International Commercial Arbitration

Transcription

M U M BA I
S I L I C O N VA L L E Y
BA N G A LO RE
S I N G A P O RE
M U M BA I B KC
NEW DELHI
MUNICH
N E W YO RK
International
Commercial
Arbitration
Law and Recent Developments
in India
With inputs from Singapore International Arbitration Centre (SIAC)
July 2016
© Copyright 2016 Nishith Desai Associates
www.nishithdesai.com
Law and Recent Developments in India
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Contents
1. INTRODUCTION
01
2. INDIAN ARBITRATION REGIME
02
I.
II.
III.
IV.
History of Arbitration in India
Background to the Arbitration and Conciliation Act, 1996 Scheme of the Act
Arbitration and Conciliation Amendment Act, 2015
02
02
02
03
3.
INTERNATIONAL COMMERCIAL ARBITRATION – MEANING 05
4.
ARBITRABILITY UNDER INDIAN LAW
06
5. INTERNATIONAL COMMERCIAL ARBITRATION WITH SEAT IN INDIA
6.
7.
I.
Notice of arbitration
II. Referral to arbitration III. Interim reliefs
IV. Appointment of arbitrators V. Challenge to appointment of arbitrator VI. Mandate of the arbitrator VII. Challenge to jurisdiction
IX. Conduct of arbitral proceedings X. Hearings and Written Proceedings
XI. Fast track procedure XII. Settlement during arbitration XIII. Law of limitation applicable XIV. Arbitral award
XV. Interest and cost of arbitration
XVI. Challenge to an award
XVII.Appeals
XVIII. Enforcement and execution of the award
07
07
08
09
09
10
11
11
11
12
12
13
13
13
14
16
16
INTERNATIONAL COMMERCIAL ARBITRATION WITH SEAT
IN A RECIPROCATING COUNTRY
18
I.
II.
III.
Referring parties to arbitration under part II
Enforcement and execution of foreign awards
Appealable orders 19
20
22
EMERGING ISSUES IN INDIAN ARBITRATION LAWS
23
I.
II.
III.
23
23
23
Prospective applicability of the amendment act
Conundrum surrounding two indian parties having a foreign seat of arbitration Arbitrability of oppression and mismanagement cases
8.CONCLUSION
07
25
ANNEXURE
26
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
X.
XI.
XII.
XIII.
Prospective Applicability of Arbitration and Conciliation Amendment Act, 2015
Two Indian Parties Opting for Foreign-Seated Arbitration: No Bar?
Supreme Court Clarifies Validity of Arbitration Agreements in MOUS
Have You Amended Your Arbitration Agreement Post Balco?
Supreme Court Upholds Arbitration for a Pathological Arbitration Clause
Bombay High Courts Rules on Arbitrability of Oppression and
Mis-Management Issues
Supreme Court Clarifies the Narrow Scope of ‘Public Policy’ for Challenge
of Indian Award
Bite of a Bit: Calcutta High Court Refuses to Injunct Investment Arbitration
Against India
Allegations of Fraud not a Bar to Foreign Seated Arbitration
Enforcement of Foreign Awards Becomes Easier: ‘Patent Illegality’ Removed
from the Scope of Public Policy
Existence of Mortgage is no Bar to Arbitrating Money Claims
Law of Limitation: Procedural not Substantive
Bhatia International and Venture Global Overruled, but Prospectively!
26
29
33
35
38
40
44
47
53
55
58
61
64
ABOUT SIAC
71
SIAC INFORMATION KIT
77
1. Introduction
Increasing international trade and investment is
In furtherance of measures taken by the Indian gov-
accompanied by growth in cross-border commer-
ernment in support of the ‘ease of doing business in
cial disputes. Given the need for an efficient dispute
India’, and after two aborted attempts in 2001 and
resolution mechanism, international arbitration
2010 to amend the arbitration law, on October 23,
has emerged as the preferred option for resolving
2015, the President of India promulgated the Arbi-
cross-border commercial disputes and preserving
tration and Conciliation (Amendment) Ordinance,
business relationships. With an influx of foreign
2015 (“Ordinance”). The Ordinance incorporated
investments, overseas commercial transactions, and
the essence of major rulings passed in the last two
open ended economic policies acting as a catalyst,
decades, as well as most of the recommendations of
international commercial disputes involving India
246th Law Commission Report, and have clarified the
are steadily rising. This has drawn tremendous focus
major controversies that arose in recent years.
from the international community on India’s international arbitration regime.
Thereafter, on December 17, 2015 and December 23,
2015 respectively, the Arbitration and Conciliation
Due to certain controversial decisions by the Indian
(Amendment) Bill, 2015 (“Bill”) was passed by the
judiciary in the last decade, particularly in cases
Lok Sabha and Rajya Sabha respectively, with minor
involving a foreign party, the international commu-
additions to the amendments introduced by the
nity has kept a close watch on the development of
Ordinance. On December 31, 2015, the President of
arbitration laws in India. The Indian judiciary has
India signed the Bill and thereafter, gazette notifica-
often been criticized for its interference in interna-
tion was made on January 1, 2016. Accordingly, the
tional arbitrations and extra territorial application of
Arbitration and Conciliation (Amendment) Act, 2015
domestic laws to foreign seated arbitrations. .
(“Amendment Act”) came into effect, from October
However, the latest developments in the arbitration
jurisprudence through recent court decisions clearly
reflect the support of the judiciary in enabling India
23, 2015. The Amendment Act is applicable prospectively to the arbitral proceedings commenced after
October 23, 2015.
to adopt international best practices. Courts have
This paper aims to summarize the position
adopted a pro-arbitration approach and a series of
of Indian law on international commercial arbitra-
pro-arbitration rulings by the Supreme Court of India
tion (“ICA”) both seated within and outside India and
(“Supreme Court”) and High Courts have attempted
discusses the recent judicial decisions in this field.
to change the arbitration landscape completely
The changes introduced by the Amendment Act are
in India. From 2012 to 2015, the Supreme Court deliv-
a step in the right direction in ensuring that India
ered various landmark rulings taking a much needed
moves towards being an arbitration friendly nation.
pro-arbitration approach such as declaring the Indian
This paper also highlights the potential obstacles
arbitration law to be seat-centric; removing the
faced by parties who are governed by the Act, with
Indian judiciary’s power to interfere with arbitrations
the new law in place.
seated outside India; referring non-signatories to
an arbitration agreement to settle disputes through
arbitration; defining the scope of public policy in
foreign-seated arbitration; and determining that even
fraud is arbitrable.
1
2.Indian Arbitration Regime
I.History of Arbitration in
India
Until the Arbitration and Conciliation Act, 1996
(“Act”), the law governing arbitration in India
consisted mainly of three statutes:
i. The Arbitration (Protocol and Convention)
Act, 1937 (“1937 Act”)
ii. The Indian Arbitration Act, 1940
(“1940 Act”) and
iii.The Foreign Awards (Recognition and
Enforcement) Act, 1961 (“1961 Act”)
The 1940 Act was the general law governing
arbitration in India and resembled the English
Arbitration Act of 1934.
II.Background to the Arbitration and Conciliation Act,
1996
To address these concerns and with a primary
purpose to encourage arbitration as a cost-effective and time-efficient mechanism for the settlement of commercial disputes in the national
and international sphere, India in 1996, adopted
a new legislation modelled on the Model Law
in the form of the Arbitration and Conciliation
Act, 1996 (“Act”). The Act was also brought in to
provide a speedy and efficacious dispute resolution mechanism to the existing judicial system
which was marred with inordinate delays and
a backlog of cases.
2
III.Scheme of the Act
The Act has three significant parts. Part I of the
Act deals with domestic arbitrations and ICA
when the arbitration is seated in India. Thus,
an arbitration seated in India between one foreign party and an Indian party, though defined
as ICA is treated akin to a domestic arbitration.
Part II of the Act deals only with foreign awards1
and enforcement under the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”),
or Convention on the Execution of Foreign Arbitral Awards, 1927 (“Geneva Convention”). Part
III of the Act is a statutory embodiment
of conciliation provisions.
In Part I, Section 8 regulates the commencement
of arbitration in India, Sections 3, 4, 5, 6, 10 to 26,
and 28 to 33 regulate the conduct of arbitration,
Section 34 regulates the challenge to the award
and Sections 35, and 36 regulate the recognition
and enforcement of the award. Sections 1, 2, 7, 9,
27, 37, and 38 to 43 are ancillary provisions that
either support the arbitral process or are structurally necessary. 2
The courts have found that Chapters III to VI,
specifically. Section 10 to 33 of Part 1 of the Act,
contain curial or procedural law which parties
would have autonomy to opt out from. The
other Chapters of Part I of the Act form part
of the proper law 3, thus making those provisions non-derogable by parties subjected to Part I,
even by contract.
1.
A foreign award is award delivered in an arbitration seated outside India
2.
Bharat Aluminum Co. v. Kaiser Aluminum Technical Service,
Inc., 2012 (9) SCC 552
3.
Anita Garg v. M/S. Glencore Grain Rotterdam B.V., 2011(4) ARBLR
59 (Delhi)
Part II, on the other hand regulates arbitration
only in respect to the commencement and recognition /enforcement of a foreign award and
no provisions under the same can be derogated
by a contract between two parties.4
The objective of the Act is to provide a speedy
and cost-effective dispute resolution mechanism which would give parties finality in their
disputes. In 1996, the Act was passed with
a view to bring in winds of change, but fell into
a chasm of its own. A number of decisions from
the courts slowly but surely ensured that the
preferred seat in any cross-border contract was
always a heavily negotiated point and, more
often than not, ended up being either Singapore, New York, or London, the established
global arbitration centers. Foreign investors
and corporates doing business in India were
just not ready to risk the Indian legal system.
foreign-seated arbitrations in the form
of interim relief before the commencement
of the arbitration. Further, the introduction
of the ‘cost follow the event’ regime in the Act
has been inserted to bring it in line with international standards. The process of enforcement
and execution under the Act has also been
streamlined so that challenge petitions do not
operate as an automatic stay on the execution
process.
Below are the snapshots to the major amendments introduced by the Amendment Act:
A.Pre-arbitral proceedings
i. Independence and impartiality
§§The Amendment Act has introduced exten-
sive guidelines in relation to the independence, impartiality, and fees of arbitrators,
bringing it at par with international standards.
IV.Arbitration and Conciliation Amendment Act,
2015
§§Appointment of arbitrators to be done
The amendments introduced by the Amendment Act have made significant changes to the
Act and are in the right direction for clarifying
several issues keeping in mind the objectives
of the Act.
§§Applications for appointment of an arbi-
The Amendment Act provides strict timelines
for completion of the arbitral proceedings
along with the scope for resolving disputes
by a fast track mechanism. In addition to the
insertion of new provisions, the Amendment
Act has also introduced certain amendments
to the existing provisions with regard to the
process of appointment of an arbitrator and
clarified the grounds of challenge of an arbitrator for lack of independence and impartiality.
The Amendment Act, as a welcome move, provides for assistance from Indian courts even in
4.
by Supreme Court in case of international
commercial arbitrations and respective High
Courts in case of domestic arbitrations purely
in an administrative capacity.
trator to be disposed of expeditiously and
endeavor to be made to dispose of within
a period of (60) sixty days from date of service of notice on the opposite party.
§§Detailed schedule on ineligibility of arbitra-
tors have been put in place.
ii. Interim reliefs
§§Flexibility has been granted to parties with
foreign- seated arbitrations to approach
Indian courts in aid of foreign seated arbitration;
Bharat Aluminum Co. v. Kaiser Aluminum Technical Service,
Inc., 2012 (9) SCC 552
3
§§Section 9 applications to be made directly
before High Court in case of international
commercial arbitrations seated in India as
C.Post-arbitral proceedings
i. Challenge and enforcement
well as outside.
§§Interim reliefs granted by arbitral tribunals seated
in India are deemed to be order of courts and are
thus enforceable in the new regime.
§§Post grant of interim relief, arbitration pro-
ceedings must commence within 90 days
or any further time as determined by the court.
§§In ICA seated in India, the grounds on which
an arbitral award can be challenged has been
narrowed;
§§Section 34 petitions to be filed directly before
High Court in case of international commercial arbitrations seated in India.
§§Section 34 petition to be disposed of expedi-
B.Arbitral proceedings
i. Expeditious disposal
§§A twelve-month timeline for completion of
arbitration seated in India has been prescribed.
§§Expeditious disposal of applications along
with indicative timelines for filing arbitration applications before courts in relation
to interim reliefs, appointment of arbitrator,
and challenge petitions;
tiously and in any event within a period
of one year from date on which notice
is served on opposite party.
§§Upon filing a challenge, under Section 34
of the Act, there will not be any automatic
stay on the execution of award – and more
specifically, an order has to be passed by the
court expressly staying the execution proceedings.
§§Incorporation of expedited/fast track arbi-
tration procedure to resolve certain disputes
within a period of six months.
ii.Costs
§§Detailed provisions have been inserted
in relation to determination of costs by arbitral tribunals seated in India – introduction
of ‘costs follow the event’ regime.
4
3.International Commercial Arbitration –
Meaning
Section 2(1)(f) of the Act defines an ICA to
mean one arising from a legal relationship
which must be considered commercial5 where
either of the parties is a foreign national or resident or is a foreign body corporate or is a company, association or body of individuals whose
central management or control is in foreign
hands. Thus, under Indian law, an arbitration
with a seat in India, but involving a foreign
party will also be regarded as an ICA, and hence
subject to Part I of the Act. Where an ICA
is held outside India, Part I of the Act would
have no applicability on the parties (save the
stand alone provisions introduced by the
Amendment Act unless excluded by the parties,
as discussed later) but the parties would be subject to Part II of the Act.
The scope of this section was determined by the
Supreme Court in the case of TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd.,6
wherein, despite TDM Infrastructure Pvt. Ltd.
having a foreign control, it was concluded that,
“a company incorporated in India can only have
Indian nationality for the purpose of the Act.”
Thus, though the Act recognizes companies controlled by foreign hands as a foreign body corporate, the Supreme Court has excluded its application to companies registered in India and having
Indian nationality. Hence, in case a corporation
has dual nationality, one based on foreign control and other based on registration in India,
for the purpose of the Act, such corporation
would not be regarded as a foreign corporation.
The Amendment Act has deleted the words
‘a company’ from the purview of the definition
thereby restricting the definition of ICA only to
the body of individuals or association. Therefore, by inference, it has been made clear that
if a company has its place of incorporation
as India then central management and control
would be irrelevant as far as its determination of
being an “international commercial arbitration”
is concerned.
5.‘Commercial’ should be construed broadly having regard to the
manifold activities which are an integral part of international
trade today (R.M. Investments & Trading Co. Pvt. Ltd. v. Boeing
Co., AIR 1994 SC 1136).
6. 2008 (14) SCC 271
5
4.Arbitrability under Indian Law
Arbitrability is one of the issues where the contractual and jurisdictional facets of international commercial arbitration meet head on.
It involves the simple question of what type
of issues can and cannot be submitted to arbitration
In Booz Allen and Hamilton Inc. v. SBI Home
Finance Ltd.7 the Supreme Court discussed the
concept of arbitrability in detail and held that
the term ‘arbitrability’ had different meanings
in different contexts: (a) disputes capable
of being adjudicated through arbitration, (b) disputes covered by the arbitration agreement,
and (c) disputes that parties have referred to arbitration. It stated that in principle, any dispute
than can be decided by a civil court can also be
resolved through arbitration. However, certain
disputes may, by necessary implication, stand
excluded from resolution by a private forum.
Such non-arbitrable disputes include: (i) disputes relating to rights and liabilities which give
rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, or child
custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary
matters (grant of probate, letters of administration and succession certificate); and (vi) 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.
Also, the Supreme Court has held in N. Radhakrishnan v. M/S Maestro Engineers8 that, where
allegations of fraud and serious malpractices
are alleged, the matter can only be settled by the
court and such a situation cannot be referred
to an arbitrator. The Supreme Court also
7.
2011 (5) SCC 532
observed that fraud, financial malpractice and
collusion are allegations with criminal repercussions and as an arbitrator is a creature of the contract, he has limited jurisdiction. The courts are
more equipped to adjudicate serious and complex allegations and are competent in offering
a wider range of reliefs to the parties in dispute.
But the Supreme Court in Swiss Timing Limited
v. Organizing Committee, Commonwealth Games
2010, Delhi 9 and World Sport Group (Mauritius)
Ltd. v. MSM Satellite (Singapore) Pte. Ltd. 10 held
that allegations of fraud are not a bar to refer parties to a foreign-seated arbitration and that the
only bars to refer parties to foreign-seated arbitrations are those which are specified in Section
45 of Act. For example.in cases where the arbitration agreement is either (i) null and void; or (ii)
inoperative; or (iii) incapable of being performed.
Thus, it seems that though allegations of fraud
are not arbitrable in ICA’s with a seat in India
the same bar would not apply to ICA’s with a
foreign seat.
Hence, there may be a certain degree of variance
in the law of arbitrability in India when compared to other jurisdictions. The differential
treatment of domestic and international commercial arbitrations with regard to arbitrability of issues makes it important to determine
whether the disputes referred to arbitration are
arbitrable under law in arbitration involving
Indian parties. Failure of the dispute being arbitrable may lead to the award being rendered
unenforceable in India on grounds of contravention of public policy of India.
9. 2014 (6) SCC 677
8. 2010 (1) SCC 72
10. AIR 2014 SC 968
6
5.International Commercial Arbitration
with seat in India
As per the 2015 QMUL International Arbitration
Survey, the five most preferred and widely used
seats for international commercial arbitration
are London, Paris, Hong Kong, Singapore, and
Geneva. For instance, out of all disputes submitted to SIAC, one of the highest number of filings
were generated from India.11 Despite an increasing number of Indian parties opting for arbitration to resolve their disputes, the number of such
international arbitrations with seat in India has
not increased significantly. The laws applicable to
ICA when seat of arbitration is India are discussed
in detail below.
I.Notice of arbitration
Arbitration is said to have commenced when the
notice of arbitration requires the other party
to take steps in connection with the arbitration
or do something on his part in the matter
of arbitration. Under Section 21 of the Act,
a notice of arbitration has to be served to the
other party, requesting that the dispute be
referred to arbitration. The day on which the
respondent receives the notice, arbitral proceedings commences under the Act. In a Notice
of Arbitration, a party communicates: a) an
intention to refer the dispute to arbitration; and
b) the requirement that other party should do
something on his part in that regard. This will
generally suffice to define the commencement
of arbitration under the Act.
11.(http://siac.org.sg/images/stories/articles/annual_report/SIAC_
Annual_Report_2015.pdf)
There were 91 parties which used SIAC in the year 2015, being
the highest foreign nationality contributing to the SIAC
caseload.
Applicability of Amendment Act
The date of commencement of the arbitration
in accordance with Section 21 of the Act is crucial with regards the applicability of the Amendment Act. In the event, the date of commencement is after October 23, 2015, the provisions
of the Amendment Act will be applicable,
as against the Act with respect to arbitral proceedings.
II.Referral to arbitration
Under Part I, the courts can refer the parties
to arbitration if the subject matter of the dispute is governed by the arbitration agreement.
Section 8 of the Act provides that if an action
is brought before a judicial authority, which
is subject-matter of an arbitration, upon
an application by a party, the judicial authority
is bound to refer the dispute to arbitration.
It is important to note that the above application must be made by the party either before
or at the time of making his first statement
on the substance of the dispute and the application shall be accompanied by a duly certified
or original copy of the arbitration agreement.
The Amendment Act narrows the scope
of the judicial authority’s power to examine
the prima facie existence of a valid arbitration
agreement, thereby reducing the threshold
to refer a matter before the court to an arbitration for purposes of arbitrations commenced
on or after October 23, 2015.
7
More importantly, taking heed from the judgment of the Supreme Court in Chloro Controls 12,
which effectively applied only to foreign-seated
arbitrations, the definition of the word ‘party’
to an arbitration agreement has been expanded
under the Amendment Act to also include persons
claiming through or under such party.
Thus, even non-signatories to an arbitration
agreement, insofar as domestic arbitration
or Indian seated ICA, may also participate
in arbitration proceedings as long as they are
proper and necessary parties to the agreement. 13
III.Interim reliefs
Under the Act, the parties can seek interim relief
from courts and arbitral tribunals under Section
9 and 17 respectively.
A party may, before, or during arbitral proceedings or at any time after the making of the Arbitral Award but before it is enforced, apply to a
court for seeking interim measures and protections including interim injunctions under Section 9 of the Act.
The Arbitral Tribunal in accordance with Section 17 can also provide interim measures
of protection or ask a party to provide appropriate security in connection with the matter of dispute, as is found appropriate during the course
of the arbitral proceedings. However the powers
of the Arbitral Tribunal were narrow compared
to the powers of the court under Section 9
of the Act.
The Amendment Act has made significant
changes which will affect the granting
of interim relief in an arbitration proceedings
commenced after October 23, 2015-
A.Interim reliefs under Section 9
a. I f an arbitral tribunal has been constituted, an application for interim protection under Section 9 of the Act will
not be entertained by the court unless
the court finds that circumstances exist
which may not render the remedy provided under Section 17 inefficacious.

Post the grant of interim protection under Section 9
of the Act, the arbitral proceedings must commence
within a period of 90 (ninety) days from the date of
the interim protection order or within such time as
the court may determine.
B.Interim reliefs under Section
17
a. Section 17 has been amended to provide the
Arbitral Tribunal the same powers as a ‘civil
court’ in relation to the grant of interim measures. Notably, the Arbitral Tribunal would
have powers to grant interim relief post award
but prior to its execution. Further, the order
passed by an Arbitral Tribunal in arbitrations
seated in India will be deemed to be an order
of the court and will be enforceable under the
Code of Civil Procedure, 1908 (“CPC”) as if it
were an order of the court, which provides clarity on its enforceability.
The intention appears to be to vest significant
powers with the Arbitral Tribunal and reduce the
burden and backlog before the courts. There has
been extensive confusion on the extent and scope
of arbitrator’s powers to grant interim relief, and
enforceability of such orders has proven difficult.
This issue has been aptly addressed by making
the enforceability of orders issued under Section
9 and 17 of the Act identical in case of domestic
and international commercial arbitrations seated
in India. However, in certain situations, a party
will be required to obtain an order of interim
relief from a court only (e.g. injunctive relief
against encashment of a bank guarantee).
12. Chloro Controls India (P) Ltd. v. Severn Trent Water Purification
Inc., (2013) 1 SCC 641
13. Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531
8
IV.Appointment of arbitrators
The parties are free to agree on a procedure
for appointing the arbitrator(s). The agreement
can provide for a tribunal consisting of three
arbitrators and each party will appoint one
arbitrator and the two appointed arbitrators
will appoint the third arbitrator who will act as a
presiding arbitrator. 14 If one of the parties does
not appoint an Arbitrator within 30 days, or if
two appointed Arbitrators do not appoint third
Arbitrator within 30 days, the party can request
Chief Justice of India (“CJI”) to appoint an Arbitrator in case of international commercial arbitrations. 15 The CJI can authorize any person or
institution to appoint an Arbitrator. Some High
Courts have authorized District Judge to appoint
an Arbitrator. In case of domestic arbitrations,
application has to be made to Chief Justice of
respective High Court within whose jurisdiction
the parties are situated. 16
If one of the parties does not appoint an arbitrator within 30 days, or if two appointed arbitrators do not appoint third arbitrator within 30
days, the party can request the Supreme Court
or relevant High Court (as applicable) to appoint
an arbitrator. 17 The Supreme Court/High Court
can authorize any person or institution to
appoint an arbitrator.18 In case of an ICA,
the application for appointment of arbitrator
has to be made to the Supreme Court and in
case of a domestic arbitration, the respective
High Courts having territorial jurisdiction will
appoint the Arbitrator.
The Amendment Act empowers the Supreme
Court in an India-seated ICA and High Courts
in domestic arbitration to examine the existence
of an arbitration agreement at the time of making such appointment. 19 This should be noted
against the threshold contained in a Section 8
application for referring a dispute to arbitration
which empowers a court only to merely examine the prima facie existence of an arbitration
agreement.
The application for appointment of the arbitrator before the Supreme Court or High Court,
as the case may be, is required to be disposed
of as expeditiously as possible and an endeavor
shall be made to do so within a period of 60 days;
such appointment would not amount to delegation of judicial power and is to be treated as an
administrative decision.
There has always been a concern in India with
respect to the time taken for appointment
of arbitrators due to the existing jurisprudence
and procedure. The time-frame for such appointment was usually 12- 18 months. This amendment seeks to address this delay by introducing a timeline and clarifying the procedure of
appointment to be an exercise of administrative
power by the courts.
V. Challenge to appointment
of arbitrator
An arbitrator is expected to be independent
and impartial. If there are circumstances due to
which his independence or impartiality can be
challenged, he must disclose the circumstances
before his appointment. 20 Appointment of an
arbitrator can be challenged only if –
a. Circumstances exist that give rise to justifiable doubts as to his independence or
impartiality; or,
b. He does not possess the qualifications
14. Section 11(3) of the Act
agreed upon by the parties. 21
19. Section 11 (6)(a) of the Act
18. Section 11 (6)(b) of the Act
9
The challenge to appointment has to be decided
VI.Mandate of the arbitrator
by the arbitrator himself. If he does not accept the
challenge, the proceedings can continue and the
arbitrator can make the arbitral award. However, in
such case, application for setting aside the arbitral
award can be made to the court under Section 34 of
the Act. If the court agrees to the challenge, the
arbitral award can be set aside.22 Thus, even if
the arbitrator does not accept the challenge to
his appointment, the other party cannot stall
further arbitration proceedings by rushing to
the court. The arbitration can continue and challenge can be made in court only after the arbitral
award is made.
The Amendment Act provides a form for disclosure in the new Fifth Schedule. Such disclosure
is in accordance with internationally accepted
practices to be made applicable for arbitration
proceedings commenced on or after October 23,
2015.
In the Amendment Act, the legislators have
listed scenarios in Seventh Schedule which
may result in justifiable doubts as to the independence and impartiality of an arbitrator such
as ‘relationship with the parties, counsel or the
subject matter of the dispute, such as that of
the employee of one of the parties’.23 This is an
indicative list in addition to disqualifying situations that have been affirmed by case law such
as the holding of the Supreme Court that the
arbitrator cannot be qualified to arbitrate
if he is the part of the contract.24
An encouraging position of Indian arbitration
law is the jurisprudence relating to the mandate
of an arbitrator. The Supreme Court in its decision in NBCC Ltd. v. J.G. Engineering Pvt. Ltd.25
has laid down that the mandate of the arbitrator
expires in case an award is not delivered within
the time limit stipulated by the parties in the
arbitration agreement.
The Amendment Act has clarified the lacuna
that existed since the inception. The provision
earlier only dealt with the expiration of the
mandate of an arbitrator and did not deal with
the procedure for re-appointment. For arbitrations commencing after October 23, 2015, a fresh
application for appointment need not be filed
in case of termination and substitution may
be made, however its practical application is yet
to be tested.
This will surely help a party to ensure a time
bound arbitration process while entering into
a contract and in compelling the arbitrator
to deliver his award within the stipulated timelines. At the same time it equally becomes
important to stipulate realistic timeliness
for conclusion of an arbitration process
so as to avoid forced expiry of the arbitrator’s
mandate despite best efforts to deliver an award
in a timely fashion.
