copied in India. Further, the ‘arbitrable’ parts of protected innovation could be explained by means of enactment, similar to the case in Hong Kong. The arbitrability of IP disputes has been tested and will keep on being tested until all the nations receive a solid favourable mediation position.

Conclusion

At the point when parties look for components for dispute settlements, they consider their business advantages as essential concern and they wish for the contest settlement to be close to home. They want it to be profoundly adaptable and effective, so that their questions can be settled without discolouring their business relationship.

The Arbitration of Intellectual Property Disputes will fill in as a convenient reference and guide for exploring through the unpredictable labyrinth of protected innovation and discretion.. Considering the speedy disposal of cases due to overburdening of Courts and promise of India to maintain the sacredness of IPR, a solid and more clear favourable to intervention position of India in instances of IP questions may oblige the necessities and desires of the nation. The judgment in Eros case is a welcome advance and has demonstrated a few beams of expectations in a somewhat bleak air. The way towards turning into a worldwide intervention centre point is a long one, yet every long excursion begins with one little advance.


*Kavya Arora and Aryaman Kaushik are students at School of Law, UPES Dehradun.

Can Indian Parties Arbitrate on a Foreign Seat?

Arjun Chakladar and Aman Kumar Yadav*

Excerpt

The Gujarat High Court ruling in the present case, has been hailed as a “pro-arbitration ruling”, by allowing two domestic entities the right to choose a foreign seat of arbitration. Whether or not, two Indian Parties can choose to arbitrate on a foreign seat has been a vexed and often debated position. In this regard, numerous High Courts in India have attempted to address this issue, however, due to an inconsistent approach they have only contributed to the existing conundrum. Due to the uncertainty caused by such judgments, there still remains lack of clarity on the question of law.  

In the article, authors have tried to trace the inconsistency in Indian judiciary on this question of law and analyzed the positive trend of pro arbitration rulings by the Judiciary in recent past.

Introduction

The Gujarat High Court in the landmark case of GE Power Conversion Pvt. Ltd. v. PASL Wind Solutions Pvt. Ltd. held that Indian parties are entitled to choose a seat of arbitration outside India as a foreign or neutral seat and such an agreement is not in violation of public policy of India.

Facts

GE Power Conversion Pvt. Ltd. (‘Petitioner/ GE Power’) filed an arbitration petition against PASL Wind Solutions Pvt. Ltd. (‘Respondent/ PASL’) before the Gujarat High Court (‘GHC’) at Ahmedabad, claiming a sum of INR 25,976,330.00 and USD$ 40,000.00(‘the Sum’) together with interest on these amounts computed in accordance with the Indian Interest Act, 1978 under the Arbitration and Conciliation Act, 1996 (‘the Act’).

The dispute was due to resultant conflicts between the parties surrounding the subject matter of purchase orders. Specifically, certain converters were being supplied by the GE Power to the PASL, wherein several free services were being provided for an extended duration of time. PASL had claimed that the warranty of the converters was continuing, while the GE Powers contested that the warranty had effectively expired and were due compensation for the same. Subsequently, the parties entered into a settlement agreement on December 23, 2014to resolve the dispute.

The clause 6 of their arbitration agreement stated that if parties fail to amicably settle the dispute arising between them in 60 days. Otherwise, it would be referred to the arbitration in Zurich, and governed in accordance with the rules of conciliation and arbitration of the International Chamber of Commerce (‘ICC rules’).The sole arbitrator appointed in accordance with ICC rules, granted GE Power the Sum in a detailed award on April 18, 2019. Thereafter, GE Power approached the GHC for the enforcement of arbitral award, and the payment of the dues by the PASL till date.

Issue

The issue before the single judge bench of the GHC was, whether the award in question was a foreign award, and if so, was it enforceable in India? Furthermore, whether the award satisfied the prerequisite conditions of enforceability, and if the award was in contravention against the public policy in India?

Arguments on Behalf of the GE Power

The GE Power contended(a) That the award in question is conclusively a foreign award which is unaffected neither by the nationality of the parties concerned, nor by the venue of the said arbitration; (b) That “international commercial arbitration” is a misnomer and therefore section 2(2) of the act must be broadly interpreted for the application interim relief; (c) That neither of the concerned parties contested the correctness of the award granted before the Zurich Court, the award has attained finality. Furthermore, all the conditions and regulations enshrined in sections 47 and 48 of the Act have been fulfilled and complied with; the award is final and therefore enforceable by the GHC. 

