India’s arbitral dreams – the push inwards.

Payal Chawla

This article was first published the International Bar Association Newsletter on 01.10.2018

Delays within the Indian legal system are not unknown, so in order to address the issue of a more efficacious resolution of commercial disputes, the Indian government amended the Arbitration and Conciliation Act, 1996 (the ‘Indian Arbitration Act’) on 1 January 2016, with retrospective effect from 23 October 2015 (the ‘2015 Amendments’). The 2015 Amendments were made with a view to making arbitration a preferred mode of dispute resolution, and also making India the next arbitral destination. Since the 2015 Amendments came into effect, India has taken leaping strides towards its arbitral dreams with a sense of urgency.

Salient features of the 2015 Amendments

Among the modifications made by the 2015 Amendments, from an international commercial arbitration perspective, the most notable is the restrictive definition of ‘public policy’. Post-amendments, an Indian-seated international commercial arbitral award can only be set aside, or a foreign-seated award not enforced in India, if the same is found to be against the ‘fundamental policy of Indian law’ or against ‘justice or morality’. In a recent judgment,[1] the Supreme Court affirmed the above, and clarified that the ground of ‘“justice or morality” has been tightened and is now to be understood as meaning only basic notions of justice and morality ie, such notions as would shock the conscience of the court’.[2]

Arbitrations are now mandatorily required to be concluded in a time-bound manner. Awards are required to be delivered within 12 months, and may be extended by another six months by consent of parties.[3] Further extensions have to be sought from court. However, there have been concerns voiced by the international community that this binding of time tends to interfere with the quality of the arbitration. The government is cognisant of these concerns, and has proposed certain further amendments by way of the Arbitration and Conciliation (Amendment) Bill, 2018 (the ‘Proposed 2018 Amendments’). One of the amendments proposed is that the time limitation shall not apply to international commercial arbitration. It will be limited to domestic arbitration, only after the completion of pleadings.[4]

Parties can by consent also agree to a fast-track procedure[5] whereby parties can rely on written pleadings/documents and written submission with oral hearings limited only to seek clarification. Under the fast-track procedure, the arbitral award is required to be made within six months from the date of reference.

Notable supreme court cases in support of arbitration

In addition to the 2015 Amendments, the judiciary is doing its part – striking a delicate balance in exercising judicial restraint in the interference of arbitral awards and, at the same time, passing judgments that will have a long-term effect in enhancing arbitration.

In a dispute that sent shockwaves through the Indian business community, Daiichi Sankyo won an award against the owners of Ranbaxy Laboratories from a Singapore seated arbitral tribunal of US$500m. In enforcement proceedings, the Delhi High Court held that the award was enforceable for the most part (except against minors). In the exercise of judicial restraint, the Supreme Court, in a curt one-line order, also declined to interfere.

In 2016, a three-judge bench[6] upheld the validity of a two-tier arbitration clause, thus opening the path for parties to have multiple attempts at arbitration. Whether or not two-tier arbitrations are in the interest of parties remains questionable, but there can be no doubt that the judgment is progressive and speaks directly to party autonomy.

In 2012, in the landmark judgement of BALCO v Kaiser Aluminium Technical Services Inc,[7] the Constitution Bench held that the seat was determinative of whether India would have supervisory jurisdiction on an arbitration award and if such seat was outside India, India would have no jurisdiction. The decision in BALCO was well-received by the international community. However, the issue of domestic jurisdiction remained a point of contention. Under the Code of Civil Procedure 1908, the supervisory jurisdiction of court can be exercised by any court that traditionally has jurisdiction – that is, where the defendant resides or the cause of action arises. Traditionally therefore, a ‘seat’ could not be designated where either of the parties did not reside or some part of the cause of action did not arise. Further, a seat could not be designated at a place that did not have jurisdiction. This is the ‘classical’ manner of determining jurisdiction, but has led to several disputes at the threshold stage, with parties disputing on which court would have jurisdiction.

In a recent and rather unconventional judgment,[8] taking the cue from BALCO and the doctrine of ouster, the Supreme Court held that even in domestic arbitration and Indian-seated international commercial arbitration, the seat would be the only deciding factor for the supervisory jurisdictions of courts, even if such court did not have jurisdiction in the ‘classical sense’.[9] Therefore, it is now possible to designate a neutral seat within India in a place where neither party resides,nor has any part of the cause of action arisen. The Court went so far as to state that the provisions with regard to jurisdiction of the Code of Civil Procedure would have no application when seat has been designated – a principle that has been at the receiving end of criticism from legal scholars. But it is generally recognised that, legally right or wrong, the judgment will go a long way in the reduction of disputes on the aspect of jurisdiction in arbitration matters.