23. Section 11(5) of the Act inserted by the Amendment Act.
24. Indian Oil Corporation Ltd. v. Raja Transport Pvt. Ltd., (2009) 8
SCC 520
25. 2010 (2) SCC 385
10
VII. Challenge to jurisdiction
Under Section 16 of the Act, an Arbitral Tribunal
has competence to rule on its own jurisdiction,
which includes ruling on any objections with
respect to the existence or validity of the arbitration agreement. The doctrine of ‘competence-competence’ confers jurisdiction on the Arbitrators
to decide challenges to the arbitration clause
itself. In S.B.P. and Co. v. Patel Engineering Ltd.
and Anr.,26 the Supreme Court has held that
where the Arbitral Tribunal was constituted by
the parties without judicial intervention, the
Arbitral Tribunal could determine all jurisdictional issues by exercising its powers of competence-competence under Section 16 of the Act.
IX. Conduct of arbitral
proceedings
A.Flexibility in Respect of Procedure, Place and Language
The Arbitral Tribunal should treat the parties
equally and each party should be given full
opportunity to present its case. 27 The Arbitral
Tribunal is not bound by the CPC or the Indian
Evidence Act, 1872. 28 The parties to arbitration
are free to agree on the procedure to be followed
by the Arbitral Tribunal. If the parties do not
agree to the procedure, the procedure will
be as determined by the Arbitral Tribunal.
The Arbitral Tribunal has complete powers
to decide the procedure to be followed, unless
parties have otherwise agreed upon the procedure to be followed. 29 The Arbitral Tribunal also
has powers to determine the admissibility, relevance, materiality and weight of any evidence.30
Place of arbitration will be decided
by mutual agreement. However, if the parties
do not agree to the place, the same will be
decided by the tribunal.31 Similarly, the language to be used in arbitral proceedings can
be mutually agreed. Otherwise, the Arbitral
Tribunal can decide on the same. 32
B.Submission of Statement of
Claim and Defense
The Claimant should submit the statement
of claims, points of issue and the relief or remedy
sought. The Respondent should state his defense
in respect of these particulars. All relevant documents must be submitted. Such claim or defense
can be amended or supplemented at any time.33
The Amendment Act now provides for an application for counterclaim/set-off to be adjudicated upon
in the same arbitration proceeding without requiring a fresh one.34 The Arbitral Tribunal, under the
amended Section 25 of the Act, can also exercise its
discretion in treating the right of defendant to file
the statement of defense as forfeited under specified
circumstances. 35
X.Hearings and Written
Proceedings
After submission of pleadings, unless the parties
agree otherwise, the Arbitral Tribunal can decide
whether there will be an oral hearing or whether
proceedings can be conducted on the basis of documents and other materials. However, if one of the
parties requests the Arbitral Tribunal for a hearing,
sufficient advance notice of hearing should be given
26. 2005 (8) SCC 618
31. Section 20 of the Act
34. Section 23(2-A) of the Act
35. Section 25(b) of the Act
11
to both the parties. 36 Thus, unless one party requests,
shall be chosen by the parties. 43
oral hearing is not mandatory.
For the expeditious conclusion of the arbitration
proceedings a proviso has been introduced by the
Amendment Act on the conduct of ‘oral proceedings’ and furnishing of ‘sufficient cause’ in order to
seek adjournments. The amended provision has also
made a room for the tribunal to impose costs including exemplary costs in case the party fails to provide
sufficient reasoning for the adjournment sought.
By the Amendment Act, the time limit for conduct
of the arbitral proceedings have been streamlined
and arbitrators are mandated to complete the entire
arbitration proceedings within a span of 12 (twelve)
months from the date the Arbitral Tribunal enters
upon the reference. 37 However, a 6 (six) months
extension may be granted to the arbitrator by mutual
consent of the parties. 38 Beyond 6 (six) months,
any further extension may be granted to the
arbitrator at the discretion of the court 39 or else
the proceedings shall stand terminated. 40 An
application for extension of time towards completion of arbitral proceedings has to be disposed
of expeditiously. 41 There is also a provision
made for awarding additional fees, as consented
upon by the parties, to them for passing the
award within the time span of 6 months. 42
XI. Fast track procedure
The Amendment Act has inserted new provisions to facilitate an expedited settlement of disputes based solely on documents subject to the
agreement of the parties. The tribunal for this
purpose consists only of a sole arbitrator who
For the stated purpose the time limit for making
an award under this section has been capped
at 6 months from the date the Arbitral Tribunal
enters upon the reference. 44
Parties can before constitution of the Arbitral
Tribunal, agree in writing to conduct arbitration
under a fast track procedure. 45 Under the fast
track procedure, unless the parties otherwise
make a request for oral hearing or if the arbitral tribunal considers it necessary to have oral
hearing, the Arbitral Tribunal shall decide the
dispute on the basis of written pleadings, documents and submissions filed by the parties without any oral hearing. 46
XII.Settlement during
arbitration
It is permissible for parties to arrive at a mutual settlement even when the arbitration proceedings are
going on. In fact, even the tribunal can make efforts
to encourage mutual settlement.
If parties settle the dispute by mutual agreement, the
arbitration shall be terminated. However,
if both parties and the Arbitral Tribunal agree, the
settlement can be recorded in the form of an arbitral award on agreed terms, which is called consent
award. Such arbitral award shall have the same force
as any other arbitral award. 47
Under Section 30 of the Act, even in the absence of
any provision in the arbitration agreement, the Arbitral Tribunal can, with the express consent of the parties, mediate or conciliate with the parties, to resolve
the disputes referred for arbitration.
37. Section 29A(1) of the Act
43. Section 29B(2) of the Act
41. Section 29A(9) – the section endeavours the application to be
disposed of within a period of 60 days.
12
XIII.Law of limitation
applicable
The Limitation Act, 1963 is applicable to arbitra-
shall be 18 percent per annum, calculated from the
date of the award to the date of payment.
tions under Part I. For this purpose, date on which
The interest rate payable on damages and costs
the aggrieved party requests other party to refer the
awarded, as per the Amendment Act shall, unless the
matter to arbitration shall be considered. If on that
arbitral award otherwise directs, shall be 2 percent
date, the claim is barred under Limitation Act, the
higher than the current rate of interest prevalent on
arbitration cannot continue.48 If arbitration award
the date of award, from the date of award to the date
is set aside by court, time spent in arbitration will
of payment. 54
be excluded for the purposes of Limitation Act. This
enables a party to initiate a fresh action in court or
fresh arbitration without being barred by limitation.
XIV.Arbitral award
A decision of an Arbitral Tribunal is termed as
‘Arbitral Award’. An arbitral award includes interim
awards. But it does not include interim orders
passed by arbitral tribunals under Section 17. Arbitrator can decide the dispute “in justice and in good
faith” only if both the parties expressly authorize
him to do so.49 The decision of Arbitral Tribunal
will be by majority.50 The Arbitral Award shall
be in writing and signed by all the members of the
tribunal.51 It must state the reasons for the award
unless the parties have agreed that no reason for the
award is to be given.52 The Award should be dated
and the place where it is made should be mentioned
(i.e. the seat of arbitration). A copy of the award
should be given to each party. Arbitral Tribunals
can also make interim awards.53
XV. Interest and cost of
arbitration
The interest rate payable on damages and costs
awarded, unless the arbitral award otherwise directs,
A.Regime for Costs (Introduced
by the Amendment Act)
Cost of arbitration means reasonable cost relating to
fees and expenses of Arbitrators and witnesses, legal
fees and expenses, administration fees of the institution supervising the arbitration and other expenses
in connection with arbitral proceedings. The tribunal can decide the cost and share of each party. 55 If
the parties refuse to pay the costs, the Arbitral Tribunal may refuse to deliver its award. In such case, any
party can approach the court. The court will ask for
a deposit from the parties and on such deposit, the
award will be delivered by the tribunal. Then court
will decide the cost of arbitration and shall pay the
same to Arbitrators. Balance, if any, will be refunded
to the party. 56
The regime for costs has been established which has
applicability to both arbitration proceedings as well
as the litigations arising out of arbitration.
The explanation defining the term ‘costs’ for the purpose of this sub-section has been added. The circumstances which have to be taken into account while
determining the costs have been laid down in the
sub-section (3) of the freshly added section (Section
31 A). In a nutshell this provision is added to deter
54. Section 31(7)(b) of the Act
13
iii. the award contains decisions on matters beyond the
mine the costs incurred during the proceedings
scope of the arbitration agreement;
including the ones mentioned under Section 31(8) of
the Act.
iv. the composition of the arbitral authority or the arbi-
tral procedure was not in accordance with the arbi-
XVI.Challenge to an
award
tration agreement;
v.
the award has been set aside or suspended by
a competent authority of the country in which
it was made;
Section 34 provides for the manner and grounds for
challenge of the arbitral award. The time period for
vi. the subject matter of dispute cannot be settled by
the challenge is before the expiry of 3 months from
arbitration under Indian law; or
the date of receipt of the arbitral award (and a further
period of 30 days on sufficient cause being shown
vii.the enforcement of the award would be contrary
for condonation of delay). If that period expires, the
to Indian public policy.
award holder can apply for execution of the arbitral
award as a decree of the court. But as long as this
period has not elapsed, enforcement is not possible.
Under Section 34 of the Act, a party can challenge
the arbitral award on the following groundsi.
ii.
The Amendment Act has added an explanation
to Section 34 of the Act. In the explanation, public
policy of India has been clarified to mean only if: (a)
the parties to the agreement are under some
the making of the award was induced or affected by
incapacity;
fraud or corruption or was in violation of Section 75
or 81; or (b) it is in contravention with the funda-
the agreement is void;
mental policy of Indian law; or (c) it is in contravention with the most basic notions of the morality or
justice.
Process for Challenge & enforcement
Domestic Award/ICA seated in
India
Enforcement of Award a as a
decree
3 Months + 30 days of the date
of receipt of award / date of
correction
Rejected
Application to
set aside the
Award
14
Appeals
Appeals
District court or HC
(as applicable), where
subject-matter of dispute
lies or where respondent
resides or carries on
business in case of
domestic award
The Amendment Act clarifies that an award will
A challenge has to be disposed of expeditiously
not be set aside by the court merely on erroneous
and in any event within a period of one year from
application of law or by re-appreciation of evidence.
the date of theprior notice referred above. 61 The
57 A court will not review the merits of the dispute
amended section also states that where the time for
in deciding whether the award is in contravention
making an application under section 34 has expired,
with the fundamental policy of Indian law. 58 The
then subject to the provisions of the CPC, the award
Amendment Act has also introduced a new section
can be enforced.
providing that the award may be set aside if the court
finds that it is vitiated by patent illegality which
Under the Act, there was an automatic stay once
appears on the face of the award in case of domestic
an application to set aside the award under Section
arbitrations. For ICA seated in India, ‘patent illegal-
34 of the Act was filed before the Indian courts. The
ity’ has been keep outside the purview of the arbitral
Amendment Act now requires parties to file an
challenge.59
additional application and specifically seek a stay
A challenge under this section can be filed only after
providing prior notice to the opposite party.60
by demonstrating the need for such stay to an
Indian court.
GROUNDS FOR CHALLENGE
Domestic Award/ICA seated in India
Pre-Amendment
Post-Amendment
Ground (a) – (f) in the pre-amendment era has been retained
with the addition of the following:
a. Party was under some incapacity;
b. Arbitration agreement not valid under the governing law
of the agreement;
c. Applicant not given proper notice and not able
to present its case;
d. Award deals with a dispute not contemplated by terms
of the submission to arbitration, or beyond the scope of
the submission to arbitration;
e. Composition of Arbitral Tribunal or the arbitral procedure not in accordance with the agreement or not
in accordance with Part I of the Act;
f. Subject-matter of the dispute not capable of settlement
by arbitration under the law;
a. In the explanation to Section 34 of the Act, public policy
of India has been clarified to mean only if:
(a) the making of the award was induced or affected
by fraud or corruption or was in violation of Section 75
or 81; or (b) it is in contravention with the fundamental
policy of Indian law; or (c) it is in contravention with the
most basic notions of the morality or justice;
b. A new section has been inserted providing that the
award may be set aside if the court finds it vitiated by
patent illegality which appears on the face of the award.
For international commercial arbitrations seated in
India, ‘patent illegality’ has been keep outside the
purview of the arbitral challenge;
c. An award will not be set aside by the court merely on
g. Award in conflict with the public policy of India
(if induced or affected by fraud or corruption or was in
violation of confidentiality requirements of a conciliation
or where a confidential settlement proposal
in a conciliation is introduced in an arbitration).
erroneous application of law or by re-appreciation of
evidence;
d. A court will not review the merits of the dispute
in deciding whether the award is in contravention with
the fundamental policy of Indian law.
TIME-LINES FOR CHALLENGE
Pre-Amendment
NA
Post-Amendment
Challenge can be filed only after providing prior notice to the
opposite party and has to be disposed of expeditiously and
in any event within a period of one year from the date of the
prior notice.
57. Proviso to section 34(2A) of the Act
58. Explanation 2 to section 48 of the Act
59. Section 34(2A) of the Act
15
XVII. Appeals
Only in exceptional circumstances, a court can be
approached under the Act. The aggrieved party can
approach the court only after arbitral award is made
or in case of an order passed under Section 17 of the
Act, after the order is passed. Appeal to court is now
permissible only on certain restricted grounds.
An appeal lies from the following orders and from no
others to the court authorized by law to hear appeals
from original decrees of the court passing the order62i. granting or refusing to grant any measure under
Section 9;
ii. setting aside or refusing to set aside an Arbitral
Award under Section 34.
The Amendment Act has widened the ambit
the Act read with the CPC. While the former lays
down the substantive law governing enforceability
and execution of an award, the latter deals with the
procedures required to be followed when seeking
execution of an award.
According to Section 35 of the Act, an arbitral award
shall be final and binding on the parties and persons claiming under them. Thus an arbitral award
becomes immediately enforceable unless challenged
under Section 34 of the Act.
When the period for filing objections has expired
or objections have been rejected, the award can be
enforced under the CPC in the same manner as if it
were a decree passed by a court of law.63
An ex parte award passed by an Arbitral Tribunal
under Section 28 of the Act is also enforceable under
Section 36. Even a settlement reached by the parties
under Section 30 of the Act can be enforced under
Section 36 of the Act as if it were a decree of the court.
of appeal by including the order refusing to refer the
parties to arbitration under Section 8 of the Act.
Appeal shall also lie to a court from an order
of the Arbitral Tribunala. accepting the plea referred to in sub-section (2) or
sub-section (3) of Section 16; or
b. granting or refusing to grant an interim measure
under Section 17.
A.Institution of Execution Petition
For execution of an arbitral award the procedure as
laid down in Order XXI of the CPC has to be followed.
Order XXI of the CPC lays down the detailed procedure for enforcement of decrees. It is pertinent to
note that Order XXI of the CPC is the longest order
in the schedule to the CPC consisting of 106 Rules.
Moreover, no second appeal shall lie from an order
Where an enforcement of an arbitral award
passed in appeal under this Section but nothing
is sought under Order XXI CPC by a decree-holder,
in Section 37 shall affect or take away any right to
the legal position as to objections to it is clear. At the
appeal to the Supreme Court.
stage of execution of the arbitral award, there can be
no challenge as to its validity. 64 The court executing
XVIII.Enforcement and
execution of the
award
the decree cannot go beyond the decree and between
the parties or their representatives. It ought to take
the decree according to its tenor and cannot entertain any objection that the decree was incorrect
in law or in facts.
In India, the enforcement and execution of arbitral
awards both domestic and foreign are governed by
63. N. Poongodi v. Tata Finance Ltd., 2005 (3) ARBLR 423 (Madras)
64. Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rahman, 1970 (1)
SCC 670; Bhawarlal Bhandari v. Universal Heavy Mechanical
Lifting Enterprises, 1999 (1) SCC 558
16
All proceedings in execution are commenced
Where an attachment has been made, any private
by an application for execution. 65 The execution of
transfer of property attached, whether it be movable
a decree against property of the judgment debtor can
or immovable, is void as against all claims enforcea-
be effected in two ways –
ble under the attachment. 69
i. Attachment of property; and
ii. Sale of property of the judgment debtor
The courts have been granted discretion to impose
conditions prior to granting a stay, including a direction for deposit. The amended section also states that
where the time for making an application under section 34 has expired, then subject to the provisions of
If during the pendency of the attachment, the judgment debtor satisfies the decree through the court
the attachment will be deemed to be withdrawn. 70
Otherwise the court will order the property to be
sold. 71
C.Sale of attached property
the CPC, the award can be enforced.66
Order XXI lays down a detailed procedure for sale of
Also, the mere fact that an application for setting
the property attached is a moveable property, which
aside an arbitral award has been filed in the court
is subject to speedy and natural decay, it may be sold
attached property whether movable or immovable. If
does not itself render the award unenforceable
at once under Rule 43. Every sale in execution of a
unless the court grants a stay in accordance with the
decree should be conducted by an officer of the court
provisions of sub-section 3, in a separate application.
except where the property to be sold is a negotiable
It is the discretion of the court to impose such condi-
instrument or a share in a corporation which the
tions as it deems fit while deciding the stay applica-
court may order to be sold through a broker.72
tion. 67
B.Attachment of Property
‘Attachable property’ belonging to a judgment debtor
may be divided into two classes: (i) moveable property and (ii) immoveable property.
If the property is immoveable, the attachment is to
be made by an order prohibiting the judgment debtor
from transferring or charging the property in any
way and prohibiting all other persons from taking
any benefit from such a transfer or charge. The order
must be proclaimed at some place on or adjacent to
the property and a copy of the order is to be affixed
on a conspicuous part of the property and upon a
conspicuous part of the courthouse. 68
65. Rule 10 of the CPC
69. Section 64 of the CPC
70. 0.XXI R. 55 of the CPC
67. Proviso to Section 36(3) of the Act
71. 0.21 R. 64 of the CPC
68. O.XXI R.54 of the CPC
72. 0.XXI R.76 of the CPC
17
6. International Commercial Arbitration with
seat in a reciprocating country
Post the decision of the Supreme Court in BALCO73,
tual or not, (iii) considered as commercial under the
Indian arbitration law has been made seat-centric.
law in force in India, (iv) made on or after 11th day of
The Amendment Act clarifies that Part I of the Act
October, 1960 (v) in pursuance of an agreement in
will not be applicable in foreign seated arbitrations,
writing for arbitration to which the convention set
save and except the standalone provisions discussed
forth in the first schedule applies; and (vi) in one of
below in the table.
such territories as the Central Government, being
Pre-Balco (Bhatia Regime)
Post-Balco
Unless impliedly or expressly excluded by the parties, Part I of the Act
will apply even to a foreign seated
arbitration.
Part I of the Act will not apply in
Part I of the Act will not apply in case of
case of foreign seated arbitration
foreign seated arbitration. The decision
except Sections 9, 27 and 37 unwas given prospective effect and thereless a contrary intention appears
fore applied to only arbitration agreements executed on or after September 6, in the arbitration agreement.
2012. If the arbitration agreement was
The Amendment Act is applicable
executed prior to September 6, 2012,
prospectively with effect from Octonecessary modifications would have to
ber 23, 2015 (i.e. the commencebe made in the arbitration agreement
ment of the arbitral proceedings
in order to be governed by the ruling in
should be on or after October 23,
BALCO.74
2015)75
Part II of the Act is applicable to all foreign awards
sought to be enforced in India and to refer parties to
arbitration when the arbitration has a seat outside
India. Part II is divided into two chapters, Chapter 1
being the most relevant one as it deals with foreign
awards delivered by the signatory territories to the
New York Convention which have reciprocity with
India, while Chapter 2 is more academic in nature
as it deals with foreign awards delivered under the
Geneva Convention. 76
A foreign award under Part II is defined as (i)
an arbitral award (ii) on differences between persons
arising out of legal relationships, whether contrac-
73.
Bharat Aluminum Co. v. Kaiser Aluminum Technical Service, Inc.,
2012 (9) SCC 552
74.
Harmony Innovation Shipping Ltd v. Gupta Coal India Ltd.
& Anr, 2015 (3) SCALE 295 (for our analysis please see: http://
www.nishithdesai.com/information/research-and-articles/
nda-hotline/nda-hotline-single-view/article/have-you-amendedyour-arbitration-agreement-post-balco.html?no_cache=1&cHash=05954678cd27f35dbcb4ce62517c1fc3)
75.
Recently the courts have adopted differential view with regard
to applicability of the Amendment Act on the ccourt proceedings arising out of the underlying arbitral proceedings.
Amendment Act
satisfied that reciprocal provisions made may,
by notification in the Official Gazette, declare to be
territories to which the said convention applies.
Thus, even if a country is a signatory to the New
York Convention, it does not ipso facto mean that
an award passed in such country would be enforceable in India. There has to be further notification
by the Central Government declaring that country
to be a territory to which the New York Convention
applies. In the case of Bhatia International v Bulk Trading, 77 (“Bhatia International”) the Supreme Court
expressly clarified that an arbitration award not
made in a convention country will not be considered a foreign award.
76. As mostly all parties signatory to the Geneva Convention as
now members of the New York Convention, Chapter 2 of Part II
remains primarily academic.
77.
18
AIR 2002 SC 1432
About 48 countries have been notified by the Indian
in an arbitration agreement. The Section is based on
government so far. They are:- Australia; Austria; Bel-
Article II (3) of New York Convention and with an
gium; Botswana; Bulgaria; Central African Repub-
in-depth reading of the Section 45 of the Act, it can
lic; Chile; China (including Hong Kong and Macau)
be clearly understood that it is mandatory for the
Cuba; Czechoslovak Socialist Republic; Denmark;
judicial authority to refer parties to the arbitration.
Ecuador; Federal Republic of Germany; Finland;
France; German; Democratic Republic; Ghana;
Greece; Hungary; Italy; Japan; Kuwait; Malagasy
Republic; Malaysia; Mauritius, Mexico; Morocco;
Nigeria; Norway; Philippines; Poland; Republic
of Korea; Romania; Russia; San Marino; Singapore;
Spain; Sweden; Switzerland; Syrian Arab Republic;
Thailand; The Arab Republic of Egypt; The Netherlands; Trinidad and Tobago; Tunisia; United Kingdom; United Republic of Tanzania and United States
of America.
Thus, to reach the conclusion that a particular award
is a foreign award, the following conditions must be
satisfied - 78 Section 45 of the Act starts with a non obstante
clause, giving it an overriding effect to the provision
and making it prevail over anything contrary contained in Part I or the CPC. It gives the power to the
Indian judicial authorities to specifically enforce the
arbitration agreement between the parties.
But as an essential pre-condition to specifically
enforcing the arbitration agreement, the court has
to be satisfied that the agreement is valid, operative
and capable of being performed. A party may not be
entitled to a stay of legal proceedings in contravention to the arbitration agreement under Section 45
in the absence of a review by the court to determine
the validity of the arbitral agreement. The review
i.
the award passed should be an arbitral award,
is to be on a prima facie basis.80
ii.
it should be arising out of differences between the
A.Distinction between Section
8 and Section 45
parties;
iii. the difference should be arising out of a legal relation-
ship;
iv. the legal relationship should be considered as com-
v.
Section 8 and Section 45 of the Act, both pertaining
to court referring disputes to arbitration, vary with
mercial;
regards to the threshold of discretion granted to the
it should be in pursuance of a written agreement
tion 8 of the Act leaves no discretion with the court in
to which the New York Convention applies; and,
the matter of referring parties to arbitration whereas
vi. the foreign award should be made in one of the afore-
mentioned 47 countries.
I.Referring parties to arbitration under part II
A judicial authority under Section 45 of the Act has
courts. The primary distinction appears to be that Sec-
Section 45 of the Act grants the court the power to
refuse a reference to arbitration if it finds that the arbitration agreement is null and void, inoperative
or incapable of being performed.81
The Supreme Court in World Sport Group (Mauritius)
Ltd v MSM Satellite (Singapore) Pte. Ltd. 82 has opined
that no formal application is necessary to request
a court to refer the matter to arbitration under Section
been authorized to refer those parties to arbitration,
who under Section 44 79 of the Act have entered
78. National Ability S.A. v. Tinna Oil Chemicals Ltd., 2008 (3)
ARBLR 37
80. Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre, 2005 (3) ArbLR 1;
Korp Gems (India) Pvt. Ltd. v. Precious Diamond Ltd., 2007 (3)
ArbLR 32
81. 2005 (3) ArbLR 1
82. Swiss Timing Limited v. Organizing Committee, Commonwealth
Games 2010, Delhi, 2014 (6) SCC 677
19
45 of the Act. In case a party so requests even through
affidavit, a court is obliged to refer the matter to arbitration with the only exception being cases where the
i.
ii. The original/duly authenticated copy of the agree-
ment; and
arbitration agreement is null and void, inoperative
and incapable of being performed, thus limiting the
scope of judicial scrutiny at the stage of referring a dis-
iii. Such evidence as may be necessary to prove that the
award is a foreign award.
pute to foreign seated arbitrations.
Thus, though Section 8 of the Act envisages the filling of an application by a party to the suit seeking
reference of the dispute to arbitration, Section 45
needs only a ‘request’ for that purpose.
Further, Section 45 can only be applied when the
matter is the subject of a New York Convention
arbitration agreement, whereas Section 8 applies in
general to all arbitration clauses falling under Part I
of the Act. In Chloro Controls (I) P. Ltd. v. Severn Trent
Water Purification Inc. & Ors., 83 the Supreme Court
has held that the expression ‘person claiming through
or under’ as provided under Section 45 of the Act
would mean and include within its ambit multiple
and multi-party agreements. Hence even non-signatory parties to some of the agreements can pray and
be referred to arbitration.
The original/duly authenticated copy of the award;
There are several requirements for a foreign arbitral
award to be enforceable under the Act –
A.Commercial transaction
The award must be given in a convention country
to resolve commercial disputes arising out of a legal
relationship. In the case of RM Investment & Trading v. Boeing, 84 the Supreme Court observed that the
term “commercial” should be liberally construed as
having regard to manifold activities which are an
integral part of international trade.
B.Written agreement
The Geneva Convention and the New York Convention provide that a foreign arbitral agreement must
be made in writing, although it does not have to be
This ruling has widespread implications for foreign
worded formally or be in accordance with a particu-
investors and parties as now, in certain exceptional
lar format.
cases involving composite transactions and interlinked agreements, even non-parties such as a parent
company, subsidiary, group companies or directors
can be referred to and made parties to an ICA.
C.Agreement must be valid
The foreign award must be valid and arise from an
enforceable commercial agreement. In the case of
II.Enforcement and execution of foreign awards
When a party seeking enforcement of a New York
Convention award under the provisions of the Act,
must make an application to the Court of competent
jurisdiction with the following documents –
Khardah Company v. Raymon & Co. (India), 85 the
Supreme Court held that an arbitration clause cannot be enforceable when the agreement of which it
forms an integral part is declared illegal.
D.Award must be unambiguous
In the case of Koch Navigation v. Hindustan Petroleum
Corp., 86 the Supreme Court held that courts must
84.
AIR 1994 SC 1136
85.
AIR 1962 SC 1810
83. 2013 (1) SCC 641
86.
AIR 1989 SC 2198
20
give effect to an award that is clear, unambiguous
narrowed down the meaning of the words “public
and capable of resolution under Indian law.
policy” in order to give effect to the Act.