Argument on Behalf of the PASL

PASL contended that since both the parties have been incorporated in India, the present arbitration could not be classified as an ‘International Commercial Arbitration’ and it is a ‘domestic award’ under Section 44.

PASL also contended the maintainability of the petition brought by GE Power. It argued that since the arbitral award is not a foreign one, hence, the filing of the petition under Section 9 of the Act seeking enforcement under Part II of the Act is not maintainable. Nevertheless, the enforcement is hit by Section 48(2) (b) of the Act as two Indian parties cannot designate a seat outside India and doing so would be against the public policy of India. The same would be violative of Section 23 of the Indian Contract Act, 1872.

Findings of the High Court

The Juridical Seat of the Arbitration is Zurich

The GHC, with reference to the transcripts of the Zurich Award and Clause 6.2 of the arbitration agreement, concluded that the juridical seat of the arbitration is Zurich. The court adjudged that as per the expression of the seat as stated in the arbitration agreement, it is inferred that the intention of both parties was to designate Zurich as the seat of the arbitration. The court relies on the MankastuImpex Private Limited v. Air Visual Limited (‘Mankastu’) to inquire into the intent of the parties for the affirmation of the same. Furthermore, the court is satisfied that arbitral award is a foreign award as it is in accordance with the New York Convention and fulfills the ingredients ordained in Section 44 of the Act.

The foreign award in question is in fact, enforceable in India

The High Court observed that both the parties fulfilled the requirement of Section 47 of the Act and the fact that the High Court possesses the original jurisdiction to decide the current subject matter to realize the fruits of the foreign award rendered. The court relies on the Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc. (‘BALCO’), wherein the conditions of enforceability were laid down and are fulfilled in the present case. Also, the court relies on the Vijay Karia v. Prysmian Cavi E Sistemi Srl (‘Vijay Karia’) with reference to section 48 of the act, to conclude that even if some grounds under Section 48 of the Act are met, it has discretion to enforce the foreign award. Thereby, conclusively declaring the foreign award to be enforceable and in consonance with the fundamental public policy of India.

The application under section 9 in the context of the agreement is not maintainable before this court

The High Court held that with understanding the language of Section 2(2), 9 and 27 of the act, it is understood that section 9 shall interalia apply to International Commercial Arbitration, even if the place of arbitration is outside India. The court held that it cannot read anything into a plain and explicit statute, and therefore rejects the argument of the GE Power with the term of International Commercial Arbitration being a “misnomer”. GHC while ruling the present case as a foreign seated arbitration noted that an interim relief and a wider connotation of the statutory interpretation would be inconsistent. Therefore, concluding that the application under section 9 is not maintainable.

Analysis of the Judgment

This GHC through the pro-arbitration ruling has cleared the contentious dilemma, with regards to the issue of foreign seated arbitration involving Indian parties and enforcement of foreign arbitral awards in India. Furthermore, the judgment fairly reiterates the position settled by the judgment of the Delhi High Court in GMR Energy Limited v. Doosan Power Systems India Private Limited & Ors., that there is no prohibition in two Indian parties opting for a foreign seat of arbitration.

The court through this ruling has reiterated the concept of party autonomy thereby allowing Indian parties to choose a foreign seat and enforcing the foreign award for the same. Also, it reiterated the ratio of the BGS SGS SOMA JV v. NHPC (‘BGS SOMA’) that since there is nothing contrary to indicate otherwise, the seat remains at Zurich as is evident from the arbitration agreement.

The GHC also referred to the Vijay Karia to affirmatively illuminate, that a perverse interpretation of an arbitration agreement cannot be a ground for refusal of enforceability of a foreign arbitral award under the guise of it being violative of public policy of India. This judgment also revisited the conditions laid down by Vijay Karia that (a) it can only interfere in an exceptional case of blatant disregard of Section 48; (b) the court was not permitted to review the merits of the decision under the guise of public policy.