On a somewhat related issue, it is still unclear which factor – ie, lex arbitri, lex fori (curial law) or lex contractus – is the determinative factor in determining jurisdiction when seat is not categorically designated. In the past, some courts in India have relied on Naviera Amazonica Peruana SA v Compania Internacional De Seguros Del Peru;[10] courts have also applied the ‘closest and intimate connection’ test – these positions are at odds with one another. The Supreme Court,[11] rightly recognising the contrary positions in ‘several decisions by the Benches of variable strength’[12] proceeded to refer the matter to a larger bench for consideration.

Earlier this year, the Supreme Court[13] laid to rest a much-vexed issue relating to enforcement of arbitral awards, holding that a proceeding for enforcement of an award can be filed anywhere in the country where such a decree is executable, without the requirement for first obtaining a transfer of the decree from the court having jurisdiction over the arbitral proceedings. This judgment has been well-received and will lead to more efficacious enforcement of awards. More recently, the judgment was affirmed by a three-judge bench of the Supreme Court in the matter of Cheran Properties Limited v Kasturi and Sons Limited[14] (‘Cheran Properties’). It even extended the same principle to tribunals – that is, the National Companies Law Tribunal (in the peculiar facts and circumstances of the case).

The concept of inclusion of non-signatories to an arbitration has already been enunciated by a three-judge bench in the matter of Chloro Controls India Pvt Ltd v Severn Trent Water Purification Inc in 2013.[15] The expression ‘person claiming under them’ was given legislative recognition to mean persons whose capacity or position is derived from and is the same as a party to the arbitration proceeding. This principle is popularly known as the Chloro Control doctrine. The court in the Cheran Properties matter[16] also widened the Chloro Control doctrine to a post-award situation and held that the award would be final and binding, not only on ‘parties’ to the arbitration agreement, but also on ‘person claiming under them’, in view of the presence of these words in Section 35 of the Indian Arbitration Act.[17] This decision will result in the reduction of facetious pleas that awards cannot be enforced against non-signatory group companies.

Another positive development of the 2015 Amendments has been that arbitral tribunals now have enhanced powers in regard to granting interim reliefs. In fact, the arbitral tribunal has the same powers as a court in this regard. The Supreme Court[18] has recently also observed that interim orders of the arbitral tribunal are deemed to be orders of a court for all purposes, and are enforceable as if they are orders of a court, and that a party violating the order of an arbitral tribunal could be held in contempt. In doing so, the court read Section 27(5)of the Indian Arbitration Act[19] widely, and was of the view that even while the provision came under the section providing for court assistance in taking evidence, the provision was not limited only to a default thereto, but also applied to disobedience of an interim order.

Additionally, the Supreme Court has also donned the mantle of being an advisor to the government. In the matter of Indian Farmers Fertilizers Co-operative Limited v Bhadra Products,[20] the Court voiced its concerns on challenges to interim awards that cause ‘unnecessary delay and additional expenses’. The Court advised parliament to consider amending Section 34 of the Indian Arbitration Act in a manner whereby interim awards can be consolidated with the final award, in order to avoid piecemeal challenges.

The Supreme Court has also advised the government in regard to a ‘repeal and savings’ provision, which the government is intending to amend in the Proposed 2018 Amendments. Surprisingly, the ‘repeal and savings’[21] provision has been the cause of much dispute since the promulgation of the 2015 Amendments. The language of this provision did not clarify whether the court proceedings that had been filed after the amended Act came into effect on 23 October 2015 in relation to arbitration that had commenced prior to the amendments taking effect would continue to be governed by the unamended or the amended Act. Litigations were filed in various high courts around the country, which took contrary views on the controversial provision. The serious challenge to this seemingly innocuous provision was due to the fact that parties felt that rights had vested in them – for instance, scope of the interference of the court in setting aside an award, or in its enforcement, under the unamended regime, and that the amendments had the impact of taking away those vested rights. The Supreme Court, in the matter of Board of Control for Cricket in India v Kochi Cricket Private Limited,[22] put an end to these disputes and held that any court proceedings filed after the effective date of the amendment, even in relation to arbitrations commenced prior to the date, would be governed by the amended Act.