Under Section 48 of the Act, in case of a New York
In Penn Racquet Sport v. Mayor International Ltd.,88,
Convention award, an Indian court can refuse
the petitioner, a company based in Arizona, sought
to enforce a foreign arbitral award if it falls within
to enforce in India an International Chamber of
the scope of the following statutory defenses –
Commerce (“ICC”) award passed in its favor. The
i.
the parties to the agreement are under some
incapacity;
ii.
the agreement is void;
iii. the award contains decisions on matters beyond
the scope of the arbitration agreement;
iv. the composition of the arbitral authority or the arbi-
tral procedure was not in accordance with the arbitration agreement;
v.
the award has been set aside or suspended
by a competent authority of the country
in which it was made;
vi. the subject matter of dispute cannot be settled
by arbitration under Indian law; or,
vii.the enforcement of the award would be contrary
to Indian public policy.
The term “public policy” as mentioned under Section 48 (2) (b) is one of the conditions to be satisfied
before enforcing a foreign award. The Supreme Court
in Renusagar Power Co. Ltd. v. General Electric Co., 87
(“Renusagar”) held that the enforcement of foreign
award would be refused on the ground that it is contrary to public policy if such enforcement would
be contrary to –
(i) fundamental policy of India; or
(ii) the interest of India; or
(iii) justice or morality.
respondent, an Indian company, challenged the
execution of the award on grounds, inter alia, that
the award was contrary to the public policy of India.
The Delhi High Court, in a well-reasoned decision,
rejected the objections raised by the Indian company and held that the foreign award passed in favor
of the American company was enforceable in India.
It held that the merely because the award went
against the interest of an Indian company was not
enough to qualify as working against the “public policy of India”.
However, in Shri Lal Mahal Ltd. v. Progetto Grano
Spa 89(“Lal Mahal”), it was held that enforcement
of foreign award would be refused under Section
48(2) (b) only if such enforcement would be contrary to (i) fundamental policy of Indian law; or
(ii) the interests of India; or (iii) justice or morality.
The wider meaning given to the expression “public policy of India” occurring in Section 34(2)(b)(ii)
in Saw Pipes 90 is not applicable where objection
is raised to the enforcement of the foreign award
under Section 48(2)(b). The Supreme Court further discussed Phulchand Exports Limited v. O.O.O.
Patriot 91 (“Phulchand”), wherein it was accepted
that the meaning given to the expression “public
policy of India” in Section 34 in Saw Pipes, must be
applied to the same expression occurring in Section 48(2)(b) of the 1996 Act. The Supreme Court
concluded that “public policy of India used in Section 48(2)(b) has to be given a wider meaning and
the award could be set aside, if it is patently illegal”
does not lay down correct law, and has hence overruled the earlier decisions on this point.
Thus by the above decisions, the courts in India have
laid down certain threshold which defines “public
policy” for enforcing foreign awards in India. The
courts, after the land mark judgment, have further
87. (1994) 2 Arb LR 405
88. 2011 (1) ArbLR 244 (Delhi)
89. 2013 (8) SCALE 489
90. Oil and Natural Gas Corporation Ltd. v. Saw Pipes, AIR 2003 SC
2629
91. 2011 (10) SCC 300
21
On fulfilling the statutory conditions mentioned
and such an appeal is filed before the Supreme Court.
above, a foreign award will be deemed a decree of the
Indian court enforcing the award and thereafter will
The Supreme Court in Shin-Etsu Chemical Co. Ltd. v.
be binding for all purposes on the parties subject to
Aksh Optifibre Ltd., held that-
the award.
The Supreme Court has held that no separate application needed be filed for execution of the award.
A single application for enforcement of award would
undergo a two-stage process. In the first stage, the
enforceability of the award, having regard to the
requirements of the Act (New York Convention
grounds) would be determined. Foreign arbitration
awards, if valid, are treated on par with a decree
passed by an Indian civil court and they are enforceable by Indian courts having jurisdiction as if the
decree had been passed by such courts. 92
“While a second appeal is barred by Section 50, appeal
under Article 136 of the Constitution of India to the
Supreme Court has not been taken away. However,
Article 136 does not provide a party a right to an
appeal; it is a discretion which the Supreme Court may
choose to exercise. Thus, where there existed an alternative remedy in the form of a revision under Section
115 of the Civil Procedure Code or under Article 227
of the Constitution before the High Court, the Supreme
Court refused to hear an appeal under Article 136 even
though special leave had initially been granted…”93
Once the court decides that the foreign award
is enforceable, it shall proceed to take further steps
for execution of the same, the process of which is
identical to the process of execution of a domestic
award.
Out of several issues raised in Jindal Exports Ltd. v.
Fuerst Day Lawson Ltd., 94 one was whether
a letters patent appeal would lie against an order
under Section 50 of the Act wherein a petition seek-
The Amendment Act seems to have taken into
ing execution of an award was dismissed and no
account the findings of the court in pro-arbitration
appeal was maintainable under the Act. Further,
judgments such as Shri Lal Mahal Ltd. vs Progetto
the single judge, under Section 45, refused to refer
Grand Spa by now specifically providing an expla-
the parties to arbitration. A letters patent appeal
nation in Section 48, for the avoidance of all doubts,
was filed against the impugned order. The matter
that an award is in conflict with the public policy
was later referred to the Supreme Court to clarify
of India, only if (i) the making of the award was
whether the appeal was maintainable.
induced or affected by fraud or corruption or was
in violation of section 75 or section 81; or (ii) it is
The Supreme Court in its decision held –
in contravention with the fundamental policy of
Indian law; or (iii) it is in conflict with the most basic
notions of morality or justice.
III. Appealable orders
Under Section 50 of the Act, an appeal can be filed by
“… In light of the discussions made above, it must be
held that no letters patent appeal will lie against an
order which is not appealable under Section 50 of the
Arbitration and Conciliation Act, 1996…”
a party against those orders passed under Section 45
and Section 48 of the Act. However, no second appeal
Thus it is clearly understood that an order under Sec-
can be filed against the order passed under this Sec-
tion 45 is only appealable under Article 136 of the
tion. These orders are only appealable under Article
Constitution.
136 of the Constitution of India (“Constitution”)
93. 2005 (3) ArbLR 1
94. (2000) 4 RAJ 227
22
7.Emerging Issues in Indian Arbitration Laws
In the recent past, there has been a lot of enthusiasm
Pvt. Ltd., 97 the Bombay High Court expressed a view
on some of the emerging issues concerning the arbi-
that two Indian parties choosing a foreign seat and
tration laws in India, such as (a) prospective appli-
a foreign law governing the arbitration agreement
cability of the Amendment Act; (b) whether two
could be considered to be opposed to public policy
Indian parties can chose a foreign seat of arbitration;
of the country.
(c) whether it is possible to arbitrate a dispute arising
over allegations of oppression and mismanagement.
I.Prospective applicability
of the amendment act
Recently, in the case of Sasan Power Ltd v. North
America Coal Corporation India Pvt. Ltd.,98 ,
the Madhya Pradesh High Court opined that two
Indian parties may conduct arbitration
in a foreign seat under English law.
The Madhya Pradesh High Court primarily relied
Recently, the Madras High Court in New Tripur Area
on the ruling in the case of Atlas Exports Industries
Development Corporation Limited v. M/s. Hindustan
v. Kotak & Company,99 wherein the Supreme Court
Construction Co. Ltd. & Ors., 95 has ruled that the lan-
ruled that two Indian parties could contract to have
guage used in the Section 26 of the Amendment Act
a foreign-seated arbitration; although, the judgment
only refers to arbitral proceedings and not court pro-
was in context of the 1940 Arbitration Act. An appeal
ceedings due to deletion of the language “in relation
has been filed challenging this decision and is pend-
to.” Section 26 of the Amendment Act is not applica-
ing adjudication before the Supreme Court.
ble to the stage post arbitral proceedings.
However, one must be wary of the ruling in TDM
However, the Calcutta High Court in Electrosteel Cast-
Infrastructure, 100 wherein the court ruled that two
ings Limited v. Reacon Engineers (India) Private Ltd. 96
Indian parties could not derogate from Indian law
has given a contrary view, and held that the Amend-
by agreeing to conduct arbitration with a foreign seat
ment Act will not apply and Section 34 petitions in
and a foreign law.
case of arbitration proceedings commenced prior to
October 23, 2015, would act as automatic stay.
II.Conundrum surrounding two indian parties
having a foreign seat of
arbitration
Even though this issue has been addressed
by a number of High Courts in the past, there
III. Arbitrability of
oppression and mismanagement cases
A landmark judgment on this issue was delivered
by the Bombay High Court in Rakesh Malhotra v.
Rajinder Kumar Malhotra, 101 wherein the court held
that disputes regarding oppression and mismanage-
is still no clarity on ability of two Indian parties
97. Judgment in Arbitration Petition No. 910/2013 dated June 12,
2015.
to choose a foreign seat of arbitration. In Addhar Mer-
98. Judgment in First Appeal No. 310/2015 dated September 11,
2015.
cantile Private Limited v. Shree Jagdamba Agrico Exports
99. (1999) 7 SCC 61
95. Application No. 7674 of 2015 in O.P. No. 931 of 2015
100. TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd.,
(2008) 14 SCC 271
96. Judgment in Arbitration Petition No. 1710/2015 dated January
14, 2016.
101. Rakesh Malhotra v. Rajinder Kumar Malhotra, (2015) 2 CompLJ
288 (Bom).
23
ment cannot be arbitrated, and must be adjudicated
In such cases, even if there is an arbitration agreement,
upon by the judicial authority itself. However,
it is not necessary that every single act must, ipso facto,
in case the judicial authority finds that the petition
relate to that arbitration agreement. Further, the fact
is mala fide or vexatious and is an attempt to avoid
that the dispute might affect rights of third parties
an arbitration clause, the dispute must be referred to
who are not party to the arbitration agreement ren-
arbitration. Arguably, this could have an unintended
ders such disputes non-arbitrable. In addition to the
impact on the prima facie standard in section 8,
above emerging issues, please find enclosed Annexure
as amended and introduced by the Amendment Act.
containing detailed list of our hotlines which cover
The Bombay High Court opined that a petition under
Sections 397 and 398 of the Companies Act, 1953
the analysis of the recent judgments and issues
faced in the arbitration regime in India.
may comprise of conduct of clandestine non-contractual actions that result in the mismanagement of the
company’s affairs or in the oppression of the minority
shareholders, or both.
24
8.Conclusion
A fast-growing economy requires a reliable stable
With the pro-arbitration approach of the courts and
dispute resolution process in order to be able to
the Amendment Act in place, there is cause to look
attract foreign investment. With the extreme back-
forward to best practices being adopted in Indian
log before Indian courts, commercial players in India
arbitration law in the near future. Exciting times are
and abroad have developed a strong preference to
ahead for Indian arbitration jurisprudence and our
resolve disputes via arbitration.
courts are ready to take on several matters dealing
In spite of India being one of the original signato-
with the interpretation of the Amendment Act.
ries of the New York Convention, arbitration in
India has not always kept up with international
best practices. However, the last five years have
seen a significant positive change in approach.
Courts and legislators have acted with a view to
bringing Indian arbitration law in line with international practice.
25
Annexure
I. Prospective Applicability of Arbitration and
Conciliation Amendment Act, 2015
§§Prospective applicability of Arbitration & Conciliation (Amendment) Act 2015 would be limited
to arbitral proceedings and not to court proceedings;
§§ Section 26 of the Amendment Act cannot be
extended to include post arbitration proceedings,
when the award is passed before the commencement of the Amendment Act;
§§ Separate application needs to be filed to stay
enforcement of arbitral award as court proceedings are distinct from arbitral proceedings.
judgment of New Tirupur Area Development Corporation Ltd. (“NTADCL”) v. M/s Hindustan Construction
Co. Ltd. (“HCC”)103 has dealt with the interpretation
and applicability of Section 26 of the Amendment
Act. The Madras HC held that Section 26 of the
Amendment Act is not applicable to post arbitral
proceedings and therefore separate application needs
to be filed under Section 36 (2) of the Act as required
under the amended provisions to stay enforcement
proceedings pending challenge of an arbitral award.
Section 36 (2) and (3) as introduced by the Arbitration Ordinance, 2015104 with effect from October
23, 2015 stipulates a condition for filing a separate
application along with the Section 34 petition for setting aside the arbitral award to stay the enforcement
proceedings.
C.Contentions of the Parties
NTADCL had filed certain applications under Sec-
A.Background
tion 36 (2) of the Act for stay on enforcement of arbi-
The Arbitration and Conciliation Amendment Act,
the arbitral awards dated August 17, 2015 before the
tral awards in the on-going petitions for setting aside
2015 (“Amendment Act”) has introduced certain
Madras HC. The issue before the Madras HC in the
amendments to the provisions of the Arbitration and
present case pertains to interpretation and applica-
Conciliation Act, 1996 (“Act”) and is deemed to be
bility of Section 26 of the Amendment Act to post
effective from October 23, 2015. However, Section
arbitral proceedings.
26102 inserted in the newly enacted Amendment
Act stipulates that “nothing in the Amended Act, shall
apply to ‘arbitral proceedings’ commenced as per Section
21 of the Act, before the commencement of the Amend-
NTADCL had filed its challenge to an arbitral award
and contended that since Section 26 of the Amendment Act clarifies that it is not applicable to arbitra-
ment Act.”
tion proceedings commenced under the Act, there
B.Introduction and Factual
Matrix
By virtue of filing the challenge petition under Sec-
is no requirement to file a separate stay application.
103. Application No. 7674 of 2015 in O.P. No. 931 of 2015
102. Section 26 Act not to apply to pending arbitral proceedings:
- Nothing contained in this Act shall apply to the arbitral
proceedings commenced, in accordance with the provisions
of Section 21 of the principal Act, before the commencement
of this Act unless the parties otherwise agree but this Act shall
apply in relation to arbitral proceedings commenced or on after
the date of commencement of this Act.
104. Section 36 (2) “Where an application to set aside the arbitral
award has been filed in the Court under section 34, the filing
of such an application shall not by itself render the award
unenforceable, unless upon a separate application made for
that purpose, the Court grants stay of the operation of the
award in accordance with the provisions of sub-section (3)
hereof;” Section 36 (3) “Upon filing of the separate application
under subsection (2) for stay of the operation of the award, the
court may, subject to such conditions as it may deem fit, grant
stay of the operation of the award for reasons to be recorded in
writing.”
26
The Madras High Court (“Madras HC”) in its recent
tion 34 of the Act, the arbitral award automatically
Madras HC held that the legislative intention under
becomes unenforceable till such time the challenge
Section 85 (2) of the Act was to apply the provisions
petition under section 34 of the Act is disposed of.
in relation to arbitral proceedings which com-
Further relying on the Supreme Court ruling of
Thyssen Stahl Union GMBH v. Steel Authority of India
menced before the Act and included court proceedings within its ambit.
Ltd.105, NTADCL argued that the requirement of fil-
The court held that the legislative intent of making
ing of separate stay application under the amended
the provisions of the Amendment Act applicable to
Section 36 (2) would apply only in relation to arbitral
court proceedings was clear in view of the following:
proceedings commenced on or after the date of commencement of the Amendment Act. The Supreme
1.
before “arbitral proceedings” is deleted. In Thys-
Court in Thyssen held that the expression “in rela-
sen, the Supreme Court interpreting the repeal
tion to arbitral proceedings” would also cover court
and savings clause held that the usage of the
proceedings within its ambit due to the usage of the
words “in relation to arbitral proceedings” threw
words “in relation to”. The judgment was rendered
an ambiguity and could not be interpreted in a
in the context of repeal and savings clause. Section
narrow manner to mean only pendency of the
85(2) of the Act is applicable in two limbs which
arbitration proceedings before Arbitrator but
clarifies that provisions of the old act would apply to
would also cover proceedings before court;
arbitral proceedings which commenced prior to the
Act coming into force unless otherwise agreed by the
parties and Act would apply in relation to arbitral
2.
absence of the expression “court proceedings” in
section 26;
proceedings which commenced on or after the Act
came into force. The usage of the words “in relation
In section 26, the expression “in relation to”
3.
Insertion of the Section 36(2), which in the facts
to” cannot be interpreted in a narrow manner and
of this particular case, specifically provides for
would include all proceedings including court pro-
filing a separate application to stay the enforce-
ceedings.
ment of the award.
HCC contended that there is a difference between
The Madras HC held that the interpretation of Sec-
arbitral proceedings and court proceedings and lit-
tion 26 cannot be extended to include post arbitral
eral interpretation needs to be given to the language
proceeding (including court proceedings), even
of the statute. Accordingly, HCC contended that
where the award has been passed before the com-
though provisions of the Amendment Act, would
mencement of the Amendment Act. Section 36 (2)
not apply to any arbitral proceedings initiated prior
& (3) have been inserted for a specific purpose to
to the commencement of the Amendment Act but
ensure that an application challenging the award
nothing prevents the application of the provisions of
does not automatically render the award unenforce-
the Amendment Act to court proceedings initiated
able but a separate application is required to be filed
after October 23, 2015. Section 26 of the Amendment
to stay enforcement proceedings.
Act provides that it will not be applicable to arbitration proceedings commenced prior to coming into
effect of the Amendment Act.
D.Judgement and Analysis
Based on the comparative study of Section 26 of
the Amended Act and Section 85(2) of the Act, the
These sections are applicable to post arbitral proceedings. The procedure to be followed during the stage
of arbitral proceedings and after the award are distinct. Court proceedings are not arbitral proceedings.
Therefore the Madras HC held that the applicability
of the provisions of the Amendment Act should be
read with the new provisions (Section 26 read with
amended Section 36 (2) of the Act).
105. 1999 (9) SCC 334
27
Interestingly the applicability of Amendment Act
have commenced prior to coming into force of the
has been considered by the Calcutta High Court and
Amendment Act. There will be two set of laws appli-
contrary decision has been passed. The Calcutta
cable in such cases with no clarity on the practical
High Court in the case of Electro Steel Casting Limited
implementation of the different regimes to arbitral
v. Reacon (India) Pvt. Ltd.106 while explaining the
and court proceedings.
application of Section 26 on arbitral proceedings,
held that where arbitration proceedings commences
before the commencement of Amendment Act, the
– Payel Chatterjee, Moazzam Khan & Vyapak Desai
provisions of the Act would apply, and enforcement
You can direct your queries or comments to the
of the award would be stayed automatically upon
authors
the filing of application for setting aside an award.
This judgment deals only with the scenario of post
arbitral proceedings however the ruling may have
a much wider impact in case of other types of court
proceedings (interim reliefs, seeking evidence,
appeals) initiated post October 23, 2015 in cases
where arbitration proceedings may
106. Application No. 1710 of 2015 decided on January 14, 2016
28
II. Two Indian Parties Opting for Foreign-Seated Arbitration: No Bar?
B. Factual Matrix
Sasan Power entered into an association agreement with North American Coal Corporation-US
(“NACC-US”) in 2007 (“Agreement”). The Agreement, inter alia, provided for resolution of disputes
by way of arbitration to be administered by ICC in
London, England, under laws of the United King-
§§Madhya Pradesh High Court upholds arbitration
agreement mandating two Indian Parties to take
recourse to a foreign-seated arbitration with foreign substantive law;
§§Holds that the resultant award would be a ‘foreign award’, as envisaged under Part II of the Arbitration & Conciliation Act, 1996;
§§This is a step forward in the longstanding debate
on whether arbitration proceedings between two
Indian entities can be seated in a foreign country.
dom. In 2011, NACC-US assigned its rights, liabilities and obligations under the Agreement to the
Respondent - North America Coal Corporation India
Pvt Ltd. (“NACC-India”) by way of an Assignment
Agreement. Interestingly, whilst an assignment to
NACC-India was conducted, it appears that the obligations and liabilities of NACC-US under the Agreement continued.
In 2014, NACC-India terminated the Agreement and
filed a request for arbitration claiming compensation
of INR 1,82,59,301. Sasan Power filed its objection
to this request for arbitration. Sasan Power, thereafter, filed a suit before the District Court and sought
A.Background
The Madhya Pradesh High Court (“Court”) in its
recent decision in Sasan Power Ltd v. North America
Coal Corporation India Pvt Ltd 107 has held that two
Indian parties may conduct arbitration in a foreign
seat under English law.
The Court relied upon an earlier decision of a Division Bench of the Supreme Court of India (“Supreme
Court”) in Atlas Exports Industries v. Kotak & Company108 (“Atlas Exports”) wherein the Supreme
Court, under the Arbitration Act, 1940 (“1940 Act”),
had held that it was not against the public policy
of India when two Indian parties contract to have a
foreign-seated arbitration.
Whilst this judgment provides certain answers in
an anti-arbitration injunction. The injunction was
granted by the District Court.
A second request for arbitration was filed by
NACC-US before the ICC. Sasan Power filed
a second suit challenging the request for arbitration
filed by NACC-US.
NACC-India filed applications for rejection of plaint
under Order VII Rule 11 of the Code of Civil Procedure, 1908 (“Code”) read with Section 45 of the Arbitration & Conciliation Act, 1996 (“Act”) and vacation
of the anti-arbitration injunction granted by District
Court (“Applications”), before the District Court.
The District Court allowed the Applications moved
by NACC-India and dismissed the suit filed
by Sasan Power. Consequently, Sasan Power filed
this appeal under Section 96 of the Code.
the longstanding and yet inconclusive debate on the
issue of whether two Indian parties can seat their
arbitration abroad, it also throws up larger questions.
107. First Appeal 310 of 2015
108. (1999) 7 SCC 61
29
C.Issues
E.Highlights of the Judgment
The Court, amongst other things, considered:
The Court saw no reason to interfere with the
1.
Whether the appeal filed by Sasan Power was
maintainable in light of Section 50
of the Act?
2.
Whether two Indian parties could choose
impugned judgment which referred the parties to
arbitration under Section 45 of the Act and dismissed
the appeal, while providing the following reasons:
1.
refer parties to arbitration could be appealed as
to seat their arbitration in a foreign country?
D.Gist of Arguments
per Section 50 of the Act.
2.
Indian Contract Act, 1872 read with the Exception 1
would not be a bar to a foreign seated arbitration.
did not permit two Indian parties to derogate from
Further, it was observed that when two Indian par-
Indian law by agreeing to conduct arbitration with
ties had willingly entered into an agreement
a foreign seat and a foreign substantive law. Further,
in relation to arbitration, the contention that a for-
reliance on Atlas Exports was erroneous since it was
eign seated arbitration would be opposed to Indian
a judgment under the 1940 Act and only the Act
public policy was untenable.
would be applicable to the present case. The mandate
an arbitration clause contemplating a foreign seated
3.
TDM Infrastructure) would, in light of the deci-
hence Applications based on such a void, null and
sion in Fuerst Day Lawson Ltd v. Jindal Exports109,
inoperative arbitration clause would not
wherein it was observed by the Supreme Court
be maintainable.
that there was not much difference between provisions of the Act and 1940 Act; be binding prece-
NACC-India argued that that no appeal laid against
dent in relation to the issue at hand.
an order passed under Section 45 of the Act. Further,
in scope to appointment of an arbitrator during
The Court noted that in TDM Infrastructure the
4.
Supreme Court had clarified by way of an Offi-
proceedings under Section 11(6) of the Act, where
cial Corrigendum that:
the seat of arbitration was India. The provisions of
Section 28(1) of the Act were not applicable in the
The Court stated that the principle laid down in
Atlas Exports (that was by a larger bench than
arbitration between two Indian parties was invalid;
it was argued that TDM Infrastructure was limited
The Court, while, placing reliance on the judgment
in Atlas Exports, observed that Section 28 of the
Sasan Power contended that TDM Infrastructure
of Section 45 of the Act would not be attracted since
The Court observed that only orders refusing to
“It is, however, made clear that any findings/observations made hereinbefore were only for the purpose
present situation since the seat of arbitration was
England. Atlas Exports, wherein it was stated that by
of determining the jurisdiction of this Court as envis-
virtue of the Exception 1 to Section 28 of the Con-
aged under Section 11 of the 1996 Act and not for
tract Act, two Indian parties could have a foreign
any other purpose.”
seated arbitration; would apply. Given that Atlas
Exports was passed by a two-judge bench, it would be
considered precedent even assuming TDM Infrastructure were to apply not only in cases related to Section
11(6) of the Act .
5.
The Court observed that the scheme of the Act
indicated that the classification of an arbitration as an international commercial arbitration
depended only on the nationality of the parties,
which is only relevant for the appointment arbitrators as contemplated under Section 11 of the
Act.
109. (2011) 8 SCC 333
30
6.
7.
The Court opined that the nationality of the par-
The present judgment applies Atlas Exports, while
ties would not influence the applicability of Part
restricting the applicability of TDM Infrastructure to
II of the Act, the applicability of which would
issues related to Section 11(6) of the Act, to reiterate
flow depending on the seat of arbitration.
the legality of two Indian parties choosing to seat
The Court, relying upon Enercon (India) Private
Limited v. Enercon GMBH110 and Chatterjee Petroleum v. Haldia Petro Chemicals111, was of the opinion that where the parties had agreed to resolve
their disputes through arbitration, the courts
were to give effect to the intention of the parties
and interfere only when the agreement was null
or void or inoperative.
8.
The Court observed that once parties by mutual
agreement had agreed to resolve their disputes
by a foreign-seated arbitration, Part I of the Act
would not apply. Further where the agreement
fulfilled the requirements of Section 44, provisions of Part II of the Act would apply. It was held
that a court, under Section 45, would have to refer
parties to arbitration where it was found that the
agreement was not null or void or inoperative.
F.Analysis
This judgment interprets the scheme of the Act,
whereby it clarifies that applicability of Part II of
the Act is not based on the nationality of the parties but on the basis of where the arbitration is
“seated”. If arbitration is seated outside India, irre-
their arbitration in foreign country. An argument
was raised that such arbitrations would be limited
by the restriction contained in Section 28(1) of the
Act and parties would not be permitted to choose
a foreign substantive law when only parties having
Indian nationality were involved. The court clarified
the same stating that when the seat of arbitration is
outside India, the conflict of law rules of the country
in which the arbitration takes place would have to be
applied and it would not be an arbitration under Part
I of the Act.
That being said, the restrictive interpretation of TDM
Infrastructure adopted by the Court may, in effect,
be a reading down of a judgment that categorically
states that Indian parties cannot derogate from
Indian law, as a matter of public policy. The resultant
issues that it raises, needing further consideration,
are (i) whether Indian parties would be allowed to
choose a foreign substantive law; and (ii) whether,
as held in Bharat Aluminium Co. v. Kaiser Aluminium
Technical Services Inc112, by choosing a foreign seat
the non- derogable substantive provisions of Part 1
would not be available to parties, thereby denying
access to Indian courts.
This issue may require greater clarity from the
spective of the nationality of the parties involved,
Supreme Court in light of a recent decision of the
it will be considered to be a “foreign award”.
Bombay High Court in M/s Addhar Mercantile Private
The issue before the court was whether two Indian
parties could seat an arbitration in a foreign country
with foreign law as the substantive law governing
the dispute. The concern with allowing the same has
been the permissibility for Indian parties to be governed by laws other than the laws of India. The consequence of such an act, allowing Indian parties to
expressly contract out of Indian law, being arguably
against Indian public policy; is a matter of concern
since it would impact the enforceability of the award.
Limited v. Shree Jagdamba Agrico Exports Pvt Ltd113
which interpreted a vague arbitration clause which
provided for “Arbitration in India or Singapore and
English law to be apply” between two Indian parties.
The court found that the clause to mean arbitration
in India with Indian law applicable taking a view
that arbitration would have to be conducted in India
and making English law applicable would make the
clause pathological. However, the Court also noted
that position was qualified with a statement that “if
the seat of arbitration would have been at Singapore,
110.2014 (5) SCC 1
112. (2012) 9 SCC 552
111.2013 ARBLR 456 (SC)
113. Arbitration Application 197 of 2014
31
certainly English law will have to be applied”.