Inconsistency in the judicial trend on the present question of law

Following the Gujarat High court ruling in the present case, the Delhi HC in Dholi Spintex Pvt. Ltd v. Louis Dreyfus Corporation India Pvt. Ltd., decided on November 24, 2020, held that two Indian parties can choose a foreign law as the law governing the arbitration. The Delhi High Court also reiterated the principle of limited interference in international arbitrations by courts. The judgment also expounded on the fact, that an arbitration agreement is an independent agreement with respect to the substantive contract. Furthermore, the judgment included that there exists no such bar against two Indian parties opting for the enforcement of foreign law.

In Sasan Power Limited v North American Coal Corporation India Pvt. Ltd(‘Sasan Power’), the Madhya Pradesh High Court allowed two Indian parties to choose a foreign seat by relying on Atlas Exports Industries v. Kotak & Company(‘Atlas Exports’) in which the Supreme Court had ruled that two Indian parties could contract to have a foreign seated arbitration (it should be noted that the Atlas judgment was decided in context of the erstwhile Arbitration Act, 1940). However, on appeal, the Supreme Court in Sasan Power, examined the facts and found a foreign nexus to the dispute, i.e., the American parent company of the respondent subsidiary was still bound by the obligations and liabilities under the relevant Agreements. Therefore, the dispute involved a foreign party and the parties could choose a foreign seat and foreign governing law.

The Delhi HC in GMR Energy Limited v. Doosan Power Systems India Pvt. Ltd. &Ors., while referring to Sasan Power, ruled that there is no prohibition in two Indian parties opting for a foreign seat of arbitration and such an arrangement would attract Part II of the Act. Furthermore, in Reliance Industries Limited v Union of India, the Supreme Court implicitly acknowledged the autonomy of the Indian parties to agree on a foreign seat when in its judgment the Supreme Court enforced an award where two Indian parties were seated outside India.

However, the Bombay high court in two notable rulings, i.e., Seven Islands Shipping Ltd. v. SahPetroleums Ltd. and Addhar Mercantile Private Limited v Shree JagdambaAgrico Exports Pvt. Ltd., while referring to TDM Infrastructure Private Limited v. UE Development India Pvt. Ltd. (‘TDM Infrastructure’) made contrary observations with regard to the issue in question. In the said two cases, the Bombay High Court disregarded the validity of an arbitration clause where two Indian parties had opted for a foreign place of arbitration.

The authors believe that the Bombay HC’s reliance on TDM Infrastructure case is supposed to be misconceived as the SC in TDM Infrastructure (a) did not make any specific observations on two Indian parties choosing a foreign seat, and (b) added a corrigendum to the judgment making it clear that any observations made in the judgment was only for the purpose determining the jurisdiction of the court under Section 11 of the Act, and not for any other purpose.

Conclusion

What lies ahead for the parties is interesting to watch as it can be appealed before the division bench of the GHC and/or the Supreme Court. There was consistency in terms of enforcement of foreign arbitral award by the apex court, be it, in Vijay Karia or Shri Lal Mahal Ltd. v. Progetto Grano Spa.  However, the Hon’ble Supreme court deviated from the Vijay Karia in National Agricultural Cooperative Marketing Federation of India Ltd. v. Alimenta S.A.(NAFED) and went on to conduct a review of the case on merits.

The authors believe that the apex court in NAFED adopted a rather expansive interpretation of the public policy to hold that, “export without permission would have violated the law, thus, enforcement of such award would be violative of the public policy of India”. NAFED should be seen as an exception in the trend of enforcement of foreign award by Indian courts as there have been a couple of notable rulings by the courts post NAFED that reaffirmed the pro arbitration approach by the judiciary. These include, a Bombay High court ruling in Banyan Tree Growth Capital LLC v. Axiom Cordages Ltd. wherein it permitted the enforcement of a SIAC award, and Supreme Court’s ruling in Centrotrade Minerals & Metals Inc. v Hindustan Copper Ltd., when it reiterated the Vijay Karia, and enforced the foreign award. The latest trend of judgments with regard to the enforcement of foreign awards provides an optimistic return of path of minimal judicial intervention in the enforcement of foreign awards by the Indian courts. The existing jurisprudence on the present question of law consists mainly of High Court judgments which in itself are inconsistent, thereby adding to the persisting dilemma. The decisions rendered by the various High Courts merely possess persuasive value, and only with the intervention of the Supreme Court can a uniform rule of law be enforced and subsequently adopted.  