Interestingly, during the course of the hearing of the above-mentioned case, the Proposed 2018 Amendments were brought to the attention of the Court, which had inter alia incorporated a ‘repeal and savings’ provision that was different from the interpretation the Supreme Court provided to said provision in the above case. According to the Proposed 2018 Amendments, any court proceedings arising out of or in relation to arbitral proceedings filed prior to 23 October 2015, irrespective of whether such court proceedings are commenced prior to or after the said date, would be governed by the unamended Act. The Supreme Court proceeded to advise the government to reconsider the language of the proposed amendment, and to bring the same in line with the judgment passed by the Court in the above-mentioned matter. Sounding a word of caution, the Court observed that the immediate effect of the amendment as proposed by the government would be ‘to put all important amendments made by the Amendment Act on a back-burner’ and would result in the ‘increase in interference of courts in arbitration matters’. It is hoped that the government will pay heed to this cautionary note of the Supreme Court.

Proposed 2018 Amendments

That said, other amendments proposed by the government in the Proposed 2018 Amendments are progressive and answer the much-required need of the hour. Promotion of institutional arbitration was identified as being critical to the dispute resolution process, and therefore the central government set up a high-level committee under the Chairmanship of Justice B N Sri Krishna, Former Judge of the Supreme Court of India. His report formed the basis of the Proposed 2018 Amendments.

The Proposed 2018 Amendments are geared towards promoting institutional arbitration in India and have also proposed the setting up of an Indian arbitration council.[23] The council will, inter alia, promote and encourage arbitration. It shall also grade arbitral institutions on the basis of criteria relating to infrastructure, quality and calibre of arbitrators, and the performance and compliance of time limits for disposal of domestic and international commercial arbitrations. The council will also maintain an electronic depository of all arbitral awards.

Conclusion

Importantly, the government and judiciary are aware of the importance of arbitration to India. They continue to work to improve the entire arbitral process and ensure that India becomes a serious contender as a seat for international commercial arbitration, as well as enhancing its institutional arbitration. As a result of these changes, the concept of institutional arbitrations is beginning to gain momentum in India. Recently, the Nani Palkhivala Arbitration Centre opened a branch in New Delhi, becoming India’s first arbitration institution to have two centres in the country. India has finally woken up to its potential, and is making a serious attempt at claiming its place in the arbitral universe.

Notes


[*] Payal Chawla is also a Director at the Nani Palkhivala Arbitration Centre.

[1] Hrd Corporation (Marcus Oil And Chemical Division) v Gail (India) Limited (Formerly Gas Authority of India Ltd), 2017 SCC Online SC 1024.

[2] Ibid.

[3] Section 29A of The Indian Arbitration Act.

[4] Section 6 of The Arbitration and Conciliation (Amendment) Bill, 2018.

[5] Section 29B of the Indian Arbitration Act.

[6] M/s Centrotrade Mineral & Metal Inc v Hindustan Copper Ltd, (2006) 11 SCC Cases 245.

[7] (2012) 9 SCC 552.

[8] Indus Mobile Distribution Pvt Ltd v Datawind Innovations Pvt Ltd, (2017) 7 SCC 678.

[9] Ibid.

[10] [1988] 1 Lloyd’s Rep 116.

[11] Union of India v Hardy Exploration and Production (India) Inc, 2018 SCC OnLine SC 474.

[12] Ibid.

[13] Sundaram Finance Ltd v Abdul Samad (2018) 3 Supreme Court Cases 622.

[14] 2018 SCC OnLine SC 431.

[15] (2013) 1 SCC 641.

[16] Ibid, 14.

[17] ‘35. Finality of arbitral awards.—Subject to this Part an arbitral award shall be final and binding on the parties and persons claiming under them respectively.’

[18] Alka Chandewar v Shamshul Ishwar Khan, 2017 SCC Online 758.

[19] S.27 (5) of the Arbitration and Conciliation Act, 1996, reads: ‘Persons failing to attend in accordance with such process, or making any other default, or refusing to give their evidence, or guilty of any contempt to the arbitral Tribunal during the conduct of arbitral proceedings, shall be subject to the like disadvantages, penalties and punishments by order of the Court on the representation of the arbitral Tribunal as they would incur for the like offences in suits tried before the Court.’

[20] (2018) 2 SCC 534.

[21] Section 85(2)(a) of the Arbitration and Conciliation Act, 1996 & Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015.

[22] 2018 SCC Online SC 232.

[23] Section 10 of The Arbitration and Conciliation (Amendment) Bill, 2018.

The original article can be viewed by following the link:

https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=616A5F12-267E-46E7-83BD-EA0813B5AD52

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