In the meanwhile, this judgment would come as
It is pertinent to note that this was in relation to an
some relief for Indian companies (especially subsid-
application for appointment of arbitrators under
iaries of foreign companies) that may have unwit-
Section 11, therefore, the Bombay High Court was
tingly entered into arbitration agreements providing
bound by the decision of the Supreme Court in TDM
for a foreign seat and a foreign substantive law, with
Infrastructure.
other Indian parties; perhaps unaware of the com-
Should this judgment be upheld, another potential
issue that may arise is that since the arbitrability
of a dispute is determined by the law of the seat, it
would not be unimaginable for Indian parties to refer
disputes, which would otherwise not be arbitrable
in India, to binding arbitration merely by choosing
foreign seat.
plexities surrounding this issue. At the very least,
enforcement of such award still remains untested and
may prove to be a challenge. In light of the contentious point of law and the various issues, it is expected
that this matter may find its way before the Supreme
Court in due course. The judgment of the Supreme
Court is eagerly awaited in this respect.
- International Dispute Resolution and Arbitration
Practice
authors
32
III.Supreme Court Clarifies Validity of Arbitration Agreements in
MOUS
modifications. After considerable exchange of correspondence, the Respondent sought amendments to
the original MoU due to major change in State policy.
However, eventually the Respondent cancelled the
MoU on the pretext that Appellant had failed to comply with the terms and conditions contained therein.
The parties failed to resolve their disputes amicably
and no consensus could be reached on appointment
§§An arbitration clause is a separate and independent agreement.
§§The arbitration agreement survives and does not
necessarily come to an end even if the MoU does
not materialize into a full-fledged agreement.
§§Parties are bound to refer disputes arising out of
and in relation to the MoU to arbitration if provided in the dispute resolution clause.
of Arbitrator between them. The Appellant filed an
application under Section 11 of the Indian Arbitration & Conciliation Act, 1996 (Act) for appointment
of Sole Arbitrator.
The Gujarat High Court (“Gujarat HC”) dismissed
the application for appointment of Arbitrator on the
ground that the MoU never resulted in a complete
contract, and accordingly held that no enforcement
could be sought for the same. The Gujarat HC held
that the MoU was “stillborn” as it did not fructify
into a joint venture. The present ruling arises out of
A.Introduction
an appeal from the decision of the Gujarat HC.
The Supreme Court of India (“Supreme Court”) in
C.Issue
the recent case of Ashapura Mine-Chem Ltd (“Appellant”) v. Gujarat Mineral Development Corporation114
The issue before Supreme Court was whether the
(“Respondent”) has addressed the issue of separabil-
MoU was a concluded contract, if not, whether the
ity and survival of an arbitration clause contained
arbitration clause survives and continues to bind the
in a Memorandum of Understanding (“MoU”). The
parties being a stand-alone provision.
Supreme Court held that the arbitration agreement
in the MoU was valid as it constitutes a stand-alone
agreement independent from its underlying contract.
D.Arguments
The Appellant submitted that even if the MoU
B.Facts
did not ultimately fructify, the dispute resolution
The parties entered into a MoU in 2007 for setting up
operated as a stand-alone agreement for arbitration
an alumina plant in Gujarat by way of a Joint Ven-
with reference to the terms of the MoU. On the other
ture with a Chinese company. The MoU provided for
hand, Respondent submitted that due to complete
an arbitration agreement in the event of parties’ fail-
absence of consensus between the parties, even with
clauses, by virtue of specific terms contained therein,
ure to settle disputes amicably. The relevant clause
regard to the MoU, there was no scope for making
provided that (a) the arbitration proceedings would
a reference to arbitration as per certain clauses con-
be held at Ahmedabad; and (b) it would be governed
tained therein.
and construed in accordance with the laws of India.
Subsequent to the signing of the MoU, the Respondent decided to approve the MoU subject to certain
E.Judgment
The Supreme Court relying on several judgments
including Reva Electric Car Co. Pvt Ltd. v. Green
114.2015 (5) SCALE 379.
33
Mobil115 and Today Homes and Infrastructure Pvt. Ltd.
while dealing with this issue held that the separa-
v. Ludhiana Improvement Trust116 and Enercon v Ener-
bility presumption enshrined in the Act requires
con117 concluded that in addition to the fundamental
the impugned arbitration agreement to be directly
nature of the separability presumption, the dispute
impeached in order to be considered inapplicable.
between the parties relates to the relationship cre-
Therefore a superseding agreement not containing
ated by way of the MoU and so the arbitration agree-
an arbitration clause would not invalidate the arbi-
ment contained therein would bind the parties.
tration clause in the previous one.
The Supreme Court found that irrespective
However, the Supreme Court in M/S Young Achiev-
of whether the MoU fructified into a full-fledged
ers v. IMS Learning Resources 120 gave a completely
agreement, the parties had agreed to subject all dis-
contradictory view that “an arbitration clause in an
putes, arising out of and in connection to the MoU,
agreement cannot survive if the agreement containing
to arbitration. Such an agreement would constitute
arbitration clause has been superseded/novated by a
a separate and independent agreement in itself. Since
later agreement.” The reasoning of the Supreme Court
no consensus was reached on the appointment of
was that superseded agreements are void ab initio or
a Sole Arbitrator, it would be open to the parties to
non-est. The decision in Ashapura might lead the way
invoke Section 11 of the Act. Based on this ground
with respect to issue of separability of arbitration
alone, the Supreme Court set aside the order of the
clauses and provide clarity on enforcement of such
Gujarat HC, and appointed a Sole Arbitrator due to
clauses in MoUs.
existence of a valid arbitration agreement.
F.Analysis
– Niyati Gandhi, Payel Chatterjee & Vyapak Desai
authors
The position with respect to whether an arbitration agreement contained in a contract is separable is settled law and the separability doctrine is
respected by all courts.118 However, there continues to be instances where the court finds exception.
Such exceptions are often raised in the context of
MoUs or agreements claimed to be unconcluded by
one of the parties. The contention is essentially that
MoU is a contract non-est i.e. it is a contract that has
not come into existence.
Survivability and separability of arbitration clauses
contained in agreements that are novated or superseded by subsequent agreements have also been
tested to ascertain their validity. In Mulheim Pipecoatings v. Welspun Fintrade 119, the Bombay HC
115. Reva Electric Car Co. Pvt Ltd. v. Green Mobil, 2012(2) SCC 93.
116. Today Homes and Infrastructure Pvt. Ltd. v. Ludhiana Improvement Trust, 2014 (5) SCC 68.
117. Enercon v. Enercon, 2014 (5) SCC 1.
118. 2014 (5) SCC 1, 2014 (2) ABR 196.
119. Mulheim Pipecoatings v. Welspun Fintrade, 2014 (2) ABR 196.
(See http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-view/newsid/2056/html/1.
html?no_cache=1)
120. M/S Young Achievers v. IMS Learning Resources, 2013 (1) SCC
535.
34
IV.Have You Amended
Your Arbitration Agreement Post Balco?
A.Brief Facts
On October 20, 2010, an agreement was entered
between the Appellant and the First Respondent in
respect to Appellant’s 24 coal voyages from Indonesia to India (“Agreement”)124. ‎Thereafter, the First
Respondent undertook only 15 coal voyages and that
§§ Supreme Court clarifies the operation of a pre
BALCO agreement, when the same was amended
resulted in a dispute, which ultimately was referred
to arbitration. Consequently, an addendum to Agree-
by an Addendum, post the decision rendered in
ment was executed on April 3, 2013 as regards the
BALCO – however the arbitration clause in the
remaining voyages (“Addendum”). The Addendum
Agreement was not amended by the Addendum.
did not make any changes to the arbitration clause in
the Agreement.
§§ Supreme Court indicates that unless an amendment has been executed post BALCO suggesting
A dispute arose, arbitration proceedings were initi-
specific changes to the arbitration clause, the
ated and eventually an award was passed. The arbi-
principles laid down in Bhatia International
tration was held in London.
would continue to govern the arbitration agreement.
§§ Supreme Court has re-clarified that the BALCO
has only prospectively overruled Bhatia International.
The Appellant subsequently filed an application
under Section 9 of the Arbitration and Conciliation
Act, 1996 (“Act”) before Learned Additional District
Judge, Ernakulam (“ADJ”)125 seeking security from
the First Respondent.
The ADJ directed the First Respondent to furnish
Recently, a two judge bench of the Supreme Court of
security for US$ 11,15,400 and as an interim measure
India (“Supreme Court”) in Harmony Innovation
conditionally attached the cargo belonging to the
Shipping Ltd (“Appellant”) v. Gupta Coal India Ltd.
First Respondent.
(“First Respondent”) & Anr121 (http://www.nishithdesai.com/fileadmin/user_upload/pdfs/NDA%20Hotline/Hotline_Apr1715.pdf), has clarified the scope of
an arbitration agreement entered before the decision
in Bharat Aluminum co. v. Kaiser Aluminum Technical Services Inc122 (“BALCO”). The Supreme Court
has held that pre-Balco arbitration agreements must
be considered based on the principles laid down in
Bhatia International v. Bulk Trading S.A. (“Bhatia
B.High Court
Aggrieved by the Order of the ADJ, the First Respondent preferred a writ petition before the Kerala High
Court (“High Court”) contending that the order of
the ADJ was without jurisdiction and hence unsustainable in law.
International”).123
121.2015 (3) SCALE 295
122.2012 9 SCC 552; In BALCO, Supreme Court held that Part I of
the Act would apply if the seat of arbitration is in India. BALCO
overruled Bhatia International and make Indian arbitration law
seat centric.
123. 2002 4 SCC 105; In Bhatia International, the Supreme Court
held that in cases of international commercial arbitrations held
out of India, provisions of Part I of the Act would apply unless
the parties by agreement, express or implied, exclude all or any
of its provisions.
124.Clause 5 of the Agreement: If any dispute or difference should
arise under this charter, general average/arbitration in London
to apply, one to be appointed by each of the parties hereto, the
third by the two so chosen, and their decision or that of any two
of them, shall be final and binding, and this agreement may, for
enforcing the same, be made a rule of Court. Said three parties to
be commercial men who are the members of the London Arbitrators Association. This contract is to be governed and construed
according to English Law. For disputes where total amount
claim by either party does not exceed USD 50,000 the arbitration
should be conducted in accordance with small claims procedure
of the London Maritime Arbitration Association.
125.An application under Section 9 of the Act can be filed for interim
measures before, during or any time after the existence of an
arbitral award but before enforcement.
35
The High Court held that the law laid down in BALCO
is declatory in nature and therefore it cannot be said
that it has only prospective effect. Accordingly, the
High Court reversed the decision of the ADJ stating
that Section 9 of the Act has limited application to
arbitration taking place in India and cannot be applied
to international commercial arbitrations as held in
BALCO.
C.Issues
The Supreme Court had to consider that in a scenario
where:
a. The Agreement has been executed pre BALCO;
b. The Addendum has been executed post
BALCO;
c. The Addendum amends only certain clauses of
the Agreement, not the arbitration clause contained in the Agreement;
Whether the arbitration clause in the Agreement
should be interpreted in accordance with the principles laid down in Bhatia International or BALCO.
E.Respondents
The Respondents referred to the Agreement and contended that as the juridical seat is in London, Part I
of the Act would not be applicable. Further, reliance
was placed on Reliance Industries Limited and Anr.
v. Union of India127 and it was submitted that after
the Agreement, the Addendum was executed (which
was in fact after pronouncement of the decision in
BALCO) and, therefore, the principles laid down in
Bhatia International would not be applicable and on
the contrary the instant case should be governed by
the seat centric approach evolved in BALCO.
F.Judgment
Supreme Court observed that BALCO was decided on
September 6, 2012 and in BALCO, Bhatia International
and Venture Global Engg. v. Satyam Computer Services Ltd128 was overruled only prospectively. However, in the present case the Agreement was executed
before the decision in BALCO and only the Addendum
came into existence afterwards. Supreme Court held
that as there is nothing in the Addendum to suggest
any amendment to the arbitration clause, and hence
After determination of the above issue, another
the same would continue to be controlled and gov-
aspect which required determination by Supreme
erned by the conditions of the Agreement, and there-
Court was whether the jurisdiction of the Indian
fore the principles laid down in BALCO would not be
Courts would be ousted applying the principles of
applicable in the instant case.
Bhatia International or BALCO, as the case may be.
D.Appellant
First, the Appellant relied on Bhatia International
and Citation Infowares Ltd v. Equinox Corp126,
referred to the arbitration clause in the Agreement,
and submitted that there was no express exclusion,
and therefore the jurisdiction of Indian Courts cannot be ousted and hence the learned ADJ had not
faulted in exercise of jurisdiction.
However, the Supreme Court, after analyzing various decisions on applicability of the Act to arbitrations seated outside India and relying on the ‘presumed intention’ test concluded that in the instant
case, the parties intended to keep the juridical seat of
arbitration as London on the basis of various phrases
occurring in the arbitration clauses including the
following:
a.“arbitration in London to apply”
b. Arbitrators are to be the members of “London
Arbitration Association”
127.(2014) 7 SCC 603
126.2009 7 SCC 220
128.(2008) 4 SCC 190
36
c. Contract “to be governed and construed according
to English Law”
The Supreme Court further went on to hold that
the implied exclusion principle as stated in Bhatia
International would be applicable i.e. (i) the parties
intention to have London as the juridical seat of
arbitration (ii) arbitrators being members of London
Arbitration Association and (iii) the contract being
governed by English Law, evidenced the parties
intention to exclude the applicability of Part 1 of the
Act.
Thus, the ultimate finding of the Supreme Court
was that though the High Court erred in applying
The take away from the judgment would be that in
case of a pre BALCO agreement, even if the said agreement was amended post the decision rendered in
BALCO, unless the amendment specifies anything on
the arbitration clause, the said clause would continue
to be governed by the decision of Bhatia International.
This is particularly important for the pre BALCO
agreements which would want to fall under the seat
centric approach adopted by the Supreme Court in
BALCO.
– Alipak Banerjee, Moazzam Khan & Vyapak Desai
authors
BALCO to the facts of the instant case, it’s conclusion
that ADJ had no jurisdiction, was correct.
G.Analysis
This judgment serves as well written all-in-one compendium of the land mark rulings of pre BALCO on
“what would constitute ‘implied’ and ‘express’ exclusion”.
Notably, in an earlier judgment of the Bombay High
Court in Konkola Copper Mines (PLC) v. Stewarts
and Lloyds of India Ltd129, it was held that the question whether or not Part I of the Act would apply to
an arbitration agreement entered into prior to September 6, 2012, would be decided in accordance with
the principles laid down in the Bhatia International.
However, having once decided that Part I applies,
the question as to which court – within India would
have jurisdiction to entertain applications under Section 9 or Section 34 etc. would be decided in accordance with the principles provided in the BALCO
judgment which set out that “seat” of arbitration is
the center of gravity while determining which Court
would have jurisdiction.
129.2013 (4) ARBLR 19 (Bom)
37
V. Supreme Court
Upholds Arbitration for
a Pathological Arbitration Clause
“In case of such failure, the dispute shall be referred to sole
arbitrator to be mutually agreed upon by the Parties. In
case the parties are not able to arrive at such an arbitrator, the arbitrator shall be appointed in accordance
with the rules of arbitration of the Singapore Chamber of
Commerce.”
The JVA also provided that (a) the arbitration proceedings would be held at Singapore; and
§§The Supreme Court:
§§ reasonably and meaningfully construes
a pathological arbitration clause, ensuring that
the arbitral process is not derailed;
(b) it would be governed and construed in accordance with the laws of India.
Disputes arose between the parties and since they
were unable to agree on a sole arbitrator, Johnson, construing the said reference to the “Singapore
§§ acknowledges that the Court cannot question the
appointment of a sole arbitrator
Chamber of Commerce” to be SIAC, moved SIAC for
by the SIAC Chairman and the partial award
its powers under Section 8(2)131 and 8(3)132 of the
passed by the sole arbitrator on the issue of jurisdiction in proceedings under Section 11(6) of the
Act;
§§ sends out a strong pro-arbitration signal;
the appointment of an arbitrator. SIAC, exercising
Singapore International Arbitration Act (“IAA”),
appointed one Mr. Steven Lim as a sole arbitrator.
In the preliminary meeting, Pricol participated and
indicated that it would be challenging the jurisdiction of the sole arbitrator. After exchange of written
submissions, a hearing on the question of jurisdic-
A.Introduction
tion was held in Singapore. The sole arbitrator passed
a partial award holding that the appointment made
The Supreme Court of India (“Court”), in the case of
by the SIAC under the IAA is valid as the parties had
Pricol Limited (“Pricol”) v. Johnson Controls Enterprise
expressly agreed that Singapore would be the seat of
Ltd. (“Johnson”) & Ors.130 once again demonstrated its
Arbitration.
pro-arbitration approach by reasonably and meaningfully construing a pathological arbitration agreement.
Further, the Court held that (a) appointment of a sole
arbitrator by the Singapore International Arbitration
Centre (“SIAC”); and (b) a partial award having being
passed by the arbitral tribunal on the issue of jurisdiction; cannot be examined in a petition under Section
11(6) of the Arbitration Act.
B.Facts
The parties entered into a Joint Venture Agreement
The main contentions of Pricol were that the rights
of the parties are to be governed by the laws of India;
therefore, in the absence of any contrary intention,
even the arbitration agreement would be governed
by Indian Law. The seat of arbitration continued to
be India inasmuch as the parties had only expressed
Singapore to be the venue for proceedings. Part 1 of
the Arbitration & Conciliation Act, 1996 (“Act”),
would continue to apply and the procedural law governing the conduct of the arbitration would be the
law prevailing in India. Even assuming that the seat
on December 26, 2011(“JVA”). The JVA contained an
arbitration agreement which provided as under.
131. 8(2) The Chairman of the Singapore International Arbitration
Centre shall be taken to have been specified as the authority
competent to perform the functions under Article 11(3) and (4)
of the Model Law;
130.Arbitration Case (Civil) No. 30 of 2014;
132. 8(3) The Chief Justice may, if he thinks fit, by notification
published in the Gazette, appoint any other person to exercise
the powers of the Chairman of the Singapore International
Arbitration Centre under subsection (2).
38
of arbitration was held to be Singapore, the rights
of the parties are to be governed by Indian law. It is
only the curial law of Singapore that would apply to
regulate the proceedings after the appointment of
the Arbitrator and till the passing of the award. Pricol
argued that the appointment of the sole arbitrator by
SIAC was without jurisdiction and the Court ought
to proceed to exercise its powers under the Act.
D.Analysis
In the present case, the Court has undertaken
a reasonable and meaningful construction of a
pathological arbitration agreement. The real intention of parties to arbitrate, notwithstanding the fact
that it was under a non-existent institution, has been
given due recognition and upheld. In doing so, the
Supreme Court effectively ensured that the arbitral
Johnson contended that the parties had agreed that
process was not derailed and parties would not spend
the seat of arbitration would be Singapore and while
time, effort and money in litigating further on this
substantive law would be Indian law, the appoint-
issue.
ment of the arbitrator would be in terms of the
arbitration agreement. Pleading a reasonable understanding of the arbitration agreement, the Respondents argued that in light of the “Singapore Chamber of
Commerce” not being an Arbitral Institution, the real
intention of the parties was to approach the SIAC for
appointment of an Arbitrator in the event of failure
of a mutual agreement. Johnson also pointed out
Pricol’s conduct of dragging its feet as well as the fact
that a partial award had already been passed by the
arbitrator on the issue of jurisdiction.
C.Judgment
The Court has also, rather significantly, acknowledged that any order passed by it would, in effect,
amount to it sitting in appeal over the decision
of SIAC and/or the partial award passed by the sole
arbitrator, which would be inappropriate.
While this approach bodes well for the litigant who
wants to arbitrate, it once again reminds us of the
care that is imperative whilst drafting an arbitration agreement so that such needless issues are not
permitted to fester. An arbitration agreement must
be well-drafted and must not permit mischievous
interpretation.
Giving a reasonable and meaningful construction
– Siddharth Ratho, Sahil Kanuga & Vyapak Desai
to a pathological arbitration agreement, the Court
held that reference to “Singapore Chamber of Com-
authors
merce”, which was admittedly not an Arbitration
institution having its own rules for appointment of
Arbitrators, actually meant SIAC.
Without dealing with Pricol’s contentions regarding
the issue of the procedural law that would govern
the conduct of arbitration, the Court noted that the
proceedings before the SIAC were first in time and
had resulted in the appointment of a sole arbitrator
as well as the partial award on the issue of jurisdiction. The Court acknowledged that the appointment
of the sole arbitrator by SIAC and the partial award
on the issue of jurisdiction cannot be questioned in
proceedings under Section 11(6) of the Act. If that
were done, it would amount to the Court sitting in
appeal over the decision of SIAC as well as the partial
award, which would be wholly inappropriate
39
VI.Bombay High Courts
Rules on Arbitrability
of Oppression and
Mis-Management
Issues
ness was controlled by RKM and his wife along with
his younger son Rajiv and his wife Kunika, who had
small shareholdings therein. There are and were several companies in this group, both in India as well as
overseas. Following a restructuring in 2008 all the
assets, business and plants that belonged to Indian
companies were transferred to a newly incorporated
company under the control of Rakesh Malhotra
(“Appellant”), RKM’s elder son. However, RKM
along with his wife and younger son continued to
§§Bombay High Court holds that oppression and
mis-management claims fall outside the purview
of an arbitration proceeding.
§§Petitions filed before Company Law Board
if malafide, vexatious or oppressive and
is merely a dressed up to avoid arbitration, then it
can be referred to arbitration.
hold some equity in those Indian companies.
During the course of restructuring, a Subscription
and Shareholding Deed (“SSD”), Supplementary
Deed along with other business agreements, were
executed that gave Appellant the sole authority to
represent the Respondent in all transactions. The
Appellant also became the sole bank account operating authority and deployed funds received by Indian
companies held by RKM to, inter-alia, guarantee bank
§§Company Law Board is bound by the orders of a
foreign court if ruling on the same issue and not
loans and other facilities to the newly formed com-
entitled to take its own view, subject to comply-
pany under his control. The SSD contained an arbi-
ing with principles under Section 13 of Civil Pro-
tration clause providing for resolution of disputes in
cedure Code.
Geneva under the rules of London Court of International Arbitration. By virtue of the restructuring,
The Bombay High Court recently in the case
of Rakesh Malhotra v. Rajinder Kumar Malhotra133
held that maintainability of oppression and
mis-management claims by minority shareholders
as referred under Section 241 read with Section 242
all the directors of the RKM-held Indian companies
became employees of the entities controlled and held
by the Appellant. Subsequently, no information was
divulged to RKM related to funds deployed or other
liabilities incurred due to Appellant’s actions.
of the Companies Act, 2013 or Sections 397 and 398
RKM along with others, to prevent diversion
read with Section 402 of the Companies Act, 1956
of funds, filed several company petitions before
(“Companies Act”), would not be affected by the
Company Law Board (“CLB”) at different locations
existence of an arbitration clause. Allegations of
u/s 397, 398 read with S. 402 of the Companies Act,
oppression and mis-management fall outside the
alleging oppression and mis-management, seeking
purview of an arbitration agreement, a sine qua non
wide orders of removal and appointment of direc-
for an arbitration proceeding.
tors, setting aside the re-structuring. During the
same period, Appellant obtained an ex-parte anti-suit
A.Facts
Supremax Group, world’s second largest manufacturer of razor blades and allied products, was run by
Rajindra Kumar Malhotra (“RKM/Respondent”)
and his family members. Major portion of the busi133.[2015] 53 taxmann.com 135 (Bombay)
40
injunction from the Commercial Court of Queen’s
Bench Division of the Royal Courts of Justice (“UK
Court”) restraining Respondent from proceedings
before CLB, which was subsequently over-turned as
proceedings before CLB related to post-restructuring
dealings and transactions. The Appellant thereafter
filed applications before CLB seeking orders to refer
the dispute
to arbitration under S. 45 of the Arbitration & Concil-
parties. Therefore, order passed by CLB that current
iation Act, 1996 (“Act”).
disputes are not covered by arbitration is not conclusive under S. 13(c) of CPC.
The application was dismissed and CLB held that no
such reference could be made to arbitration in case of
allegations of oppression and mis-management. CLB
also appointed an independent Observer-cum-Facilitator on the Board. The present dispute arose from
a group of appeals filed against the CLB order on the
issue whether disputes arising out of SSD should be
referred to arbitration.
B.Issues
The primary issue before the Bombay High Court
(“Bombay HC”) was whether disputes under Section
Further with respect to applicability of Sections 397
and 398 and their allied sections it was submitted
that they do not confer exclusive jurisdiction on CLB
to exclude the jurisdiction of the Civil Court. It is
therefore wholly illogical to say that an action seeking an alternate remedy under Sections 397 and 398
by the same party under same agreement cannot be
referred to arbitration, although, had that very party
come to a civil court, the reference to arbitration
would have been inevitable.
ii. Respondent’s Arguments
397 and 398 read with S. 402 of the Companies Act
The Respondent submitted that any dispute invok-
can ever be referred to arbitration. While deciding
ing the powers under Section 402 of the Companies
the same, the Bombay HC also looked into the aspect
Act is inherently incapable of being referred to a pri-
whether decisions of foreign court (“UK Commer-
vate dispute resolution tribunal. There need not be
cial Court”) was binding on CLB.
an express ouster or bar. However, the test must be in
relation to the source of power and not on how the
C.Contentions
i. Appellant’s Arguments
The Appellant contended that there should not be
any blanket embargo on reference to arbitration. If a
dispute falls within the realm of an arbitration agreement, then such reference must be made regardless
of the kind of relief arbitral tribunal can provide. The
Appellant relying on Section 45 of the Act submitted
that it makes no reference to relief or power but only
to the dispute.
The Appellant also submitted that CLB is not bound
by the decision of UK Commercial Court as it was
contrary to the Supreme Court decision in Chloro
relief is casted or split up. Equally it is not possible
to refer some reliefs to an arbitral resolution while
retaining others for a determination by the CLB.
The Respondent relied on several past decisions135
and submitted that issue arises whether the source
itself permits any such reference to a private dispute
resolution. Jurisdiction of CLB under Sections 397
and 398 is statutory and therefore it cannot be ousted
by an arbitration clause. The Respondent contended
that disputes before CLB were outside the purview of
arbitration clause in the SSD as it involved different
parties, therefore the ruling of the UK Court was conclusive and binding, thus the Appellant could not
re-agitate the same issue in another forum, having
lost in the one of his own choice.
Controls India (P.) Ltd. v. Severn Trent Water Purification Inc.134 which held that in case of several
agreements constituting a composite transaction,
the court may for an effective and complete implementation make reference to arbitration even of the
disputes existing between signatory or non-signatory
134.[2013] 1 SCC 641
135.Surendra Kumar Dhawan v. R. Vir, [1977] 47 Comp Cas 276 (Delhi); See also Manavendra Chitnis v. Leela Chitnis Studios P. Ltd.,
1985 (58) Comp Cas 113
41
C.Judgment and Analysis
The Bombay HC dismissed the appeal dealing with
the following issues.
i. Case of Oppression and Mismanagement not to be referred to arbitration
The Bombay HC while examining the issue of
oppression and mis-management before an arbitral
tribunal, analysed all the provisions of the Companies Act in relation to oppression and mis-management, held they are not capable of being referred to
arbitration, having regard to the nature and scope of
the power invoked.