*Arjun Chakladar and Aman Kumar Yadav are students at National Law Institute University, Bhopal.

The Limitation for Enforcement of Foreign Awards Conundrum – Analysis of Vedanta Judgement

Charvi Krishna*

Introduction

The Indian Judiciary has always been in a dilemma on the issue of deciding a limitation period for enforcing a foreign arbitral award in India. Various high courts have given varying judgements, which has only furthered the problem of enforcement. The Arbitration and Conciliation Act, 1996 (Hereinafter, ‘Arbitration Act’) is silent on the limitation period for enforcing a foreign award. This allows for the application of provisions laid down in the Limitation Act, 1963 (Hereinafter, ‘Limitation Act’). Though the high courts fluctuated between articles 136 and 137 of the Limitation Act, the Supreme Court has finally answered this question on 16th September 2020 in Government of India v. Vedanta Ltd. (Hereinafter, ‘Vedanta Judgement’). The author aims to understand the reasoning given by the Supreme Court in the present case and its implications in the field of arbitration. 

Background

In the instant case, the arbitral award was passed on 18.01.2011, after which the cost account statements were revised and the Respondents paid US $ 22 million to the Government of India. Further, on 10.07.2014, a show-cause notice was issued to the Respondents by the Government, raising demand of US $ 77 million, which was the Government’s share of profit under their ‘Production Sharing Contract’. Hence, the cause of action for filing the enforcement petition under section 47 (Evidence) and 49 (Enforcement of Foreign Awards) of the Arbitration Act arose on 10.07.2014. The petition was then filed on 14.10.2014. This was challenged by the Appellants by contending that the limitation period for enforcement had lapsed.

Primarily, two articles of the Limitation Act were taken into consideration, i.e., Article 136 and Article 137. The former lays down the period of limitation as 12 years for the execution of any decree or order of any civil court. Whereas the latter establishes the limitation period as 3 years for any application from ‘when the right to apply accrues’ for which no period of limitation is provided. Thus, it was the duty of the Supreme Court to decide between the two.

Precedents set by High Courts  

A single-judge bench of the Bombay High Court in Noy Vallesina Engineering Spa v. Jindal Drugs Ltd. held that the enforcement process should be carried out in two phases. Firstly, Article 137 would be applicable for deciding the enforceability of the foreign award. Secondly, after determination of enforceability, the award is deemed to be a decree and will hence be governed by Article 136. The Madras High Court, on the other hand, in Bharat Refineries Ltd. v. M/s. Compania Naviera ‘SODNOC’ held that an award is already stamped as a decree. Hence, Article 136 would be applicable. This was also reiterated by the Bombay High Court in Imax Corporation v. E-City Entertainment by taking into consideration the Supreme Court’s judgement in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. of a foreign award being stamped as a decree.

In the impugned judgement of Cairn India Ltd. v. Union of India, the Delhi High Court stated that there exist three stages for the execution of an award, namely, access, recognition, and enforcement. Since Section 47 of the Arbitration Act deals with the first two stages, the award is deemed as a ‘foreign decree’. Due to this Article 136 would be applicable. Even if Article 137 was applicable, it will be viewed as sufficient grounds for condonation of delay under Section 5 of the Limitation Act.  

Vedanta Verdict

The Supreme Court strayed away from the judgements of various high courts and gave the following verdict –

  • Since the issue of limitation is procedural in nature, it will be subjected to lex fori (law of the State), where the foreign award is sought to be enforced. Further, Section 43 of the Arbitration Act allows the Limitation Act to be applicable in all arbitration cases.
  • The period of limitation for filing a petition for enforcement of a foreign award under Sections 47 and 49 of the Arbitration Act will be governed by Article 137 of the Limitation Act. This implies that the limitation period will be for a period of three years from when the right to apply accrues.
  • Article 136 will not be applicable since foreign awards are not decrees of an Indian civil court. Hence, enforcement of a foreign award as a deemed decree of the concerned High Court will be covered by the residuary provision of the Limitation Act, i.e. Article 137.
  • Moreover, Section 5 of the Limitation Act will also be applicable for condonation of delay in case the court is satisfied that there lies sufficient grounds for delay of enforcement of a foreign award.
  • Only after a foreign award satisfies the conditions laid down in Sections 47 and 48 of the Arbitration Act, it is deemed as a decree under Section 49. The court will then execute the award based on Indian laws available for execution of decrees.

Analysis

The Vedanta judgement has certainly resolved various ambiguities that existed about the limitation period for enforcement of foreign awards. It has been established that Article 137 of the Limitation Act will be applicable for enforcement. Therefore, the verdict given by the Supreme Court depicts the following implications –

  1. Upholds the Pro-Enforcement Bias of the New York Convention

Article V of the New York Convention, 1958 lays down conditions for refusal of recognition and enforcement of arbitral awards. However, there exists a pro-enforcement bias with respect to this Article. The same has been reflected under Section 48 of the Arbitration Act. Moreover, the Supreme Court in various judgements including Fuerst Day Lawson, Kandla Export Corporation, among others have upheld the pro-enforcement bias under Section 48. Similarly, the Vedanta judgement has maintained this stance on the enforcement of foreign awards.

The Supreme Court, in the instant case, has decided 3 years to be the limitation period for filing a petition for the enforcement. This implies that a foreign award should be enforced at the earliest opportunity once it satisfies the conditions laid down in Sections 47 and 48. It is highly probable that the losing party would want to object to enforcement by stating limitation. To avoid a situation that would unnecessarily delay enforcement of an award, Article 137 was accepted as the period for limitation. In fact, the court has also stated that the grounds of refusal should be interpreted narrowly to uphold the pro-enforcement stance of the New York Convention. Thus, there will be prompt disposal of enforcement petitions without raising the objection of limitation

2. No scope for unfairness in enforcement

The enforcement petitions have certainly been filed by taking into consideration Article 136 of the Limitation Act. Since the Vedanta judgement has established Article 137 as the valid provision, any enforcement petition filed after 3 years will lapse. However, the Supreme Court has considered this by allowing the party condonation of delay under Section 5 of the Limitation Act. Further, the bar contained under Section 5 which excludes any application filed under the provisions of Order XXI of the Code of Civil Procedure, 1908, will not apply to any substantive petition filed under the Arbitration Act. Though this will be subjective in nature, varying on the facts and circumstances of the case, nonetheless, it has certainly bridged the gap between any form of unfairness that might arise while enforcing the award.

3. ‘When the Right to Apply Accrues’

Though the Supreme Court has answered the question of the limitation period for enforcement of foreign awards, there exists an uncertainty regarding when exactly the right to apply accrues under Article 137. One could assume that the right to apply accrues on the date of the award. However, it may differ on the basis of facts and circumstances of various cases. The duty would thus lie upon the courts to decide the accurate time to apply for enforcement.

Conclusion

The Supreme Court in its Vedanta judgement has cleared several obscurities pertaining to the limitation period for enforcement of foreign awards. There now exists uniformity in the Judiciary with respect to the applicable provision from the Limitation Act. The apex court has accurately analyzed the issue by allowing 3 years to be the limitation period. Further, upholding the pro-enforcement bias of the New York Convention through the Limitation Act has primarily led to the development of arbitration in India. Had Article 136 been applicable it would have taken an immense amount of time to first, establish the award as a decree, and then enforce it in Indian courts. Arbitration finds relevance from its nature of disposing cases expeditiously. Allowing 12 years to be the limitation period under Article 136 would defeat the purpose of the arbitration.

Hence, Article 137 is better suited to the limitation period for the enforcement of foreign awards. The basic principles of arbitration must be maintained. The foreign award would be rendered ineffective if it is not allowed to be enforced. This would also result in loss of money and time spent in the arbitration process. Establishing Article 137 as the valid provision not only clears all confusion but also upholds the standard and basic premise of arbitration. Since the Arbitration Act in itself is a self-contained code, the Legislature need not add an additional provision for limitation. However, at the same time, there lies a need for the Supreme Court to elaborate on when the right to apply accrues.


*The author is a third-year student at Symbiosis Law School Pune.

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