S. 8 and 45 of the Act use the expression “a judicial
authority, when seized of an action in a matter in respect
of which the parties have made an agreement” (S. 45),
and “a judicial authority before which an action is
brought in a matter which is the subject of an arbitration
agreement” (S. 8). The operative word here appears to
be “matter”. Therefore, the “matter” must be the one
in respect of which there is an arbitration agreement
Several precedents were considered and were
referred to analyse powers of CLB in an oppression
and mis-management cases and whether it was
in the nature of an action in rem. The Bombay HC
relying on past decisions including Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd.136, which
held that though petition for winding up is a matter
in rem, no agreement between parties can vest an
arbitral panel with such power of winding up. Similarly, no arbitration agreement can vest an arbitral
tribunal with the powers to grant the kind of reliefs
against oppression and mismanagement that the
CLB might provide. The Bombay HC held that if
CLB’s plenary and expansive powers are properly
invoked and petitions are not mala fide, oppressive, vexatious or an attempt at dressing up to evade
an arbitral clause, then a narrowly tailored arbitral
proceeding or merely the existence of an arbitration
agreement is not sufficient to capture the broad and
far reaching reliefs that can likely be sought by parties in such cases. CLB is vested with the powers to
refer disputes to arbitration if petition is mischievous, vexatious and malafide.
in order to be referred to arbitration. In an oppression
and mismanagement “action” before the CLB, the
“matter” invokes CLB’s statutory powers under those
ii. Decision of a foreign court is binding
on the CLB
sections including S. 402 and not exercisable by a
civil court. The civil courts are vested with the power
The Bombay HC held that the decision given
to entertain an action in oppression and mis-man-
by UK court, on the issue whether petition before
agement, however, not the same as vested with CLB
CLB was covered by the aforementioned arbitration
under S. 402 of the Companies Act. Therefore, dis-
clause, was not covered by any of the exceptions to S.
putes in oppression and mis-management cases are
13 of Code of Civil Procedure, 1908 (“CPC”). There-
those such that demand the exercise by the CLB of its
fore, it bound the CLB, and the CLB was not, as it
wide powers under S. 402 and not those that can be
held, “free to take its own view”. That being so, there is
exercised by a civil court, certainly not by an arbitral
no question of any reference being made to arbitra-
forum.
tion. Conclusive and binding nature of judgment is
decided based on the issues before it. The Bombay
HC held that UK Court decision was on the same
issues which were before the CLB and therefore the
reasoning given by the CLB for not being bound by
the orders of the foreign court were untenable.
136.[1999] 2 SCL 156 (SC)
42
D.Conclusion
has clarified that CLB is bound by the orders made
by a foreign court if ruled on the same issue. Thus,
This ruling marks an important step in clarifying
from the commercial perspective, parties should
the issues related to overlap of arbitration pro-
be mindful at the stage of drafting their arbitration
ceedings and maintainability of oppression and
clause and depending on the relief sought, should
mis-management claims before CLB. The judgment
approach the correct forum as both are mutually
has thrown light upon the limitations of an arbi-
exclusive.
tral tribunal to entertain cases of oppression and
mis-management. However, at the same time it
– Payel Chatterjee & Vyapak Desai
authors
43
VII.Supreme Court Clarifies the Narrow Scope
of ‘Public Policy’ for
Challenge of Indian
Award
A.Facts
Associate Builder (“Appellant”) was awarded
a construction contract for 168 middle income
group houses and 56 lower income group houses
in trilok puri in the trans-yamuna area by the Delhi
Development Authority (“DDA/Respondent”).
The understanding was that the contract will be
completed in nine months for INR 87,66,678. However, the work came to be completed only after 34
§§ Supreme Court provides guidance on the term
‘public policy’ under Section 34 of the Act and
clarifies the extent of judicial intervention in a
India seated arbitration;
§§ Supreme Court discusses the term ‘morality’ in a
challenge under Section 34 of the Act;
§§ Supreme Court also draws a distinction between
‘error of law’ and ‘error of fact’ and the extent of
interference permissible to that effect;
months.
The Appellant alleged that the delay arose at the
instance of the Respondent and subsequently made
fifteen claims and consequently, Shri K.D. Bali was
appointed as the sole arbitrator by the Delhi High
Court to arbitrate the dispute (“Ld Arbitrator”). Ld
Arbitrator allowed four claims of the Appellant and
further, scaled down two claims on the reasoning
that DDA was responsible for the delay in the execution of the contract.
§§ Supreme Court further held that when
a court is applying the “public policy” test
Thereafter, DDA moved an application before the
to an arbitration award, it does not act
tion 34 of the Act to set aside the award, which was
as a court of appeal and consequently errors of
dismissed on April 3, 2006. Against this order, an
fact cannot be corrected unless the arbitrators
appeal was filed under Section 37 of the Act before
approach is arbitrary or capricious.
the Division Bench of the Delhi High Court (“Divi-
single judge of the Delhi High Court under Sec-
sion Bench”) and vide an order dated February 8,
Recently, the Supreme Court of India (“Supreme
Court”) in Associate Builders v. Delhi Development
Authority,137 has dealt with some of the key issues
involving challenge of an arbitral award in an arbitration seated in India. The Supreme Court discussed
and clarified some of the earlier rulings on the scope
of ‘public policy’ in Section 34 of the Arbitration and
Conciliation Act, 1996 (“Act”), under several headings (viz. patent illegality, contrary to justice, contrary to morality, interest of India and fundamental
policy of Indian law).
2012, the Division Bench found the arbitral award to
be incorrect and rejected the four claims and further
scaled down Claims 12 and 13 (“Impugned Judgment”). Aggrieved by the Impugned Judgment, the
Appellant approach the Supreme Court
by way of a Special Leave Petition.
B.Issues
The primary issue before the Supreme Court was to
decide the correctness of the Impugned Judgment.
While deciding the same, the Supreme Court looked
into the scope of ‘public policy’ as a ground for setting
aside an award under Section 34(2)(b)(ii) of the Act.
Supreme Court also considered the extent to which a
court can replace the Ld Arbitrator’s conclusion with
its own conclusion by way of judicial interference.
137.2014 (4) ARBLR 307(SC)
44
C.Contentions
national140, Western Geco International Ltd 141. and
others, and laid down the heads under the ground of
i. Appellant’s submissions
‘public policy’ as:
§§The Division Bench has lost sight of the law laid
down by the Supreme Court when it comes to
“Fundamental Policy of Indian law” would include
§§
factors such as a) disregarding orders of superior
challenges made to arbitral awards under Section
34 of the Act.
§§The Division Bench has acted as a court of first
appeal and taken into consideration facts which
were neither pleaded nor proved before the Ld
Arbitrator.
§§The Division Bench has wrongfully interfered
with the award as no error of law arises thereunder. Further, it has failed to appreciate the legal
position that the arbitrator is the sole judge of
the quality and quantity of evidence to arrive at a
finding.
ii. Respondent’s Submissions
§§The Ld Arbitrator’s award was in ignorance of the
contractual provisions and that such an award
amounts to a jurisdictional error by the Arbitrator and hence, the Division Bench has rightfully
interfered with the award.
D.Judgment
The Supreme Court allowed the appeal and set aside
courts; b) judicial approach, which is an antithesis to an arbitrary approach; c) principles of
natural justice; d) decision of arbitrators cannot
be perverse and irrational in so far as no reasonable person would come to the same conclusion.
Supreme Court held that an arbitrator is the sole
judge with respect to quality and quantity of facts
and therefore an award is not capable of being set
aside solely on account of little evidence or if the
quality of evidence is of inferior quality. Supreme
Court further held that when a court is applying
the “public policy” test to an arbitration award, it
does not act as a court of appeal and consequently
“errors of fact” cannot be corrected unless the arbitrators approach is arbitrary or capricious.
§§ Supreme Court described “Interest of India” as
something which deals with India in world community and its relations with foreign nations.
Notably, the Supreme Court did not illustrate
this ground in detail as the same is a dynamic
concept which needs to evolve on a case by case
basis.
§§ Supreme Court held that the term “award
is against justice and morality” would include
the Impugned Judgment. In effect, the Supreme
the following: a) with regard to justice, the award
Court refused to interfere with the arbitral award
should not be such that it shocks the conscience
with the following reasoning:
of the court; b) with regard to morality, there can
First, Supreme Court observed that the grounds
for interfering with an arbitral award are limited
to those mentioned in Section 34 of the Act and
held that merits of the award can be looked into
only under the broad head of ‘public policy’. The
Supreme Court relied on the landmark judgments
like, Renusagar 138, Saw Pipes 139, McDermott Inter-
be no universal standard however, Supreme Court
observed that both the English and the Indian
courts have restricted the scope of morality to “sexual immorality” only; c) With respect to an arbitration, it would be a valid ground when the contract is not illegal but against the mores of the day,
however, held that this would only apply when it
shocks the conscience of the court.
138.1994 Supp (1) SCC 644
140.2006 (11) SCC 181
139.2003 (5) SCC 705
141.2014 (9) SCC 263
45
§§ Supreme Court further held that “Patent Illegality” would include: a) fraud or corruption; b)
contravention of substantive law, which goes to
Supreme Court`s finding that an arbitral award cannot be set aside on the grounds of “error in facts”,
unless the arbitrators approach is arbitrary or
the root of the matter; c) error of law by the arbi-
capricious, is indeed praiseworthy as it would nar-
trator; d) contravention of the Act itself; e) where
row judicial intervention. Another aspect which
the arbitrator fails to consider the terms of the
needs some attention is that the jurisprudence on
contract and usages of the trade as required under
‘public policy’ laid down in this case would apply
Section 28(3) of the Act; and f) if arbitrator does
only to awards arising out of arbitrations seated in
not give reasons for his decision.
India, as Section 34 of the Act would only be applicable in such a situation.
Second, the Supreme Court held that the Division
Bench has lost sight of the fact that it is not a first
– Alipak Banerjee, Moazzam Khan & Vyapak Desai
appellate court and cannot interfere with errors of
fact.
authors
E.Analysis
This ruling marks an important step in the line with
the pro arbitration decisions of the Supreme Court in
the last couple of years. It is a welcome decision in so
far as ‘public policy’ had been clarified in order to provide guidance on the level of interference sought to be
made under Section 34 of the Act. This marks a rare
occasion where Supreme Court has discussed “morality” in a challenge under Section 34 of the Act. Further,
in Western Geco International Ltd 142, Supreme Court
elaborated the scope of “fundamental policy of Indian
law” for challenge of arbitral award, and consequently
the legal community was skeptical, as it was felt that
this would open flood gates of challenge to arbitration awards. Therefore, this judgment provides much
needed assistance as it defines the narrow boundaries
of challenge under Section 34 of the Act.
142.Ibid
46
VIII.Bite of a Bit: Calcutta
High Court Refuses
to Injunct Investment
Arbitration Against
India
doing so however, the court rejected KPT’s plea
which sought to challenge the maintainability of the
entire Investment Arbitration on several grounds,
more particularly detailed herein below.
This is a one of the first judgments by an Indian
Court interpreting a BIT and it’s inter play with
the Indian Arbitration and Conciliation Act, 1996
(“Arbitration Act”). The Judgment lays down principle for grant of anti-arbitration injunction under
§§If there is a valid arbitration agreement between
the parties there is no escape from arbitration.
§§Unless the facts and circumstances demonstrate
that foreign arbitration would cause a demonstrable injustice, civil courts in India would not exercise its jurisdiction to stay foreign arbitration
§§An anti-arbitration injunction can
be granted only if:a. Court is of the view that no agreement exists
between the parties; or
b. If the arbitration agreement is null and void,
inoperative or incapable of being performed; or
c. Continuation of foreign arbitration proceeding
might be oppressive or vexatious or unconscionable
§§Whether a claim falls within the parameters
of a Bilateral Investment Treaty would only be
decided by an arbitral tribunal, duly constituted.
Indian Law and adopts a narrow and pro-arbitration
approach. However the Court misses the opportunity to answers certain questions which have been
a matter of debate internationally, owing to the precarious jurisprudence surrounding the Arbitration
Act and the absolute lack of legislative guidance with
regards to India’s BITs.
B.Background
i. Background of the Parties
The genesis of the dispute is the awarding of a contract dated October 16, 2009 executed by KBT in
favor of the Haldia Bulk Terminals Private Limited
(“HBT”) (“Contract”) for operation and maintenance of berth nos. 2 and 8 of the Haldia Dock Complex of the Port Trust (“Project”).
HBT, an Indian Company, was formed specifically
for the purpose of carrying out the activities related
to the Project and since July 23, 2009, is a subsidiary
of an Indian Company, ALBA Asia Private Limited
(“ALBA). Louis Dreyfus holds 49% of ALBA and the
A.Introduction
In a first of its kind case, the Single Judge of the Calcutta High Court (“Court”) on September 29, 2014
remaining is held another Indian Company, ABG
Ports Limited (“ABG Ports”).Louis Dreyfus investment in the Project, through ALBA, is claimed to be
approximately at US$ 16.5 Million (“Investment”).
granted an anti-arbitration injunction (“Judgment”)
in favor of Kolkata Port Trust (“KPT”) restraining
Louis Dreyfus Armatures SAS (“Louis Dreyfus”), a
French Company, from perusing any claim against
KPT in the Investment Arbitration they have initiated against the Republic of India (“India”) under
the Bilateral Investment Treaty (“BIT”) between
India and France (“Investment Arbitration”). While
47
Louis Dreyfus
France
India
49%
ABG Ports
51%
ALBA
ii. Dispute between HBT and KPT
Claiming breach, HBT terminated the Contract and
commenced arbitration against KPT under the Contract seeking damages (“Contract Arbitration”).
The Contract Arbitration is a domestic arbitration,
seated in India and governed by Indian Law. In the
Contract Arbitration, KPT has also preferred a counter-claim against HBT.
100%
HBT
§§failed to provide protection and safety
to the Project facilities or HBT’s personnel adequately or at all;
§§ financially crippled the Investment and the Project;
as a result of which the Contract was rendered redundant and HBT was left with no choice but to terminate its Contract with KPT.
Louis Dreyfus claims that India, though its acts and
iii.Background of the Investment Arbitration
to Louis Dreyfus, (ii) failed to provide protection and
On November 11, 2013 the Federal Government,
ultimately (iii) indirectly expropriated Louis Dreyfus’
the State of West Bengal and KBT received notice of
Investment in the Project, thereby causing irrepara-
claim issued from Louis Dreyfus in respect of Invest-
ble harm, injury and loss in clear violation of its obli-
ment (“Notification of Claim”) under Article 9 of
gations under the BIT.
omissions, has denied (i) fair and equitable treatment
safety to Louis Dreyfus’ Investment in India and has
the India- France BIT.
Pursuant to the Notification of Claim, Louis Dreyfus
It is Louis Dreyfus’ claim that right from the very
issued a notice of arbitration dated March 31, 2014, a
inception of the project, India, the State
notice of appointment of arbitrator on April 17, 2014
of West Bengal, KPT, and a number of authorities
on India and notice dated May 19, 2014 once again
and agencies have consistently and deliberately,
calling upon India to enter appearance in the Invest-
through their acts and omissions:
ment Arbitration (“Notice of Arbitration”). India
§§ created impediments to the implementation of
the Project in an efficacious manner;
has denied and disputed the right of Louis Dreyfus to
invoke the India-France BIT, however has nominated
an arbitrator on its behalf under protest.
§§ compelled HBT to overstaff the Project;
Though KPT has not been named as a party
§§ created impediments to the operation of the Project facilities in an efficacious manner
the Claim was addressed to KPT, the Arbitral Tribu-
in a normal, safe and conducive environment;
in the Investment Arbitration, as the Notification of
nal has resorted to notifying the KPT at every stage
of the Investment Arbitration including vide letters
dated August 13, 2014, August 15, 2014 and August
26, 2014.
48
iv. Proceedings before the Court
Aggrieved by this, KPT filed the present proceedings
before the Court seeking an injunction restraining
Louis Dreyfus from taking further steps on the basis
§§The Investment Arbitration is oppressive, vexatious and mala fide.
ii. Second Ground
of Notification of Claim and Notice of Arbitration,
In support of its case under the second ground, KPT
essentially seeking an anti-arbitration injunction,
relied on a English judgment in the case of City of
against the Investment Arbitration, in its entirety.
London v. Sancheti 143 (“City of London”), to contend
that the fact that under certain circumstance a State
C.KPT’S Case Before the Court
may be responsible under international law for the
acts of one of its local authorities, or may have to
KPT sought the aforesaid anti-arbitration injunction
take steps to redress wrongs committed by one of its
on two grounds:
local authorities, does not make that local authority
§§The arbitration clause under the India-France
BIT is inoperative as between Louis Dreyfus and
India, State of West Bengal and KPT.
§§KPT is not a party to the arbitration clause
in the India-France BIT and accordingly could not
be dragged to the Investment Arbitration.
a party to the arbitration agreement.
KPT submitted that even if under the India- France
BIT, India may be held responsible for any particular Act of KPT under no circumstances KPT could be
treated as the party to the arbitration clause under
the India- France BIT.
i. First Ground
iii.Jurisdiction to grant anti-arbitration
injunction
§§In support of its case under the first ground, KPT
contended that:
In response to the Louis Dreyfus’s contention challenging the jurisdiction of the Court to adjudicate
§§Louis Dreyfus does not qualify as Investor under
the India-France BIT;
upon the proceedings initiated by KPT, KPT submit-
§§The scope of India-France BIT does not cover the
nature of claim or dispute raised Louis Dreyfus;
§§There is no bar under Indian Law or the Arbitration Act, which restricts a civil court from grant-
§§The substratum of Louis Dreyfus’ claim is the
dispute between the HBT and KPT and hence
amounts to multiplicity of proceedings;
§§The entire cause of action Louis Dreyfus, as
pleaded, is against KPT and India is impleaded
only for the purpose of invoking the India-France
BIT;
§§KPT is a public sector undertaking of limited financial resources and conducting arbitration before an
international body would be prohibitive and KPT
would not be having means to conduct such proceeding effectively;
ted that:
ing an anti-arbitration injunction in respect of
foreign arbitration.
§§ Section 5 of the Arbitration Act, which mandates
minimum interference in arbitration proceedings and limits the jurisdiction of civil court to
proceedings provided for under Part I the Arbitration Act, does not apply to arbitrations seated outside India to which only Part II of the Arbitration
Act applies, as:
a. The arbitration agreement between Louis Drey-
fus and India would come only into existence
upon the Notification of Claim, as prior to that
arbitration clause in a BIT is at best a stand-
143. (2009)1 LLR 117
49
ing offer to arbitrate and upon acceptance by
a qualifying investor of this standing offer to
§§Anti-arbitration suit is ordinarily not maintainable, unless the statute gives a right to a civil court
arbitrate gives to a binding arbitration agree-
to exercise its jurisdiction against initiation of
ment. Thus, the concerned arbitration agree-
such proceeding. Provisions akin to Section 37 of
ment would be governed by law as declared by
the English SC Act and Section 72 English Arbi-
the Supreme Court of India in Bharat Alumi-
tration Act are not present under Indian Law and
num Company and Ors. v. Kaiser Aluminum
hence the Court has no jurisdiction to entertain
Technical Service, Inc. and Ors (“BALCO”).144
proceedings initiated by KPT.
b. The law prior to BALCO also provided that pro-
visions of Part I did not apply to foreign seated
arbitrations.
§§Under Section 45 of the Arbitration Act a civil
court has been vested with the power to decide
whether arbitration clause in the India- France
BIT is “inoperative or incapable of being performed” against KPT.
§§Lack of provisions under Indian Law akin to those
under Section 37 of the (English) Supreme Courts
Act, 1981 (“English SC Act”) and Section 72 of
(English) Arbitration and Conciliation Act, 1996
(“English Arbitration Act”) does not impinge
upon a civil courts jurisdiction to grant anti-arbitration injunctions.
D.Louis Dreyfus’ Case Before
the Court
§§The arbitral tribunal has exclusive jurisdiction to
rule its jurisdiction even with respect to existence
or validity to the arbitration agreement.
In response the First Ground raised by KPT, challenging the arbitration clause under the India- France BIT
as inoperative, Louis Dreyfus submitted that:
§§The Contract Arbitration is of no relevance as the
questions which may arise in that arbitration or
the decision passed thereat cannot be looked into
or be binding or relevant in the arbitration pending between the Louis Dreyfus and India. Hence,
the principle of parallel proceedings and a possibility of conflict of decision have no application in
two arbitrations.
§§India- France BIT gives a right to an investor of
the contracting nation meaning thereby the
French National to invoke the arbitration clause
in the treaty. The treaty is no uncertain term
Louis Dreyfus primarily contended the jurisdiction
gives a cause of action to Louis Dreyfus to invoke
of the Court to grant anti-arbitration injunction on
the arbitration clause under the treaty, in the
the following grounds:
event, of failure on the India in protecting the
§§The India- France BIT was entered into 1997 and
hence the arbitration agreement contained therein
would be governed by arbitration law as it stood
before the Supreme Court’s decision in BALCO.
§§In pursuance to Section 5 of the Arbitration Act
no judicial authority can intervene with an arbitration process, except where so provided by Part I
of the Arbitration Act, notwithstanding anything
investment of the French National, which cause
of action is separate and distinct from that being
adjudicated under the Contract Arbitration.
§§KPT is not a party to the arbitration agreement
between Louis Dreyfus and India and cannot
challenge the arbitration agreement.
§§Courts play a supportive role in encouraging the
arbitration to proceed rather than letting it come to
contained in any other (Indian) law. The Arbitra-
a grinding halt. Another equally important princi-
tion Act does not empower a civil court to injunct
ple recognized in almost all jurisdictions is the least
an arbitration process.
intervention by the courts.
144. (2012) 9 SCC 552
50
E.Courts Decision
The court found jurisdiction over the proceedings
initiated by KPT and stated as follows:
§§ Section 5 of the Arbitration Act is of general
principle which would be applicable
to all arbitration proceedings, irrespective
of whether it is a domestic arbitration or
a foreign seated arbitration.
§§Although there may not be same and/or similar
provisions in the Arbitration Act to the Section
37 of the English SC Act and Section 72 English
Arbitration Act, the jurisdiction of a civil court
to interfere is not completely obliterated as one
could find that in Sec.45 of the Arbitration Act
powers have been given to a civil court to refuse
reference in case it is found that the said agreement is null and void, inoperative or incapable
of being performed.
§§Unless the facts and circumstances of a particular case demonstrate that continuation of such
foreign arbitration would cause a demonstrable
§§In the following circumstances an anti-arbitration injunction can be granted:a. If an issue is raised whether there is any valid
arbitration agreement between the parties
and the Court is of the view that no agreement
exists between the parties; or
b. If the arbitration agreement is null and void,
inoperative or incapable of being performed; or
c. Continuation of foreign arbitration proceeding
might be oppressive or vexatious or unconscionable.
§§The Court rejected KPT’s plea under the First
Ground, challenging the arbitration clause under
the India- France BIT as inoperative, stating:
§§ Since KPT is not a party to India- France BIT the
KPT cannot challenge the arbitration agreement.
If anyone at all is aggrieved is India and KPT cannot espouse the cause of India.
§§The Arbitral tribunal which has been duly constituted to adjudicate the Investment Arbitration
injustice, civil courts in India would not exercise
would surely consider all objections with all seri-
its jurisdiction to stay foreign arbitration.
ousness as it deserves along with the objection.
§§Questions relating to arbitrability or jurisdiction
or to staying the arbitration, might in appropri-
§§The approach of courts should be towards being
pro-arbitration. Another equally important prin-
ate circumstances better be left to the foreign
ciple recognized in almost all jurisdictions is the
courts having supervisory jurisdiction over the
least intervention by the courts.
arbitration. Nonetheless in exceptional cases, for
example where the continuation of the foreign
arbitration proceedings might be oppressive
or unconscionable, where the very issue was
whether the parties had consented or where there
was an allegations that the arbitration was a forgery the court might exercise its power. The court
would pass an anti-arbitration injunction.
§§The principle the court is required to keep in
mind is that if there is a valid arbitration agreement between the parties there is no escape from
arbitration and the parties shall be referred to
arbitration and resolve their dispute through the
mechanism of arbitration.
§§An investor under a BIT has been given certain
special rights and privileges which is enforceable under the treaty. Whether the Notification
of Claim falls within such parameters and Louis
Dreyfus could be treated as an investor is a matter
to be decided by the arbitral tribunal duly constituted under the relevant rules.
§§In the event, the preliminary objections are overruled and the arbitral tribunal is of the opinion
that the matter can proceed and continuation of
such proceeding would not be a recipe for confusion and injustice. India would be required to contest the matter on merits.
51
Approving the decision in City of London,
The Judgment also rightly dismisses an attempt by
the Court accepted KPT’s under the Second Ground
a state instrumentality to derail investment arbitra-
stating that:
tion under the pretext of multiplicity of proceedings
§§The arbitration agreement is only enforceable
against the India and not against KPT.
§§The continuation of any proceeding against KPT
at the instance of the Louis Dreyfus would be
oppressive
§§KPT would not be bound to participate in the
said proceeding.
§§Louis Dreyfus is restrained from proceeding with
the arbitral proceeding only against KPT.
and has safeguarded foreign investors from answering questions regarding applicability of BIT before
national forums.
However, the judgment misses the opportunity to
clarify the applicability of BALCO to investment arbitration under Indian BITs. KPT’s contention that the
arbitration agreement comes into force only once the
Notification of Claim is submitted, has received international support from several authors and judicial/
arbitral authorities. By concluding that Section 5
of the Arbitration Act, and thereby Part I, would be
applicable to the present fact scenario, the Court may
F.Analysis
The facts of the case highlight the importance of BITs
have ruled against long standing international jurisprudence, which may open a Pandora’s Box for future
investment arbitration.
for protecting cross-border investments and show
how the international community investing in India
is using the same to secure performance of obligations by India.
– Prateek Bagaria & Vyapak Desai
authors
The Judgment lays down important guiding principles with respect to ability to obtain anti-arbitration
injunction from court in India. The principles laid
down seen to be pro-arbitration and in consonance
with international jurisprudence on the subject.
However, as the Judgment is delivered by a single
judge of a High Court it cannot be regarded as a binding precedent and may undergo further judicial scrutiny and/or interpretation.
52
IX. Allegations of Fraud
not a Bar to Foreign
Seated Arbitration
B.Background
The dispute pertained to obtaining media rights for
the Indian sub-continent from the Board of Cricket
Control of India. In this regards WSG and MSM
entered into a Deed for Provision of Facilitation Services (Facilitation Deed”), where under MSM was
§§ Supreme Court held that allegation of Fraud is
not a bar to refer parties to foreign seated arbitrations;
to pay WSG ₹ 4,250,000,000 as facilitation fees. The
Facilitation Deed was governed by English Law and
parties had agreed to settle their disputes through
arbitration before the International Chamber of
§§The law does not require a formal application to
refer parties to arbitration;
Commerce (“ICC”), with a seat of arbitration in Sin-
§§If an arbitration agreement exists and
a party seeks reference to a foreign seated arbitra-
Eventually, MSM rescinded the Facilitation Deed
gapore (“Arbitration Agreement”).
alleging certain misrepresentations and fraud against
tion, court is obliged to refer the parties to arbi-
WSG and initiated a civil action before the Bombay
tration;
HC for inter alia a declaration that the Facilitation
§§The only exception is in cases where the court
finds the arbitration agreement to be null and
void or inoperative or incapable of being performed.
Deed was void an for recovery of sums already paid
to WSG. WSG filed a request for arbitration with ICC
and ICC issued notice to the MSM to file its answer.
In response MSM filed initiated a fresh action seeking an anti-arbitration injunction against WSG from
proceeding with the ICC arbitration.
A.Introduction
In a landmark decision the Supreme Court of India
has expressly removed allegations of fraud as a bar
to refer parties to foreign seated arbitrations. The
Supreme Court by its decision dated January 24, 2014
in World Sport Group (Mauritius) Ltd (“WSG”) v.
MSM Satellite (Singapore) Pte. Ltd (“MSM”) set aside
the judgment of the Division Bench of the Bombay
High Court (“Bombay HC”) in MSM Satellite (Singapore) Pte. Ltd v. World Sport Group (Mauritius)
Ltd dated September 17, 2010 (“Impugned Judgment”). Previously as the law stood, allegations of
fraud were arguably not arbitrable under Indian Law.
The Supreme Court has now clarified the position,
removing another possible hurdle that one could
face while arbitration against Indian Parties outside
India.
C.MSM’s Case
It was MSM’s case that since the Facilitation Deed,
which contained the Arbitration Agreement, in null
and void on account of the misrepresentation and
fraud of WSG, the Arbitration Agreement itself was
void and could not be invoked.
D.WSG’s Case
It was WSG’s case unless the Arbitration Agreement,
itself, apart from the Facilitation Deed, is assailed as
vitiated by fraud or misrepresentation; the Arbitral
Tribunal will have jurisdiction to decide all issues
including validity and scope of the arbitration agreement.
E.Impugned Judgment
The Bombay HC had, in the impugned Judgment,
held that disputes where allegation of fraud and
serious malpractice on the part of a party are in
53
issue, it is only the court which can decide these
of the prospective arbitration. Accordingly, the court
issues through furtherance of judicial evidence by
held that arbitration agreements do not become
the party and these issues cannot be properly gone
“inoperative and incapable of being performed”
into by the arbitrator, thereby granting the anti-ar-
where allegations of fraud have to be inquired into
bitration injunction sought for. This decision of the
and the court cannot refuse to refer the parties to
Bombay HC was the only judgment where an Indian
arbitration as provided in Section 45 of the Act.
Court had held allegations of fraud as a bar to foreign
seated arbitrations, though such findings were prevalent in the sphere of domestic arbitrations.
F.Judgment of the Supreme
Court
The Supreme Court, by re-enforcing its pro-arbitration approach, set aside the Impugned Judgment and
held that only bar to refer parties to foreign seated
arbitrations are those which are specified in Section
45 of the Indian Arbitration and Conciliation Act,
1996 (“Act”) i.e. in cases where the arbitration agreement is either (i) null and void or (ii) inoperative or
(iii) incapable of being performed.
While explaining the term null and void, the Supreme
Court clarified that the arbitration agreement being a
separate agreement does not stand vitiated if the main
contract is terminated, frustrated or is voidable at the
option of one party. The Supreme Court held that a
court will have to see in each case whether the arbitration agreement is also void along with the main agreement or whether the arbitration agreement stands
apart from the main agreement and is not null and
void, thus accepting the submissions of WSG.
The Supreme Court also opined that no formal application is necessary to request a court to refer the matter to arbitration under Section 45 of the Act and in
case a party so requests even through affidavit,
a court is obliged to refer the matter to arbitration
with the only exception being cases where the arbitration agreement is null and void, inoperative and
incapable of being performed, thus limiting the
scope of judicial scrutiny at the stage of referring a
dispute to foreign seated arbitrations.
G.Analysis
This is a welcome decision for foreign parties having
arbitration agreements with Indian counter-parts.
Before this judgment was delivered, Indian parties
were increasing challenging arbitrability of disputes where allegations of fraud were made against
them, relying of the Supreme Court’s own decision
in the case of N. Radhakrishnan v. Masestro Engineers
& Ors145 (“N Radhakrishnan”). By this decision
the Supreme Court has limited the applicability of
its decision in N Radhakrishnan to domestic arbitrations hence clarifying that, allegations of fraud
against a party or consequential rescission of the
main agreement is not a bar on arbitrability of dis-
The Supreme Court interpreted the terms inopera-
putes between the parties under Indian Law, when
tive and incapable narrowly, adopting the interpre-
the seat of arbitration is outside India.
tation of the international authors of these terms in
Article II (3) of the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards, 1958
– Ashish Kabra, Prateek Bagaria & Vyapak Desai
(“New York Convention”). The expression ‘inop-
erative’ is understood to cover situations where the
authors
arbitration agreement has ceased to have effect such
as where parties may have by conduct or otherwise
revoked the arbitration agreement. Further, ‘incapable of being performed’ covers situations where the
arbitration cannot be effectively set into motion and
covers the practical aspects
145.(2010) 1 SCC 72
54
X.Enforcement of Foreign Awards Becomes
Easier: ‘Patent Illegality’ Removed from the
Scope of Public Policy
The ever-growing judicial support to international
A.Facts
The dispute arose out of a contract between
an Indian seller (“Appellant”) and a foreign buyer
(“Respondent”) whereby the Appellant had agreed
to supply certain type of wheat to the Respondent.
The Respondent had alleged that the wheat supplied
was not of the quality as agreed to by the parties and
as a result it had suffered significant damages.
commercial arbitration and the seminal shift in
The matter was referred to the Arbitral Tribunal
judicial mindset is now more than established from
of the Grain and Feed Trade Association, London
yet another landmark ruling of the apex court of the
(“GAFTA”), which passed an award in favour of
land in Shri Lal Mahal Ltd. v. Progetto Grano Spa146,
the Respondent. Thereafter, the Appellant carried
where the court has gone ahead to in fact overrule
such award in appeal before the Board of Appeal of
its own decision passed less than two years back.
GAFTA, which also passed the award in favour of the
The Supreme Court while dealing with objections
Respondent. The awards were then challenged by the
to enforceability of certain foreign awards on the
Appellant before the courts in U.K., where again the
grounds that such awards are opposed to the public
awards were upheld.
policy of India, has significantly curtailed the scope
of the expression ‘public policy’ as found under Section 48(2)(b) of the Arbitration and Conciliation Act,
1996 (“Act”) and thereby have limited the scope of
challenge to enforcement of awards passed in foreign
seated arbitrations.
The judgment unmistakably establishes a difference
between the scope of objections to the enforceability
of a foreign award under Section 48147 of the Act and
a challenge to set aside an award altogether under
section 34148 of the Act.
146.Civil Appeal No. 5085 of 2013 arising from SLP(c) No. 13721 of
2012
147.48.Conditions for enforcement of foreign awards.
(2) Enforcement of an arbitral award may also be refused if the
court finds that(a) the subject -matter of the difference is not capable of settlement by arbitration under the law of India; or
(b) the enforcement of the award would be contrary to the public
policy of India.
Explanation: Without prejudice to the generality of clause (b), it is
hereby declared, for the avoidance of any doubt, that an award is in
conflict with the public policy of India if the making of the award was
induced or affected by fraud or corruption
148.34.Application for setting aside arbitral award.
(1) Recourse to a Court against an arbitral award may be made only
by an application for setting aside such award in accordance
with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if
(a)
(b) the Court finds that
(i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of
The Respondent then sought the enforcement
of the awards in India in accordance with the provisions of the Act, to which the Appellant took objection by asserting that the award is against the public
policy of India and accordingly enforcement of such
awards in India ought to be refused.
The Appellant contended the award to be opposed to
public policy of India on the ground that such award
was contrary to clearly terms of the contract entered
into by the parties. The questions pertained to the
certification provided by the expert regarding the
quality of the wheat and whether such certification
was in the form which was agreed by the parties.
The Respondent on the other hand argued that the
matters as raised by the Appellant were questions
regarding appreciation of evidence and were questions of fact which could not be gone into at the stage
of challenge to enforcement of a foreign award under
section 48 of the Act.
India.
Explanation: Without prejudice to the generality of sub-clause (ii),
it is hereby declared , for the avoidance of any doubt, that an
award is in conflict with the public policy of India if the making of the award was induced of affected by fraud or corruption
or was in violation of section 75 or section 81.
55
B.Issue
Thus, issue arose regarding the scope and interpretation of the expression ‘public policy’ which is provided as a ground to refuse enforcement of a foreign
award under section 48(2)(b) of the Act and whether
the enforcement of the awards could be refused on
the grounds as alleged by the Appellant.
The issue further was whether the expression ‘public policy’ shall have the same meaning and purport
under section 34(2)(b)(ii) and section 48(2)(b) of the
Act?
The court further observed that ONGC dealt with a
situation where the arbitral award was sought to be
set aside under section 34 as opposed to an application to refuse enforcement of an award under section
48. It was stated that the expression ‘public policy
of India’ under 34 was required to be interpreted
in the context of the jurisdiction of the court
where the validity of the award is challenged
before it becomes final and executable in contrast
to enforcement of award after it becomes final.
Thus, it was seen that under Section 34 the expression public policy would also entail within its folds
any ‘patent illegality’ for setting aside the award.
C.Judgment
Accordingly, the court held that:
As the question revolved around the interpreta-
“enforcement of foreign award would be refused under
tion of the scope of the expression ‘public policy’ the
Section 48(2)(b) only if such enforcement would be con-
Supreme Court considered the following three land-
trary to
mark rulings in this regard:
1.
2.
1.
fundamental policy of Indian law; or
Ltd.149 (“ONGC”);
2.
the interests of India; or
Phulchand Exports Limited v. O.OO. Patriot150(“-
3.
justice or morality.
Oil and Natural Gas Corporation Ltd. v. Saw Pipes
Phulchand”); and
3.
Renusagar Power Co. Limited v. General Electric
Company151 (“Renusagar”).
The Supreme Court overruling the judgment
in Phulchand held that the meaning of the expression ‘public policy’ under Section 48 was narrower
as compared to section 34. Relying on Renusagar,
the Court made a highly important observation that
there is a fine distinction between applying the rule
of public policy in a matter governed by domestic
laws and a matter involving conflict of laws as is the
case in majority of international commercial arbitrations. The court observed that the applicability of
the doctrine of public policy is comparatively limited in cases involving conflict of laws and matters
involving foreign element such as a foreign seated
arbitration, the courts would not be easily inclined to
invoke such doctrine.
The wider meaning given to the expression “public
policy of India” occurring in Section 34(2)(b)(ii) in Saw
Pipes (ONGC) is not applicable where objection is raised
to the enforcement of the foreign award under Section
48(2)(b).”
Thus, relying on the above law, the Supreme Court
observed that the same ground had also been raised
by the Appellant before the courts in U.K. to have the
award set aside. However, the High Court of Justice
at London did not consider the ground to be sufficient enough for the award to be set aside. Thus, the
court viewed that the same argument could hardly
be good enough to refuse enforcement. The court
further provided that section 48 does not offer an
opportunity to have a second look at the foreign
award at the enforcement stage. The court affirmed
that section 48 does not permit review of the award
on merits and also that procedural defects in course
of foreign arbitration do not necessarily imply that
149.(2003) 5 SCC 705
foreign award would be unenforceable. Accord-
150.(2011) 10 SCC 300
ingly, the appeal was dismissed by the court and that
151.1994 Supp (1) SCC 644
56
award was held to be enforceable.
Therefore, now enforcement of foreign awards
would not be refused so easily. Thus, a practical take-
D.Analysis
The judgment in ONGC led to expansion of the
meaning of the expression ‘public policy’ as provided under section 34 of the Act, which opened the
floodgates to petitions challenging the arbitral award
on the ground of ‘patent illegality’. The decision was
criticized as it allowed the parties to have a second
away from the above would be to give preference to
a foreign seated arbitration as a mechanism for dispute resolution as this would afford a speedy remedy
without significant court interference.
- Ashish Kabra, Payel Chatterjee and Vyapak Desai
authors
bite at the matter, to the extent that the ground of
patent illegality was viewed broad/y.
The above decision coupled with the pre- BALCO152
scenario i.e. applying the law as enunciated under
the Bhatia International case153, permitted awards
passed in arbitrations seated outside India to be
challenged under section 34 in certain cases. This
led to a very broad ground being available to parties
to set aside awards passed in international commercial arbitrations. Though, the BALCO decision has
now clarified that awards passed in foreign seated
arbitrations154 cannot be challenged under section
34, the difficulty arose on account of the judgment of
Phulchand.
Phulchand155 expanded the meaning of the expression ‘public policy’ as provided under section 48 of
the Act and provided that the scope and purport of
the expression under section 34 and 48 would be the
same. The decision of Phulchand thus also received
heavy criticism. Surprisingly, Hon’ble Justice R.M.
Lodha, who previously wrote the judgment in
Phulchand on behalf of the bench has now himself,
overruled the decision of the court of Phulchand and
it has now been laid down that the meaning of the
expression ‘public policy’ is narrower under section
48 as compared to section 34.
152. Bharat Aluminium Company and Ors. v. Kaiser Aluminium Technical
Service, Inc. and Ors., (2012) 9 SCC 552
153. Bhatia International v. Bulk Trading S.A. and Anr., (2002) 4 SCC 105
154.Where the arbitration agreement has been entered into after
September 6, 2012
155.Please refer to our hotline titled ‘’Enforcement of Awards- Erasing
the distinction between Domestic and Foreign Award’
57
XI. Existence of Mortgage
is no Bar to Arbitrating
Money Claims
A.Introduction
The recent judgment of the Bombay High Court in
Tata Capital Financial Services Limited v. M/s Deccan
Chronicle Holdings Limited156 gains significant importance in light of the recent spur in lending disputes.
The High Court of Bombay while dealing with a
petition seeking interim reliefs in aid of arbitration
under Section 9157 of the Arbitration and Conciliation Act, 1996 (“Act”) has held that even though
certain debts may be secured by a mortgage, the
lender may choose to bring only a claim for recovery of the amounts due and not sue for enforcement
B.Facts And Contentions
The case involved two separate arbitration petitions
filed against Deccan Chonicle Holdings Ltd. and Mr.
T. Venkatram Reddy (“Respondent(s)”). The petitions related to certain loans which were provided
to the Respondent. Such loans had been secured by
the Respondent by mortgage of immovable property.
Due to the financial difficulties being faced by the
Respondent, the Tata Capital Financial Services and L
& T Finance Ltd.(“Petitioner(s)”) recalled the entire
loan amount with interest. The Respondent failed
to repay the said amount in response to the demand
from the the Petitioners. Accordingly, the two separate petitions came to be filed against the Respondents under section 9 of the Act, whereby the Petitioners sought various interim reliefs including:
1.
of mortgage. Accordingly, as money claims arising
security;
under contracts are arbitrable disputes, courts are
empowered to grant interim reliefs under section 9
of the Act.
Direction to Respondents to furnish additional
2.
Direction for appointment of a Court Receiver;
3.
Direction to Respondents to attach their properties before the final judgment;
4.
156.Arb P No. 1321/2012, Judgment delivered on February 21, 2013
152.Section 9 - Interim measures etc. by Court: A party may, before, or
during arbitral proceedings or at any time after the making of the
arbitral award but before it is enforced in accordance with section
36, apply to a court(i)
for the appointment of a guardian for a minor or person of
unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of die
following matters, namely:(a) the preservation, interim custody or sale of any goods which
are the subject-matter of the arbitration agreement;
the properties owned by them.
One of the principal arguments raised by the
Respondents was whether the current dispute was
arbitrable or not, as interim reliefs under section 9
of the Act are granted in aid of arbitration. The submission made by the Respondent was that enforcement of mortgage of immovable property could not
happen by way of an arbitration. The Respondents
placed reliance on the landmark judgment of the
(b) securing the amount in dispute in the arbitration;
Supreme Court in Booz Allen and Hamilton Inc. vs.
(c) the detention, preservation or inspection of any property
or thing which is die subject-matter of the dispute in
arbitration, or as to which any question may arise therein
and authorising for any of the aforesaid purposes any person
to enter upon any land or building in the possession of any
part) or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may
be necessary or expedient for the purpose of obtaining full
information or evidence;
SBI Home Finance Limited and Ors.158 to substanti-
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear
to the Court to be just and convenient, and the Court shall
have the same power for making orders as it has for the
purpose of, and in relation to, any proceedings before it.
58
Direction to Respondents to disclose on oath all
ate their contention that the reliefs claimed in the
petition filed under Section 9 of the Act are for protection of mortgaged properties, thus, rights claimed
by the Petitioner are rights in rem which can only
be decided by a Civil Court and not by an arbitral
forum. The Respondent submitted that the notice
of demand invoking arbitration clause issued by the
158.(2011) 5 SCC 532
Petitioner was for enforcement of mortgage along-
tribunal and file a separate suit for enforcement of
with other claims.
mortgage after complying with the provisions of
Further, it was argued that by the Respondent that
the grant of interim measures under Section 9 of the
Act would be governed by the underlying principles
for grant of interim relief under Order 38 Rule 5 of
the Civil Procedure Code, 1908 (“CPC”) and that the
present cases did not merit any order for interim
releifs as sought by the Petitioner.
The Petitioner’s on the other hand submitted that
the statement of claim was not yet filed before the
arbitral tribunal and the Court in such circumstances cannot refuse to grant interim relief based on
the presumption of the Respondents that the Petitioner would apply for the enforcement of mortgage
against the Respondents before the arbitral tribunal.
It is always open to the Petitioner to choose a claim
either for enforcement of mortgage or for recovery
of money simplicitor based on other securities furnished by the Respondents.
C.Held
Order II Rule 2 160. It was further held that the interim
measures cannot be denied on the ground that the
entire demand notice and petition filed under Section
9 of the Act was on the premise that the same was for
enforcement of mortgaged properties. The Respondents had executed other securities in the nature of a
guarantee and a promissory note and the claim could
be made for enforcement of such securities.
Thus, it is for the Petitioner to decide what claims the
petitioner would make before the arbitral tribunal
and even if a relief by way of enforcement of mortgage was claimed, the same could be subsequently
withdrawn or amended. An arbitral tribunal, upon
an objection under Section 16 (objection to jurisdiction) of the Act, can always decide whether any of
the claims made by the claimants are within its jurisdiction to adjudicate upon. Accordingly, the court in
the present case proceeded to hold that the facts satisfy the principles for grant of the releifs and passed
orders in favour of the Petitioner.
The Court appreciating the Petitioners arguments
that the statement of claim had not been filed
proceeded to assert that it was not up to them
to presume that the Petitioner might apply for
enforcement of mortgage which would be beyond
the jurisdiction of arbitral tribunal. The notice of
demand for enforcement of mortgage cannot be
treated as a statement of claim.
Based on Order 34 Rule 14159 of the CPC, it was
observed that there is no bar in filing a mere money
claim arising under mortgage by a mortgagee. The
mortagaged property could not be sold without instituting a suit for sale of mortgaged properties, however
it was up to the mortgagee i.e. the Peitioners to decide
In whether to file a money claim before the arbitral
159.14. Suit for sale necessary for bringing mortgaged property to sale.- (1) Where a
mortgagee has obtained a decree for the payment of money in satisfaction of a claim
arising under the mortgage, he shall not be entitled to bring the mortgaged property
to sale otherwise than by instituting a suit for sale in enforcement of the mortgage,
and he may institute such suit notwithstanding anything contained in Order II, rule 2.
(2) Nothing in sub-rule (1) shall apply to any territories to which
the Transfer of Property Act, 1882 (4 of 1882), has not been
extended.
160.2. Suit to include the whole claim.- (1) Every suit shall include the whole of the claim
which the plaintiff is entitled to make in respect of the cause of action; but a plaintiff
may relinquish any portion of his claim in order to bring the suit within the jurisdiction of any Court.
(2) Relinquishment of part of claim-Where a plaintiff omits to sue
in respect of, or intentionally relinquishes, any portion of his
claim, he shall not afterwards sue in respect of the portion so
omitted or relinquished.
(3) Omission to sue for one of several reliefs-A person entitled to
more than one relief in respect of the same cause of action may
sue for all or any of such reliefs, but if he omits except with
the leave of the court, to sue for all such reliefs, he shall not
afterwards sue for any relief so omitted.
Explanation: For the purposes of this rule an obligation and a
collateral security for its performance and successive claims
arising under the same obligation shall be deemed respectively
to constitute but one cause of action.
IIIustration.- A lets a house to B at a yearly rent of Rs. 1,200. The rent for the
whole of the years 1905, 1906 and 1907 is due and unpaid. A sues B in 1908 only for
the rent due for 1906. A shall not afterwards sue B for the rent due for 1905 or 1907.
59
D.Analysis
Accordingly, an important takeaway from the present judgment comes in relation to the various debt
The judgment provides valuable guidance in context
transactions. The present judgment indicates that in
of lender disputes, where lenders normally obtain
such scenarios lenders may first invoke arbitration
multiple securities such as guarantee, pledge of
to obtain an adjudication on the pending debts and
shares and including a mortgage of property.
and the amounts owed. Thus providing an expedi-
The judgment is also critical from the prespective of
the real estate sector as lending activites in the real
estate sector would almost always be backed by a
mortgage of the property. Further, the real estate sector has grown at a tremendous pace in the past few
years, and especially since it was opened to foreign
investment in 2005. However, with the dampening of
the world economy and the regulatory ambiguity surrounding normal modes of exit, foreign investors have
tious option as compared to a through and through
court mechanism. Further, the ruling highlights
the importance of a section 9 releif in securing the
claims as in all scenarios the mortagage security may
not be a sufficient security.
- Ashish Kabra, Prateek Bagaria and Vyapak Desai
authors
adopted a more cautious approach, which has slowly
led to a predilection towards mezzanine and pure
debt financing structures as opposed to pure equity
investments. The regulatory measures recently taken
such as opening up and liberalization of the QFI route
and increase in the corporate debt limits available for
foreign investment has revealed the regulatory acceptance and interest in attracting foreign investment via
the debt route. Buoyed by the regulatory support the
sector has continued to attract foreign investments
which normally are in form of collateralized debt and
one of the most important collateral is the mortgage
of the immovable property.
60
XII.Law of Limitation: Procedural not Substantive
The recent judgment by the Delhi High Court
(“Court”) on the petitions161 filed between Aargus
Global Logistics Pvt. Ltd (“Aargus”), an Indian company and NNR Global Logistics (Shanghai) Co. Ltd.
The ICC passed an award dated October 14, 2011 in
favour of NNR and NNR filed a petition under Sections 47 and 49 of the Arbitration and Conciliation
Act, 1996 (“Act”) to enforce the said award, while Aargus filed its objections under Section 48 of the Act as
well as another petition under Section 34 of the Act
to set aside the award.
B.Issues
(“NNR”), incorporated in China for challenging the
foreign award (petition made by Aargus) and enforce-
The first issue to be addressed was whether Aargus’
ment of the foreign award (petition made by NNR) in
petition under Section 34 of the Act to set aside a for-
India throws some light on the fate of international
eign award was maintainable.
commercial arbitration agreements executed prior
to the ruling of the Supreme Court in the Bharat Aluminium Co. v/s. Kaiser Aluminium Technical Service,
Inc162 and whether the Law of Limitation is a procedural law or a substantive law.
A.Background And Facts
An Agency Agreement was entered into between
Aargus and NNR in 2003 (“Agreement”), both being
engaged in the business of freight forwarding and
associated international cargo services. As per the
terms of the Agreement, both parties were to act
as each other’s non-exclusive agents, increase air
freight and ship freight shipments and promote and
develop related activities between the two territories.
The substantive law governing the Agreement was
Indian law and any dispute amongst the parties was
to be settled under the rules of conciliation and arbitration of the International Chambers of Commerce
(“ICC”). However, there was no agreement on the
place of arbitration.
The shipments continued up to 2007. In July 2010
NNR invoked the arbitration clause in the Agreement raising claims relating to various outstanding
invoices. As the clause was silent on the place of
arbitration, NNR suggested Kuala Lumpur (“KL”) in
Malaysia as a neutral place of arbitration, which was
opposed by Aargus. However, the ICC fixed the seat
The other point of contemplation was that whether
the Indian Limitation Act (“ILA”) or the limitation
law in Malaysia (“MLA”) should apply to the Agreement.
C.Arguments Before The High
Court
i. Aargus’ contentions
Aargus put forth the argument that since the substantive law governing the contract was Indian law,
a petition filed under Section 34 of the Act was very
much maintainable and relied on the decisions in
Bhatia International v. Bulk Trading S. A163 and
Venture Global Engineering v. Satyam Computer
Services Ltd.164 as part 1 of the Act would continue
to apply to such arbitrations wherein the governing
law (substantive) was Indian Law.
Aargus objected to the claims put forward by NNR on
the grounds that they were barred by the ILA, thereby
making any claim for an invoice three years earlier
to the date of arbitration in 2010, invalid. As Indian
law was applicable to the contract, the ILA would be a
substantive law and not a part of the curial law. A reference was made to Thirumalai Chemicals Limited v.
Union of India.165
of arbitration in KL under the ICC Rules.
163.2002 (4) SCC 105
161.O.M.P. No. 61 of 2012 and O.M.P. No. 201 of 2012
164.2008 (4) SCC 190
162.2012 (8) SCALE 333
165. 2011 (6) SCC 739
61
ii. NNR’s contentions
NNR argued that in order for a petition under Section 34 of the Act to be maintainable, the place of
arbitration must be India, failing which, the curative
law of the seat of arbitration (KL), Malaysian law
should apply. Reliance was placed on the decisions
in Videocon Industries Limited v. Union of India166
and Yograj Infrastructure Limited v. Ssang Yong
Engineering and Construction Company Limited.167
It was further submitted by NNR that in the mails
exchanged between the two companies in 2007
regarding the outstanding payments, Aargus
responded to the mails and even made a payment
towards one of the invoices which amounts to an
acknowledgment of the debt. Also, part payment of a
debt even by reference to a single invoice is sufficient
to extend the period of limitation.
It was also contended that since the seat of arbitration was Malaysia, the Malaysian curial law would
apply. Limitation being a matter of procedure, the
ILA would not apply. Alternatively, even if it were to
apply, most of the outstanding payments were not
due until 31st July, 2010 thereby ensuring that they
are not time barred.
D.Judgment
the law of limitation is procedural as it establishes
a mechanism for determining rights and liabilities.
The enforcement of rights exists under substantive
law. The Court also referred to the 193rd report of the
Law Commision of India on ‘Transnational Litigation - Conflict of Laws - Law of Limitation’ wherein
the Law Commission had discussed how in the
context of expansion of international trade it has
become necessary to take notice of the fundamental
changes in the law of limitation in all common law
countries. While recommending that India should
adopt the practice in civil law countries, it was in the
said report that as of now the law of limitation was
considered in India as part of the procedural law and
not the substantive law.
The Court further held that the same legal position is
acknowledged even in Bharat Aluminium Co.’s case
and this legal position would not change even if the
petition filed by Aargus under section 34 of the Act is
considered on merits.
The Court held that the petition filed by Aargus
under Section 34 was maintainable. For coming to
this conclusion the Court relied upon the decision
of the Supreme Court in case of Bhatia International
v. Bulk Trading S.A. and Venture Global Engineering v. Satyam Computer Services Ltd. wherein the
Supreme Court had held that Part I of the Act applies
to the impugned foreign Award since the substan-
The Court rejected the petition filed by Aargus and
tive law governing the contract was Indian law. The
the objections raised by them in the petition filed by
Court observed that in Bharat Aluminium Co.’s case,
NNR were rejected with costs of 20,000 to be paid to
the Supreme Court had held that a petition under
NNR within four weeks. The Court had made the fol-
Section 34 could not be maintainable if the award in
lowing observations:
question was a foreign award - by virtue of the seat
The Court concluded that the decision of the Arbitrator regarding non application of the ILA to the Agreement was a sound one. The Court concurred with the
Award of the Arbitrator that the applicable Curial
Law would be the Law of Malaysia. In coming to the
of Arbitration being outside India, but the Supreme
Court had further clarified that the decision of the
Supreme Court in Bharat Aluminium Co.’s case
would only be applicable to arbitration agreements
executed after September 6, 2012.
said decision the Court relied upon the decision of
However, the Court held that even upon consid-
the Supreme Court in Thirumalai Chemicals Lim-
ering the petition under Section 34 on merits the
ited v. Union of India wherein it was declared that
challenge to the Award in respect of compound
even though the right of appeal is a substantive right,
interest awarded to NNR by the learned Arbitra-
166.2011 (6) SCC 161
works out to only 8.66% simple interest over three
tor (8% interest compounded annually which
167.2011 (9) SCC 735
62
years) .cannot per se be said to be opposed to the
An arbitration seated outside India, arising out of a
public policy of India. Even in the context of an
contract which may be governed by Indian law (i.e.
Award under the Arbitration Act. In coming to this
Indian law being the substantive law governing the
conclusion the Court followed the decision of the
contract) but is seated outside India would have
Supreme Court in Renusagar Power Co. Ltd. v. Gen-
to comply with the law of the seat to determine
eral Electric Co.168 wherein the Supreme Court had
whether or not a claim is within or beyond limita-
held that the award of compound interest or costs
tion. The laws with respect to limitation can defer
consistent with the terms of the contract cannot be
from country to country.
said to be opposed to the public policy of India.
The Court clarified that under Section 48 (2) (b) of
the Act, it was given a discretionary power to refuse
enforcement of an award which is contrary to public
policy. Enforcement of an award which is in the form
of a money decree is not opposed to public policy.
E.Analysis
Award of Compound interest cannot be held
to be against the public policy of India.
Enforcement of an Award which is in the form of
a monetary decree cannot be held to be against the
public policy of India.
Sahil Shah, Moazzam Khan & Vyapak Desai
authors
The conclusions of the Court in this case which bear
notice and bring a small but important element of
clarity especially in the back drop of the prospective applicability of the judgment of the Hon’ble
Supreme Court in Bharat Aluminium Co. are as
under:
The seat of the Arbitration would determine the
procedural law applicable to the Arbitration.
The Law of Limitation is a procedural law and not
a substantive law.
168.1994 Supp (1) SCC 644
63
XIII.Bhatia International
and Venture Global
Overruled, but Prospectively!
The Constitutional Bench of the Supreme Court
(“Court”) on September 6, 2012 in its decision in
Bharat Aluminum Co. (“Appellant”) v Kaiser Aluminum Technical Service, Inc.(“Respondent”), after
laudable consideration of jurisprudence laid down
by various Indian & foreign judgments and writings
of renowned international commercial arbitration
authors, ruled that findings by the Court in its judgment in Bhatia International v Bulk Trading S.A &
Anr169 (“Bhatia International”) and Venture Global
Engineering v Satyam Computer Services Ltd and
Anr170 (“Venture Global”) were incorrect. It concluded that Part I of the Arbitration and Conciliation
Act, 1996171 (“Act”) had no application to arbitrations
which were seated outside India, irrespective of the
Bench found that judgment in Bhatia International
and Venture Global was unsound and the other judge
disagreed with that observation. Subsequently it was
directed to be placed before the Constitution Bench
on January 10, 2012 along with other similar matters.
B.Relevant Issues Dealt by the
Court
The Court was unable to support the conclusions
recorded by it in its previous decisions in Bhatia International and Venture Global. It concluded that the Act
has adopted the territorial principle unequivocally
accepted by the UNCITRAL Model Law, thereby limiting the applicability of Part I to arbitrations, which
take place in India. It further stated that the territoriality principle of the Act precludes Part I from being
applicable to a foreign seated arbitration, even if
the agreement purports to provide that the Arbitration proceedings will be governed by the Act
(emphasis supplied).
fact whether parties chose to apply the Act or not.
Hence getting Indian law in line, with the well settled
principle recognized internationally that “the seat of
i. Interpretation of Section 2(2) of the
Act
arbitration is intended to be its center of gravity”.
But this welcome overruling by the Court of its previous decisions will provide no relief to the parties
who have executed their arbitration agreements
prior to the current judgment as the Court, right at
the end of its judgment, directed that the overruling was merely prospective and the laws laid down
therein apply only to arbitration agreements made
after September 6, 2012.
The pertinent issue for consideration before the
Court was whether absence of the word “only” in
Section 2(2) makes Part I of the Act applicable to all
arbitrations, including arbitrations seated outside
India. The previous judgments including Bhatia
International and Venture Global clearly held that Part
I would apply to all arbitrations including those held
out of India, unless the parties by agreement, express
or implied, exclude all or any of its provisions.
A.Brief Facts
The primary contention put forth by the Appel-
The appeal filed by Bharat Aluminum Co. before the
2(2) of the Act permits applicability of Part I of the
Division Bench was placed for hearing before a three
Judge Bench as one of the judges in the Division
lant was that absence of the word “only” in Section
Act to arbitrations held outside India, there being a
conscious deviation from Article 1(2) of UNCITRAL
Model Law. Further, restricting the applicability of
this provision would lead to conflict with the rest of
169.2004 (2) SCC 105
the provisions of the Act.
170.2008 (4) SCC 190
171.Relevant provisions http://www.nishithdesai.com/fileadmin/
user_upload/Html/Dispute/Relevant%20provisions%20of%20
the%20Indian%20Arbitration%20Act.pdf
64
The Court following the principles of literal interpretation and in regard of the legislative intention
held that applicability of Part I of the Act is limited
Arbitration included within Part I contemplate arbi-
only to arbitrations held in India and omission of the
trations between two foreign parties under foreign
word “only” from Section 2(2) has no relevance. It
law with seat in India. Therefore, domestic awards
further observed that the present wording of the Act
made within Part I of the Act includes within its
does not deviate from the territoriality principle as
scope both, award rendered in an international arbi-
accepted under Model Law and absence of “only” in
tration held in India as well as arbitration between
the said provision does not change the content/inten-
two domestic parties and not awards rendered in
tion of the legislation. It was observed that it is not
arbitration held outside India.
permissible for the court while construing a provision to reconstruct the provision. The Court cannot
produce a new jacket, while ironing out the creases
of the old one.
ii. No conflict with Section 2(4) and 2(5)
of the Act
The Court dealt with the aspect whether the above
interpretation of Section 2(2) of the Act would be
in conflict with Sections 2(4) & 2(5). The Appellant
contended that the language of Sections 2(4) & 2(5)
makes Part I applicable to every arbitration, whether
in India or outside.
The Court categorically held that there exists no
conflict among the said provisions as Section 2(4)
is applicable to “every arbitration under any other
enactment for the time being in force” covered by
Part I (emphasis supplied) and for the purposes of this
section “enactment” would mean only an Act made
by the Indian Parliament. Section 2(5) is merely an
extension to Section 2(4) to deal with all proceedings in relation to arbitration with the exception
of statutory or compulsory arbitrations in case of
inconsistency and “all arbitrations” includes only
those to which Part I is applicable. Thus, by virtue of
the above provisions, Part I of the Act applies to all
arbitrations held in India in accordance with the provisions of any Indian enactments unless inconsistent
with the provisions of the Act. .
The object of Section 2(7) is to differentiate between
domestic and foreign awards as covered under Part II
of the Act. There is no overlapping between the two
parts of the Act as the latter deals only with arbitrations held outside India, thereby categorizing them
as foreign awards. The Court held that Act being
based on the territoriality principle excludes applicability of Part I to foreign seated arbitrations even if
the agreement is governed by the provisions of the
Act.
iii.Party Autonomy
The Act permits the parties to decide the place of
arbitration. The Court interpreting Section 20 of the
Act pertaining to place/seat of arbitration has clarified that if seat of arbitration is India, parties are free
to choose any place or venue within India for conducting the arbitration proceedings. However, the
said provision is to be read with Section 2(2) of the
Act to understand the applicability of principle of
territoriality. In the absence of parties failing to specify law governing arbitration proceedings, the same
would be governed as per the law of the country in
which arbitration is held, having the closest connection with the proceedings.
The Court has distinguished the concept of “seat”
and “venue” and explained their significance in arbitration proceedings. The distinction between seat
and venue of arbitration assumes significance when
foreign seat is assigned, with the Act as the curial
iii.Award under Section 2(7) of the Act
is a “domestic award”
law governing the arbitration proceedings. In such
scenario, Part I would be inapplicable to the extent
inconsistent with arbitration law of the seat.
The scheme of the Act indicates that Part I applies to
domestic arbitrations as well as international arbitrations conducted in India. International Commercial
Further, elaborating on the issue of choice of substantive law, the Court interpreting Section 28 of the
65
Act held that arbitrations under Part I of the Act not
including the country in “which the award was
being international commercial arbitration would
made” and “under the law of which the award was
be compulsorily governed by the Indian substantive
made”. Enforcement of foreign award in India would
law, to prevent domestic parties from resorting to
be refused only if the said award is set aside by
arbitration with foreign governing law, whereas no
Courts of either of the countries as specified above.
such compulsion prevails in case of international
The Appellant contended that Courts in both the
commercial arbitration as defined under Section 2(1)
countries have concurrent jurisdiction to annul the
(f) of the Act. The very objective of the Section is to
award.
segregate domestic and international arbitrations
and convey the legislative intention of not providing
The Court has clarified that the expression “under
extra-territorial applicability to Part I of the Act.
the law of which the award was made” refers to the
procedural law/curial law of the country and has
iv.Application of Part II of the Act
no reference to the substantive law of the contract
between the parties. Rejecting the contrary views
The Court held that there is no overlapping of the
upheld in its previous judgments annulling foreign
provisions of Part I and Part II of the Act and Part II is
award on the basis of law governing the dispute, the
not merely supplementary. There is complete segre-
Court held that awards passed in arbitrations con-
gation between both the parts as Part I deals with all
ducted outside India cannot be annulled under the
four phases of arbitration-commencement, conduct,
provisions of the Act.
challenge and recognition and enforcement whereas
Part II pertains only to recognition and enforcement of foreign awards. Further, the Court held that
regulation of conduct of arbitration and challenge
would be done by the Courts of the country in which
arbitration is conducted, thereby application of Part
I provisions to foreign awards would defeat the very
object of the Act. Elaborating on the said issue, the
Court has also clarified that approaching judicial
authority under the non-obstante clause in Section
45 of the Act, does not make Part I applicable to foreign arbitrations held outside India.
vi.Applicability of Section 9 to foreign
seated arbitrations
The major contention of the Appellant for applicability of Section 9 relief to foreign awards was not to
leave any party remediless and correct interpretation
being adopted in Bhatia International. The applicability of Part I was extended only to the extent of granting interim reliefs and not annulment as the same
would invite extra-territorial operations.
Section 9 of the Act acts in aid of the arbitration
v. Enforcement of Foreign Award under
Section 48(1) & (2) though being
under Part II construed as falling
under Part I
No provision for annulment of foreign award is provided under the Act. Section 34 pertaining to challenge of awards being included within Part I clearly
reflects the legislative intention to restrict its scope
to domestic awards. Section 48 of the Act recognizes
that Courts of two nations are competent to annul or
suspend an award
proceedings and provides interim reliefs before
or during arbitration or at any time after the making of award but prior to the enforcement of the
award under Section 36 of the Act. The Court held
that Section 36 being applicable only to domestic
awards, pertains only to arbitrations with Indian seat,
thereby Section 9 cannot be made applicable to arbitrations held outside India in contravention of the
territoriality principle established under Section 2(2)
of the Act. It was further clarified that if parties voluntarily chose a foreign seat, it would be implied that
consequences of such choice would be known
to them and non-applicability of Section 9 would not
render them remediless.
66
vii. No relief for awards passed in
Non-Convention Countries
prior to the said period and hence the present judgment is not applicable to them. The judgment has
several positive and negative elements that need to
Awards passed in non-convention countries are not
be considered :
included within the ambit of the Act. The Court held
that non-inclusion of the same does not amount
to a lacunae as the legislative intention needs to
i.Positives
be understood from the language and aspects not
The judgment has clarified several legal anomalies
included therein cannot be incorporated vide inter-
which had tarnished the image of Indian arbitration
pretation. The ability to remove such defects is
laws and judicial system. It has remedied the primary
vested only with the Parliament and in its absence;
concern which foreign parties faced while arbitrat-
applicability of the Act is limited to awards passed
ing against an Indian party i.e. ensuring minimum
under the Act and in convention countries.
interference by local courts in arbitrations seated
Maintainability of suits for Interim Reliefs
outside India.
Existence of cause of action is the basis to maintaina-
The judgment by further clarifying that no annul-
bility of suits under the Code of Civil Procedure, 1908
ment proceedings would lie in India against an
(“Code”). Pendency of arbitration proceedings does
award made outside India has got the Indian arbitra-
not constitute sufficient ground for maintainability
tion law at par with other international jurisdictions.
of a suit for interim relief. The Court has specified
It has eased the difficulties the foreign investors/
that no suit on the merits of the arbitration would
players have been facing in enforcing foreign awards
be maintainable as the same would be subject to
in India against Indian parties.
Sections 8 and 45 of the Act and relief if any would
be purely to safeguard the property in dispute before
the Arbitrator. No substantive reliefs on the merits
ii.Negatives
of the arbitration could be claimed in the suit and
The judgment while overruling Bhatia International
in the event of a valid cause of action; no such suit
failed to appreciate an important observation which
would be maintainable. The relief claimed would
was made by the Court in allowing the applicability
be subject to future award that may be passed and
of Section 9 of the Act to arbitrations seated out-
contingent cause of action would not suffice to get
side India. The Court in Bhatia International had
proper reliefs. No provision of the Code or the Act
observed that one important reason for allowing the
vests powers to grant interim relief in suits in the
applicability of Section 9 of the Act to arbitrations
absence of existence of a substantive suit, in pending
seated outside India was that interim orders from for-
arbitrations held outside India.
eign courts and arbitration tribunals are not enforceable in India and such a situation would leave for-
C.Analysis
Due to the limited application of the present judgment to arbitration agreements executed post September 6, 2012, the Appellants in the present appeal
eign parties remediless. The Court by not considering
this issue has made it very difficult for foreign parties
to now seek meaningful and enforceable interim
reliefs against Indian parties in arbitration seated
outside India.
are effectively on the losing side as their arbitration
agreements were executed
67
The judgment also failed to address the issue as to
two sets of jurisprudence running parallel
whether two domestic parties could choose a foreign
in India. Infact, for the parties, who challenged the
seat thereby excluding the applicability of Part I of
law laid down by Bhatia International and have been
the Act. The said issue has been debated extensively
successful in their challenge, will be still subject to
in other jurisdictions and also raised by the Appel-
the said law laid down by Bhatia International for
lant herein. The Court inspite of clarifying that
adjudication of their disputes pending before the
Indian substantive law would be applicable compul-
date of this judgment. This is quite an anomaly that
sorily to all domestic arbitrations and Indian parties
has been created.
where seat of arbitration is India cannot circumvent
the application substantive Indian law has failed to
discuss the scenario wherein domestic parties opt for
a foreign seat.
The Court could have achieved its objective
of avoiding confusion due to overruling of Bhatia
International and Venture Global by restricting the
applicability of the Court’s decision only to the cases
The biggest negative one can draw from this judg-
arising in future and prohibiting its applicability to
ment is its implied adoption of the doctrine of pro-
the cases which have attained finality. This would
spective overruling. The Court has made its ruling
be a more appropriate application of the doctrine of
applicable only to the arbitration agreements exe-
prospective overruling.
cuted (emphasis supplied) post the present judgment i.e. post September 6, 2012. Though the doctrine of prospective overruling is recognized in India
the application of the same in the present situation
would lead to more confusion. By pegging the applicability of the present judgment to the execution of
an arbitration agreement the court has opened a Pandora’s Box of questions. For example: If an arbitration
agreement in executed in August, 2012 and the disputes under the same arise in July, 2016 the parties
under that agreement would be bound by the rules
laid down by Bhatia International and Venture Global
D.Steps Ahead
In light of the prospective applicability of the present
judgment it is advisable that parties revise their arbitration agreements and re-execute them, if they wish
to bring them under the umbrella of the new law.
Prateek Bagaria, Payel Chatterjee & Vyapak Desai
authors
leading to
68
With Institutional
Inputs from SIAC
www.siac.org.sg
About SIAC
Established in 1991 as an independent, not-for-
Recognising the need for dedicated expertise in cases
profit organisation, the Singapore International
dealing with intellectual property (IP)rights, SIAC set
Arbitration Centre (SIAC) has a proven track record
up an exclusive panel of IP arbi-trators in early 2014
in providing neutral arbitration services to the global
(the SIAC IP panel). The SIAC IP Panel complements
business community. SIAC arbitration awards have
SIAC’s existing multi-jurisdictional panel of over 400
been enforced in many countries including Australia,
leading arbitrators from across 40 jurisdictions.
China, Hong Kong, India, Indonesia, UK, USA and
Vietnam, amongst other New York Convention
countries. In 2015, SIAC a received a record number
of 271 fresh cases and issued a total of 116 SIAC
awards. These included 3 awards / orders issued by
emergency arbitrators for urgent interim relief.
Integrity, fair rules and procedures, efficiency and
competence are key to SIAC’s success. SIAC’s case
management services are supervised by a ‘Court
of Arbitration’ that comprises of 18 of the most
eminent, experienced and diverse international
arbitration practitioners. The Court of Arbitration
is headed by its President, and offers a wealth of
experience and specialist knowledge in international
dispute resolution from all major jurisdictions,
including Australia, Belgium, China, France, India,
Japan, Korea, UK, USA and Singapore.
In 2015, SIAC consolidated its position as one of the
world’s leading arbitral centres. For the last three
years, SIAC consistently received over 200 new cases
each year. Over the last 10 years new case filings
at SIAC grew by almost 200%, thereby reinforcing
its position as one of the fastest growing arbitral
institutions in the world.
SIAC established its first overseas liaison office
in Mumbai, India in 2013 (the Indian office)
in recognition of the significant role played by
India towards SIAC’s success over the years as an
international arbitral institution. This was followed
later that year with the opening of a second overseas
liaison office at the International Dispute Resolution
Centre in Seoul, South Korea. Recently, SIAC has
opened an office in the Free Trade zone in Shanghai,
China and has also entered into an MoA with GIFT,
SIAC’s operations, business strategy and devel-
Gujarat to open a presence in GIFT City. The Indian
opment, as well as corporate governance matters
office is the embodiment of SIAC’s commitment to
are overseen by the ‘Board of Directors’ compris-
develop a greater awareness and consciousness of
ing of senior members of the legal and business
international arbitration in India. The Head of South
communities. SIAC’s Board of Directors consists of
Asia at SIAC is based and operates out of the Indian
well-respected lawyers and corporate leaders from
office and leads its business development initiatives in
China, India, Korea, UK, HongKong and Singapore.
the region as well as oversees operations.
SIAC’s multinational and multi-lingual Secretariat
The primary objectives of the liaison offices are
comprises of dual qualified and experienced
the dissemination of practical information on
arbitration lawyers from both civil and common-law
arbitration at SIAC and in Singapore; to promote
jurisdictions including Belgium, Canada, China, India,
the use of institutional arbitration; to create a line
Korea, Philippines, Singapore and the USA. Headed
of communication for SIAC and the community
by the Registrar, SIAC’s Secretariat supervises and
in Singapore with key players in international
monitors the progress of each case and also scrutinises
arbitration in India and South Korea; to obtain
draft awards to enhance the enforceability of awards
feedback on SIAC’s services as an arbitral institution;
and minimise the risk of challenges.
and to exchange ideas on local “hot topics” and issues
in international arbitration.
71
The physical presence of SIAC in India, South Korea
benefits of arbitration under the SIAC Rules.
and China has proved immensely beneficial over
As a result, SIAC interacts closely with companies
the past couple of years, with users and the legal
and the legal community in India and South Korea,
community reaching out to further understand the
thereby strengthening ties with its current and
potential users.
72
I.SIAC Facilitates the
Efficient Resolution of
Your Dispute
§§We provide the certainty of established and tested
Rules, so there is less risk of tactical delay or
obstruction of the process
§§We appoint arbitrators where parties are unable
to agree under the SIAC Rules, UNCITRAL Rules
and ad hoc cases. Appointments are made on the
basis of our specialist knowledge of an arbitrator’s
expertise, experience and track record
§§There are strict standards of admission for SIAC’s
Panel of Arbitrators, thus minimising the risk of
challenges and delays
§§Our full-time staff manage all the financial aspects
of the arbitration, including: Regular rendering of
accounts; Collecting deposits towards the costs of
the arbitration; and Processing the Tribunal’s fees
II.Special Procedures at
SIAC
A. Emergency Arbitrator (EA)
§§1st international arbitral institution in Asia to
introduce EA provisions in July 2010
§§EA deals with requests for urgent interim relief
before a Tribunal is constituted
§§ SIAC is an international leader in terms of the
number of EA cases handled
B. Why the need?
§§Challenges with seeking interim relief from
courts
§§Lack of confidence in national courts
§§Desire for confidentiality
and expenses
§§Transparent financial management of the
case according to published guidelines allows
legal representatives to provide accurate cost
projections, timelines and costs for each stage of
the arbitration process to their clients
§§We supervise and monitor the progress of the
case. We conduct a scrutiny of the arbitral award,
thus minimizing the likelihood of challenges to
enforcement
§§ SIAC’s administration fees are competitive in
comparison with all the major international
arbitral institutions and are based on an ad
valorem model
C. How to apply?
§§Application in writing to the Registrar: - Concurrent with or following filing of Notice of
Arbitration - Prior to constitution of Tribunal
§§Notify Registrar and all other parties in writing of:
- Nature of relief sought - Why party is entitled to
such relief - Reasons why such relief is required on
emergency basis
§§Application has to be accompanied by payment of
any deposits set by Registrar
D. Who decides?
§§President of SIAC Court of Arbitration
73
E. Who will be the EA and what
powers does EA have?
I. Common types of relief
sought?
§§ SIAC Panel of Arbitrators with * by an arbitrator’s name indicates willingness to act as EA
§§Preservation orders
§§EA has : - Same powers as Tribunal - Power to
order or award any form of interim relief - To give
reasons in writing for decision - No power to act
after the Tribunal is constituted
§§Tribunal may reconsider, modify or vacate the
interim award by EA
§§If Tribunal is not constituted within 90 days,
EA’s order or award ceases to have effect
§§Freezing orders
§§General injunctive relief
III.Expedited Procedure
§§Fast-track 6-month procedure introduced in July
2010
§§Popular procedure for lower value, less complex
disputes
F. How long does it take?
Action
Time
Appointment of EA
Within 1 day of receipt by Registrar of application and
payment of fee
Challenge to appointment of EA
Within 2 days of communication by Registrar of appointment
and circumstances disclosed
Schedule for consideration of application by EA
Within 2 days of appointment
G. When will EA’s award or
order be issued?
§§Average time for issuance of EA order or award
is 8.5 to 10 days after appointment of EA,
but can be faster
H. Is EA’s order or award
enforceable?
§§EA’s orders and awards are enforceable in both
Singapore-seated and foreign-seated arbitrations
A. When to use it?
§§If sum in dispute does not exceed SGD 6,000,000
§§If parties agree
§§In cases of exceptional urgency
B. Who decides?
§§President of SIAC Court of Arbitration
C. What is the procedure?
under the International Arbitration Act
§§In practice, high rate of voluntary compliance
§§Dispute will be referred to sole arbitrator
§§Award will be made within 6 months from date of
constitution of Tribunal
74
§§Unmatched connectivity to India with over 360
flights a week
Singapore … “The most preferred seat
of Arbitration in Asia”
Influence your business outcome with the SIAC
Model Clause
Global market survey on international arbitration
by Queen Mary University of London
IV.The SIAC Growth Story
§§Active case load of over 600 cases
§§ 84% of new cases filed with SIAC in 2015 were
international in nature
§§About half of our new cases involve foreign
parties with no connection whatsoever to
Singapore
§§Indian parties – largest contingent of cases at
SIAC in 2009, 2010, 2011, 2013 & 2015
§§Average sum in dispute for Indian cases in 2015
was SGD 8 million with highest sum in dispute
of SGD 85.1 million
V.Singapore and SIAC
offer
§§Over 400 arbitrators from across 40 jurisdictions
§§UNCITRAL Model Law and a judiciary that
provides maximum support & minimum
intervention in arbitrations
§§Freedom of choice of counsel in arbitration
proceedings regardless of nationality.
§§No restriction on foreign law firms engaging in
and advising on arbitration in Singapore.
In drawing up international contracts,
we recommend that parties include the
following arbitration clause:
Any dispute arising out of or in connection with
this contract, including any question regarding its
existence, validity or termination, shall be referred
to and finally resolved by arbitration administered
by the Singapore International Arbitration Centre
(“SIAC”) in accordance with the Arbitration Rules
of the Singapore International Arbitration Centre
(“SIAC Rules”) for the time being in force, which
rules are deemed to be incorporated by reference
in this clause.
The seat of the arbitration shall be [Singapore]*.
*If the parties wish to select an alternative seat to
Singapore, please replace “[Singapore]” with the
city and country of choice (e.g., “[City, Country]”).
The Tribunal shall consist of ______________
(1 or 3) arbitrator(s).
The language of the arbitration shall be ______.
Applicable Law
The applicable law clause should be drafted under
legal advice. The following is a simple model
clause:
This contract is governed by the laws of ______**.
** State the country or jurisdiction
Contacts
Pranav Mago
Head (South Asia)
e: [email protected]
m: +91 9811335519
§§Competitive cost structure
§§ SIAC arbitration awards enforced in over 150
countries
75
SIAC Information Kit
I.Why SIAC?
§§Arbitrators appointed by SIAC will set out a
schedule for the conduct of the case at the
beginning of the case and follow that schedule,
§§Choosing an institution guarantees defined
rules and procedures.
§§Choosing an institution guarantees that you have
a Secretariat which supervises the entire process
including for the hearing.
§§Hearings are only conducted for the purpose
of final submissions and cross-examination of
witnesses and not for parties to file documents
and consistently guides parties and arbitrators
through the process.
and pleadings.
§§ SIAC also provides special procedures such as:
§§ SIAC’s Court of Arbitration consists of some of
the most eminent practitioners of international
a. a fast track procedure (expedited procedure)
which guarantees an award in 6 months from
arbitration who supervise case management at
the constitution of the tribunal
SIAC.
b. a procedure to seek urgent interim relief
§§Choosing SIAC guarantees that arbitrators’ fees
are subject to a maximum cap in accordance
from an emergency arbitrator appointed for
that purpose – an emergency arbitrator is
with the SIAC schedule of fees.
normally appointed in 24 hours and deals with
§§ SIAC controls how arbitrators are paid and
determines arbitrator fees on actual work done
(not hours spent).
§§ SIAC controls timelines of cases. The average
time for completion of a case is 9 to 12 months.
§§ SIAC scrutinises awards to ensure that they are
enforceable in any jurisdiction. SIAC awards
have been successfully enforced in Australia,
request for interim relief (having heard both
parties) in a matter of days
§§If Singapore is chosen as the seat, Singapore
courts will not normally interfere in the arbitral
proceedings and will not review the award on
merits in a challenge.
§§ Singapore is the most popular seat for international arbitration in Asia. It is cost effective,
China, Hong Kong, India, Indonesia, UK,
well connected, neutral, permits foreign counsel,
USA and Vietnam, amongst other New York
and has an arbitration legislation in place that is
Convention countries.
most up to date with international practices and
§§ SIAC appoints arbitrators from a qualified and
publicly available panel of over 400 accredited
and trained arbitrators from across
jurisprudence.
II.Statistics
40 jurisdictions.
§§Hearings are not conducted once every month
in SIAC cases. There is typically only one or two
hearings. Parties need not incur costs to fly down
to Singapore for a hearing. They can conduct
a hearing where convenient.
The SIAC’s Annual Report for 2015 which is
available on the Centre’s website http://www.
siac.org.sg/ will give you details of the numbers
and value of cases handled by SIAC in 2015. Some
important facts are as follows:
i.
In 2015, SIAC consolidated its position as one
of the world’s leading arbitral centres. For the
76
last three years, SIAC consistently received over
vii.The average sum in dispute at the SIAC for 2015 in
200 new cases each year. Over the last 10 years,
new case filings at SIAC grew by almost 200%,
reinforcing its position as one of the fastest
growing arbitral institutions in the world.
ii. In 2015, SIAC received 271 new cases from parties
cases involving Indian parties was SGD 8 million.
It is indisputable that India’s significant contribution
continues to remain a key factor to SIAC’s
unwavering success as an international arbitral
institution. Recognising this, SIAC opened its first
from 55 jurisdictions spanning six continents.
overseas office in Mumbai, India in May 2013. SIAC’s
84% of these new cases filed with SIAC were
Indian office facilitates SIAC’s interactions and
international in nature. For new cases filed in
information sharing on a regular basis with current
2015, the total sum in dispute amounted to S$6.23
and potential users from India. Soon SIAC will be
billion and the highest amount claimed was
opening another office in GIFT City, Gujarat which is
S$2.03 billion. This was a new milestone as the
India’s first approved IFSC.
highest number of cases were filed in 2015,
a 22% increase from 2014.
III. Costs at SIAC
iii.A diverse range of claims was filed at SIAC in
2015, arising from key sectors such as commercial,
The cost of an arbitration at SIAC is determined
trade, shipping/maritime, corporate, construc-
in accordance with the Schedule of Fees. It can
tion/ engineering, insurance, mining, energy, IP/
be easily calculated on our website using the Fee
IT, financial services and aviation. Trade and com-
Calculator http://www.siac.org.sg/component/
mercial disputes have been key areas in relation
siaccalculator/?Itemid=448
to which disputes have been filed at SIAC and
this remained the case in 2015.
On costs, it is important to note that the SIAC’s cost
structure comprises of the following:
iv. In 2015, the highest number of filings was gener-
ated by parties from India, with 91 Indian parties
having used SIAC, followed by parties from the
China and South Korea. Parties from China and
India have remained strong contributors of cases
to SIAC over the past five years. Parties from the
USA were a close fourth and were consistent with
the number of cases received last year from them.
Cases involving parties from Australia, Vietnam
and Hong Kong also increased in 2015. The other
parties in the top ten list of foreign users were
Indonesia, British Virgin Islands and Malaysia.
v.
The largest case for 2015 involving an Indian
party dealt with a sum in dispute of over SGD 85.1
million.
vi. The average value of a dispute at the SIAC in 2015
was over SGD 23 million, and the highest claim
amount in 2015 was SGD 2.03 billion.
1.
Filing fees for a claim or counter claim;
ii. Administration Fees;
iii.Arbitrators’ Fees;
iv. Expenses of the arbitration
SIAC revised its Schedule of Fees on 1 August 2014,
applicable to all arbitrations commenced on or after
this date.
From the Schedule of Fees, which is available on the
website http://www.siac.org.sg/estimate- your-fees/
siac-schedule-of-fees, it is possible to see that:
i.
Arbitrators’ and SIAC’s fees are determined on an
ad valorem rate; and
ii. the fees are caps (or ceilings) that are applicable to
the administration fees and arbitrators’ fees.
77
In the first instance, when an arbitration commences,
Several international surveys have been conducted
the SIAC estimates the costs of arbitration as
comparing costs at various international arbitral
comprising of:
institutions, which categorise SIAC as a cost effective
i.
SIAC;
ii. fees and expenses of the Tribunal; and
iii.facilities and services required for the physical
conduct of the arbitration
Deposits are sought from the parties on the basis of
this estimate of the costs of arbitration. The actual
cost is determined by the Registrar of the SIAC at the
conclusion of a case on the basis of the stage at which
the matter has been concluded. Hence, the actual
cost of an arbitration will always be lesser than the
cap indicated in the Schedule of Fees for a dispute
of a particular sum. Moreover, this aids the Registrar
in an objective determination of the arbitrators’ fees
based on work performed and the stage at which
a case concludes. Parties are also free to agree upon
alternative methods of determining tribunals’ fees
in SIAC arbitrations.
option for parties. For more information on cost
comparisons with other institutions, do feel free to
contact us.
IV. Duration of an
Arbitration at SIAC
While there is no absolute data on the duration
of a case at the SIAC, experience suggests that an
arbitration with a sole arbitrator is likely to require
between 9 and 12 months from commencement of
arbitration to the delivery of an award. Similarly, in
a three-member arbitral tribunal, owing to factors
such as the complexity and quantum of the dispute
and other logistical issues, it would appear that an
arbitration would require between 15 and 18 months
from commencement of arbitration to the delivery
of an award. Needless to say, this depends entirely
on the particularities of a case and the attitude of the
parties, and can vary.
The following is a depiction of caseflow at the SIAC:
Month
1
2
3
4
5
Notice of Arbitration
SIAC writes to parties on commencement
Calculation of estimated costs of arbitration
Response to Notice
1st tranche of deposits
Constitution of Tribunal
2nd tranche of deposits
Preliminary meeting
Statement of Claim
Statement of Defence
Replies, if any
Request to produce documents
Ruling on requests
3rd tranche of deposits
Witness statements
Reply witness statements
Expert reports, if any
Written opening submissions for hearing
78
6
7
8
9
10 11 12
Hearing tranche
(1-5 days)
Written closing submissions
Submissions on Costs
Draft award sent to SIAC
Determination of costs of arbitration
Signed award issued to parties
V.Innovations in
Reducing Cost and
Time in International
Arbitrations at SIAC
A few examples are below.
Of some additional interest are the SIAC Rules 2010
§§The parties were a Japanese claimant and an
Indian respondent
and 2013, which introduced two new mechanisms
to reduce the duration of proceedings or be used in
cases where urgent or emergency relief is required.
A.Expedited Procedure
Parties can choose to apply the SIAC’s Expedited
Procedure under Rule 5 of the SIAC Rules (i)
in their contract by using the SIAC Expedited
Procedure Model Clause (which is available on our
website); or (ii) post-dispute by agreement between
parties.
Alternatively, a party can choose to make an
application to the SIAC for the Expedited Proce-
i. Case Study 1
In one of the cases decided under the Expedited
Procedure, the following were the brief facts of the
case:
§§The dispute was an international trade dispute
regarding shipment of iron ore in the sum of SGD
1,600,537
§§1 October 2010 – Claimant filed notice of
arbitration and request for Expedited Procedure nominating a particular individual to be
appointed as the sole arbitrator
§§3 November 2010 – Respondent agreed to the
Expedited Procedure and to the appointment of
the Claimant’s nominee
dure if the amount in dispute does not exceed
§§19 November 2010 – SIAC Chairman determined that the arbitral proceedings in this
the equivalent amount of SGD 5,000,000 or in
reference shall be conducted in accordance
cases of exceptional urgency. This amount has
with the Expedited Procedure. The parties were
been increased to SGD 6,000,000 in the recent
informed of this decision and SIAC approached
amendments to the SIAC Rules.
the parties’ joint nominee regarding his
If the President of the SIAC Court of Arbitration
determines that the arbitral proceedings should
be conducted in accordance with the Expedited
Procedure, an award will be made within six months
of the constitution of the tribunal.
prospective appointment on that day
§§26 November 2010 – Nominee was appointed by
the Chairman as the sole arbitrator in this matter
§§30 November 2010 – Tribunal communicated
to the parties regarding further conduct of this
As of June 2015, SIAC received 184 requests for the
arbitration and circulated the draft Procedural
application of the Expedited Procedure, of which
Timetable.
SIAC accepted 129 requests.
79
§§10 December 2010 –Tribunal held the first
preliminary meeting with the parties via telephonic conference
§§9 May 2011 – Hearing on merits took place at
Maxwell Chambers, Singapore
§§11 May 2011 – SIAC received the draft award
from the Tribunal for scrutiny
§§25 May 2011 – Tribunal issued the signed Award
§§Total time between filing and rendering of Award
– 7 months, 25 days
§§Total time between constitution of Tribunal and
rendering of Award – 6 months
ii. Case Study 2
In another case to which the Expedited Procedure
was applied, the following was the timeline:
§§The parties were an Indian claimant and a Hong
Kong SAR incorporated respondent
§§The dispute was an international trade dispute
regarding shipment of coal with a claim amount
in the sum of about SGD 1 million
§§06 June 2011 – Claimant filed notice of arbitration and request for Expedited Procedure
nominating a particular individual to be
appointed as the sole arbitrator
§§08 June 2011 – Arbitration deemed commenced
§§29 August 2011 – Chairman, SIAC was requested
to determine whether the Expedited Procedure
§§30 August 2011 – Chairman, SIAC determined
that the Expedited Procedure ought to be applied
§
§§31 August 2011 – SIAC approached a prospective arbitrator for appointment in the case
§§01 September 2011 – Prospective arbitrator
reverted to accept appointment on the condition that the hearing be held in January 2012
§§02 September 2011 – Parties were informed of
the arbitrator’s condition and their views were
requested
§§16 September 2011 – Parties accepted the prospective arbitrator’s condition on the hearing to
be held in January 2012
§§19 September 2011 – Arbitrator appointed by
Chairman, SIAC
§§23 September 2011 – Arbitrator informed parties
that given their different locations, the preliminary meeting did not require a physcal meeting
§§04 October 2011 – All procedural steps and timelines finalised
§§29 November 2011 – Parties settled the dipute and
consent terms agreed
§§Total time between commencement and completion of proceedings – 5 months, 22 days
§§Total time between constitution of Tribunal and
completion – 2 months, 11 days
The following is a depiction of caseflow at the SIAC
for an Expedited Procedure case:
ought to be applied on the basis of the parties’
submissions up to such date
Month
1
Notice of Arbitration
SIAC writes to parties on commencement
Calculation of estimated costs of arbitration
Response to Notice
1st tranche of deposits
Determination of Expedited Procedure Application
Constitution of Tribunal
80
2
3
4
5
6
7
2nd tranche of deposits
Preliminary meeting
Statement of Claim
Statement of Defence
Replies, if any
Request to produce documents
Ruling on requests
3rd tranche of deposits
Witness statements
Reply witness statements
Expert reports, if any
Written opening submissions for hearing
Hearing tranche (1-5 days)
Written closing submissions
Submissions on Costs
Draft award sent to SIAC
Determination of costs of arbitration
Signed award issued to parties
B.Emergency Arbitrator
the enforceability of such awards and orders. Most
A party in need of emergency relief prior to the
seen voluntary compliance of the orders and awards
constitution of the Tribunal may apply for such
issued by emergency arbitrators.
cases handled by SIAC under these provisions have
relief pursuant to Rule 30.2 and Schedule 1 of the
SIAC Rules. Under this mechanism:
i.
the President, SIAC Court of Arbitration will
appoint an Emergency Arbitrator within one
business day of deciding to accept an application
for emergency relief under these provisions;
ii. any challenge to the appointment of the
Emergency Arbitrator must be made within
one business day of his appointment;
iii.the Emergency Arbitrator must establish
a schedule for considering the application for
emergency relief within two business days
of his appointment;
Singapore’s international Arbitration Act was
amended in 2012 to provide for the enforceability of
awards and orders issued by emergency arbitrators
The SIAC was the first Asian arbitral institution to
introduce these provisions. In 2015, SIAC received
12 applications to appoint an emergency arbitrator.
SIAC accepted all 5 requests, taking the total number
of emergency arbitrator applications accepted by
SIAC to 50 (as at July 2016), since the introduction of
these provisions in the SIAC Rules in July 2010.
Interestingly, a 2014 decision of the Bombay
High Court in HSBC v Avitel endorsed, validated
and effectively enforced interim awards issued
by an emergency arbitrator appointed in SIAC
administered arbitrations under the SIAC 2010 Rules,
wherein the emergency arbitrator had issued interim
protective orders.
A few examples of case studies involving the
emergency arbitrator procedure are below.
in Singapore. This makes Singapore the first
jurisdiction globally to adopt legislation for
81
i. Case Study 1
In the first case where an Emergency Arbitrator was
appointed, the following were the brief facts of the
case:
§§Claimant: Indian
§§Respondent: Indian
§§Broad nature of interim relief sought:
The Claimant sought an injunction restraining
the Respondent from calling upon certain performance bank guarantees provided under
a contract for provision of dredging services by
the Claimant at a port in India.
§§The SIAC received the application at 21:30 hrs
Singapore Time
§§The Chairman, SIAC determined that the
application should be accepted and on the basis
of the nature of dispute, nationality of parties
and relief sought, appointed the Emergency
Arbitrator the next day
§§The Emergency Arbitrator appointed was well
recognised as a leading international arbitrator,
having sat as arbitrator in more than 170 cases
and written numerous awards
§§Within one day of his appointment, the
Emergency Arbitrator established a schedule
for consideration of the application for
emergency relief
§§As per the schedule, the parties made written
submissions on the application and a telephonic
hearing was conducted within one week of the
appointment of the Emergency Arbitrator
§§The Emergency Arbitrator passed an ad-interim
order one day thereafter
§§Parties, by consent, amended the terms of
the order and the main arbitral tribunal was
constituted
§§Parties, thereafter, settled the case.
82
§§Number of days between request for emergency
relief & first interim order: 4 days
§§Number of days from First interim order to
Award on interim relief: 9 days
§§Whether the interim relief sought was granted by
the EA: Yes
ii. Case Study 2
In another case where an Emergency Arbitrator was
appointed, the brief facts were as follows:
§§Claimant: Indian
§§Respondent: BVI
The Indian company filed an application for
emergency interim relief seeking an order (i)
restraining the BVI company from breaching the
confidentiality provisions; and (ii) abiding by the
contractual dispute resolution mechanism of
arbitration at the SIAC
§§The Claimant initiated arbitration on the
basis that the BVI company had breached the
shareholders agreement and was alleging that it
would breach the confidentiality obligation by
initiating court action in multiple jurisdictions
§§Within 20 hrs of the receipt of the application,
the SIAC appointed the Emergency Arbitrator
§§A preliminary hearing was scheduled within
one day of the appointment of the Emergency
Arbitrator
§§An preliminary order was issued on the same day
to preserve the status quo
§§An interim award was issued two days thereafter
and a supplemental interim thereafter
§§The parties, thereafter, settled the matter
relief & first interim order: 1 day
the EA: Yes
the EA: Yes
C. ARB – MED – ARB
iii.Case Study 3
Arb-Med-Arb is a process where a dispute is first
In a third case where an Emergency Arbitrator was
If parties are able to settle their dispute through
appointed, the brief facts were as follows:
mediation, their mediated settlement may be
§§Claimant: Indonesian
§§Respondent: Chinese
This occurred over the Chinese New Year Holiday
§§The dispute between a Chinese company and
an Indonesian company was in relation to the
quality of a shipment of coal
§§The Indonesian shipper wanted to sell the cargo
of coal pending the resolution of the dispute as
the cargo was deteriorating
§§They contacted the SIAC on Monday morning warning us of their intention to make an
emergency arbitrator application
§§The Indonesian applicant filed their papers at
2pm and by 5pm, an experienced Singaporean
shipping lawyer was appointed as the Emergency Arbitrator
§§The Emergency Arbitrator gave his preliminary directions that evening and a hearing was
scheduled for the next day
§§On the next day, he made an order permitting the sale and directing the respondents to
co-operate to permit the cargo to leave the port
relief & first interim order: 1 day
referred to arbitration before mediation is attempted.
recorded as a consent award. The consent award
is generally accepted as an arbitral award, and,
subject to any local legislation and/or requirements,
is generally enforceable in approximately 150
countries under the New York Convention. If parties
are unable to settle their dispute through mediation,
they may continue with the arbitration proceedings.
Parties wishing to take advantage of this tiered
dispute resolution mechanism as administered by
SIAC and SIMC, may consider incorporating the
following Arb-Med-Arb Clause in their contracts:
Any dispute arising out of or in connection with
this contract, including any question regarding its
existence, validity or termination, shall be referred to
and finally resolved by arbitration administered by the
Singapore International Arbitration Centre (“SIAC”) in
accordance with the Arbitration Rules of the Singapore
International Arbitration Centre (“SIAC Rules”) for
the time being in force, which rules are deemed to be
incorporated by reference in this clause.
The seat of the arbitration shall be [Singapore]*.
*If the parties wish to select an alternative seat to
Singapore, please replace “[Singapore]” with the city
and country of choice (e.g., “[City, Country]”).
The Tribunal shall consist of ____________
(1 or 3) arbitrator(s).
The language of the arbitration shall be ___________.
The parties further agree that following the
commencement of arbitration, they will attempt in good
faith to resolve the Dispute through mediation at the
Singapore International Mediation Centre (“SIMC”),
in accordance with the SIAC-SIMC Arb-Med-Arb
83
Protocol for the time being in force. Any settlement
Parties are free to choose anybody outside the Panel
reached in the course of the mediation shall be referred
while nominating arbitrators in their cases at the
to the arbitral tribunal appointed by SIAC and may be
SIAC. In 2015, 35% of the party appointed arbitrators
made a consent award on agreed terms
were from Singapore, 11% from the UK and 2% from
India.
VI.Arbitrators
VII.Confidentiality
SIAC retains a Panel of accredited arbitrators of
local as well as international experts, from which
Confidentiality is a key advantage of international
the majority of SIAC appointments of arbitrators
arbitration. Arbitration proceedings conducted at the
are made. In addition to administering entire
SIAC are private and confidential in nature. Under
arbitrations, SIAC also offers a service for the
the SIAC Rules, 2016:
appointment of arbitrators in ad hoc arbitrations
seated in Singapore, including those under the
i.
and hearings shall be in private, and any record-
UNCITRAL Arbitration Rules. SIAC performs this
ings, transcripts, or documents used shall remain
function as the statutory appointing authority
confidential [Rule 24.4];
under applicable legislation in Singapore. As of
31 December 2015, SIAC had made a total of 126
individual appointments of arbitrators to 86 sole
ii. the parties and the Tribunal are required to treat
all matters relating to the proceedings and any
arbitrator tribunals and 40 three-member tribunals.
award as confidential [Rule 39.1];
Of these arbitrator appointments, 116 were
appointments made under the SIAC Rules, whilst
unless the parties agree otherwise, all meetings
iii.the obligation in respect of confidentiality
the remaining 10 were appointments made under
extends to the existence of the proceedings, the
the UNCITRAL Arbitration Rules and in ad hoc
pleadings, evidence and other materials in the
arbitrations.
arbitration proceedings, all other documents
produced by a party in the proceedings and
The SIAC Panel of Arbitrators and their curriculum
the award arising from the proceedings, but
vitae are publicly available on our website http://
excludes any matter that is otherwise in the
www.siac.org.sg/our-arbitrators/siac-panel
Recognising the need for dedicated expertise in
cases dealing with intellectual property (IP) rights,
public domain [Rule 39.3];
iv. the Tribunal is vested with the power to take
appropriate measures including issuing an order
SIAC set up an exclusive panel of IP arbitrators in
or award for sanctions or costs if a party breaches
early 2014 (the SIAC IP panel) which complements
the provisions under Rule 35 enumerated above
SIAC’s existing multi-jurisdictional panel of over 400
[Rule 39.4];
leading arbitrators from 40 jurisdictions.
The Panel also has several strict standards for
admission including e.g. minimum 10 years PQE,
fellowship accreditation, acted as arbitrator in at
least 5 cases, written at least 2 awards. The Board of
the SIAC determines the applications to be added on
the Panel.
84
v.
there are certain recognized exceptions provided
to the obligations of confidentiality. Hence,
a party or any arbitrator shall not, without the
prior written consent of all the parties, disclose
to a third party any such confidential matter
except:
a. for the purpose of making an application to
any competent court of any State to enforce or
challenge the award;
b. pursuant to the order of or a subpoena issued
by a court of competent jurisdiction;
c. for the purpose of pursuing or enforcing a legal
right or claim;
d. in compliance with the provisions of the laws
of any State which are binding on the party
making the disclosure;
e. in compliance with the request or requirement
of any regulatory body or other authority; or
f. pursuant to an order by the Tribunal on appli-
cation by a party with proper notice to the
other parties [Rule 41.2]
The SIAC Code of Ethics for arbitrators found
http://www.siac.org.sg/our-rules/code-of-ethicsfor-an-arbitrator also prescribes that arbitration
proceedings shall remain confidential and that an
arbitrator should not use confidential information
acquired during the course of the proceedings to gain
personal advantage or advantage for others, or to
adversely affect the interest of others.
VIII.Enforceability
IX.Traning and
Development
A.SIAC Arbitration Training
Video
The SIAC Arbitration Training Video is a unique
and innovative tool, conceptualised and developed
by SIAC to demonstrate a typical international
commercial arbitration administered under the SIAC
Rules 2013.
SIAC decided to produce the video to demystify
international arbitration. Given the confidential
nature of arbitral proceedings, SIAC felt it would
be useful for those who have never experienced
an international arbitration before to have a visual
guide to take them through the various stages of an
arbitral process.
The video is a user-friendly learning and teaching
tool for arbitrators, practitioners, in-house counsel,
judges and university students, and has been
well received at SIAC workshops in India, China,
Indonesia, Japan, Korea and the Philippines.
In addition to being an educational tool, the video
promotes Singapore as a neutral seat and convenient
location for international arbitration. The three
and a half hour film was shot mostly on location
in the state-of-the-art hearing facilities at Maxwell
The SIAC scrutinises awards in draft form before
Chambers in Singapore, to showcase Singapore’s
they are made and issued to parties by tribunals in
world-class hearing venue and modern video-
order to ensure consistency and enforceability under
conferencing technology.
the New York Convention. Under the SIAC Rules,
the Registrar may suggest ‘modifications as to the form
of the award’ and without affecting the Tribunal’s
liberty of decision also ‘draw attention to points of
substance’. The SIAC performs this duty also with
a view to its general duty to ensure enforceability of
any SIAC award under rule 41.2.
The video is based on a fictitious fact situation,
and includes scenes on a range of topics such as
commencement of an arbitration, emergency
arbitrator hearing, appointment of and challenge
to arbitrators, hearing on jurisdiction, crossexamination of witnesses, scrutiny of the draft award,
costs of arbitration and enforcement. Further details
SIAC awards have been enforced in many juris-
can be found on our website http://www.siac.org.
dictions across the world including Australia, China,
sg/2013-09- 18-01-57-20/2013-09-22-01-20-47/siac-
Hong Kong, India, Indonesia, Vietnam, UK and the
arbitration-training-video
USA.
85
B.Young SIAC (YSIAC)
SIAC rejuvenated its Young SIAC membership (for
younger lawyers aged below 40) by rebranding the
group as “YSIAC” and forming a new Committee
to spearhead and implement initiatives. The
YSIAC Committee’s mandate is to promote the
use of international arbitration and other forms of
alternative dispute resolution, both regionally and
internationally, and to provide a platform for
86
young professionals to work together to address the
unique challenges faced by the legal and business
communities across a diverse range of Asian
jurisdictions and cultures. Membership to YSIAC is
free of charge and can be acessed http://www.siac.
org.sg/ysiac/ about-us/how-to-join-ysiac
For more information on SIAC, please visit our
website at www.siac.org.sg
The following research papers and much more are available on our Knowledge Site: www.nishithdesai.com
Fund Structuring
and Operations
E-Commerce in
India
The Curious Case
of the Indian
Gaming Laws
July 2016
July 2015
September 2015
Corporate Social
Responsibility &
Social Business
Models in India
Joint-Ventures in
India
Outbound
Acquisitions by
India-Inc
March 2016
November 2014
September 2014
Convergence:
Internet of Things
Doing Business in
India
Private Equity
and Private Debt
Investments in
India
April 2016
June 2016
June 2015
NDA Insights
TITLE
Thomas Cook – Sterling Holiday Buyout
Reliance tunes into Network18!
Sun Pharma –Ranbaxy, A Panacea for Ranbaxy’s ills?
Jet Etihad Jet Gets a Co-Pilot
Apollo’s Bumpy Ride in Pursuit of Cooper
Diageo-USL- ‘King of Good Times; Hands over Crown Jewel to
Diageo
Copyright Amendment Bill 2012 receives Indian Parliament’s
assent
Public M&A’s in India: Takeover Code Dissected
TYPE
M&A Lab
M&A Lab
M&A Lab
M&A Lab
M&A Lab
DATE
December 2014
December 2014
December 2014
May 2014
May 2014
M&A Lab
May 2014
IP Lab
M&A Lab
File Foreign Application Prosecution History With Indian Patent
IP Lab
Office
Warburg - Future Capital - Deal Dissected
Real Financing - Onshore and Offshore Debt Funding Realty in
India
Pharma Patent Case Study
Patni plays to iGate’s tunes
Vedanta Acquires Control Over Cairn India
Corporate Citizenry in the face of Corruption
M&A Lab
Funding Real Estate Projects - Exit Challenges
88
September 2013
August 2013
April 2013
January 2013
Realty Check
May 2012
IP Lab
M&A Lab
M&A Lab
Yes, Governance Matters!
March 2012
January 2012
January 2012
September 2011
Realty Check
April 2011
Research @ NDA
Research is the DNA of NDA. In early 1980s, our firm emerged from an extensive, and then pioneering,
research by Nishith M. Desai on the taxation of cross-border transactions. The research book written by him
provided the foundation for our international tax practice. Since then, we have relied upon research to be the
cornerstone of our practice development. Today, research is fully ingrained
in the firm’s culture.
Research has offered us the way to create thought leadership in various areas of law and public policy. Through
research, we discover new thinking, approaches, skills, reflections on jurisprudence,
and ultimately deliver superior value to our clients.
Over the years, we have produced some outstanding research papers, reports and articles. Almost on
a daily basis, we analyze and offer our perspective on latest legal developments through our “Hotlines”. These
Hotlines provide immediate awareness and quick reference, and have been eagerly received.
We also provide expanded commentary on issues through detailed articles for publication in newspapers and periodicals for dissemination to wider audience. Our NDA Insights dissect and analyze a published, distinctive legal
transaction using multiple lenses and offer various perspectives, including some even overlooked by the executors of the transaction.
We regularly write extensive research papers and disseminate them through our website. Although we invest
heavily in terms of associates’ time and expenses in our research activities, we are happy
to provide unlimited access to our research to our clients and the community for greater good.
Our research has also contributed to public policy discourse, helped state and central governments
in drafting statutes, and provided regulators with a much needed comparative base for rule making.
Our ThinkTank discourses on Taxation of eCommerce, Arbitration, and Direct Tax Code have been widely
acknowledged.
As we continue to grow through our research-based approach, we are now in the second phase
of establishing a four-acre, state-of-the-art research center, just a 45-minute ferry ride from Mumbai
but in the middle of verdant hills of reclusive Alibaug-Raigadh district. The center will become the hub for
research activities involving our own associates as well as legal and tax researchers from world over.
It will also provide the platform to internationally renowned professionals to share their expertise
and experience with our associates and select clients.
We would love to hear from you about any suggestions you may have on our research reports.
Please feel free to contact us at
[email protected]
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International Commercial Arbitration — Law and Recent Developments in India
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