Wednesday, December 8, 2010

Proposed amendments to Section 2(2) - The need for further revision: Guest Post by Adithya Reddy

Following is a guest post by Adithya Reddy. Mr. Reddy is an alumnus of NUJS and a practising advocate at Madras High Court. He argues that the proposed extension of Section 27 of the Arbitration and Conciliation Act to arbitrations seated outside India is unnecessary and erroneous.

The Ministry of Law and Justice in its Consultation Paper on the proposed amendments to Arbitration Act, expectedly, criticized the decision of the Supreme Court in Bhatia International vs. Bulk Trading, (2002) 4 SCC 105 and recommended statutory change to overcome its dictum that “in absence of the word ‘only’ in Section 2(2), Part I of the Act would apply to arbitration held outside India, so long as the law of India governed the contract”. The paper suggests that Section 2(2) of the Act be amended as follows:

(2) This part shall apply only where the place of arbitration is in India.
Provided that provisions of Sections 9 and 27 shall also apply to international commercial arbitration where the place of arbitration is not in India if an award made in such place is enforceable and recognized under Part II of this Act.

The paper recommends inclusion of the word ‘only’ into the section; a change that will erode the very fulcrum of Justice Variava’s rationale in
Bhatia. The paper explains the wording of the proposed section as follows:-

It may be stated that it is the broad principle in International Commercial arbitration that a law of the country where it is held, namely, the Seat or forum or laws arbitri of the arbitration, governs the arbitration. However, if all the provisions of Part I are not made applicable to International Commercial arbitration where the seat of arbitration is not in India, some practical problems are arising. There may be cases where the properties and assets of a party to arbitration may be in India. Section 9 of the Act which falls in Part I provide for interim measures by the Court. As per Section 9, a party may, apply to a Court for certain interim measures of protection including for preservation, interim custody or sale of goods, securing the amount in disputes, detention, preservation or inspection of any property, interim injunction etc. If provision of Section 9 is not made applicable to International Commercial arbitration where seat of arbitration is not in India, a party may be out of remedy if the assets and property are in India. In cases of international arbitration where the seat of arbitration is outside India, a serious controversy has arisen in the Indian Courts. These are cases where interim measures could not be granted by Indian Courts under Section 9 to an Indian national before commencement of arbitration (or after the award) against property of a foreign party. By the time the Indian party takes steps to move the Courts in the country in which the seat of arbitration is located, the property may have been removed or transferred.

This rationale is sound and is relied upon in the Bhatia judgment (albeit to reach an erroneous conclusion). The necessity to include Section 9 as an exception to the rule under Section 2(2) is not merely ‘practical’. Even under law, an interim order by a foreign Court relating to preservation of Indian property that is subject matter of arbitration, may not be enforceable in Indian Courts in as much Section 13 of the CPC allows recognition by Indian Courts of only a ‘foreign judgment’. An interim order may not qualify as a ‘judgment’ for the purposes of this section (Ramakrishna Balasubramanian vs. Priya Ganesan, AIR 2007 Mad. 210). Therefore, a party to a foreign arbitration is left with no legal remedy to seek interim relief against property located in India. The practical consideration, as explained by the paper itself, is that of promptness in relief. Promptness is often the essence of interim relief. Therefore, there is little to disagree with the recommendation to allow the application of Section 9 even to arbitrations “where the place of arbitration is not in India.”

What is surprising and, in my view, unnecessary is the inclusion of Section 27 on par with Section 9 in Section 2(2). Unlike the elaborate discussion on the need to include Section 9, there is nothing in the paper regarding Section 27. Section 27 basically enables “the arbitral tribunal, or a party with the approval of the arbitral tribunal, may apply to the Court for assistance in taking evidence.” The power of the Court is to “issue the …processes to witnesses as it may issue in suits tried before it” and ‘processes’ include “summonses and commissions for the examination of witnesses and summonses to produce documents”.

The primary distinction between Section 9 and Section 27 is that the CPC provides a specific, clear mechanism for enforcing commissions in India from Foreign Courts. The law with regard to 'commissions issued by the foreign Courts' is specified in Section 78 of the CPC which reads as under:

"78. Commissions issued by foreign Courts- Subject to such conditions and limitations as may be prescribed, the provisions as to the execution and return of commissions for the examination of witnesses shall apply to commissions issued by or at the instance of:-

(c) Courts of any State or country outside India".

The detailed procedure in this regard is laid down in Order 26 Rule 19 which reads as under:-

19.Cases in which High Court may issue Commission to examine witness-
(1) If a High Court is satisfied-
(a) that a foreign Court situated in a foreign country wishes to obtain the evidence of a witness in any proceedings before it,
(b) that the proceeding is of a civil nature, and
(c) that the witness is residing within the limits of the High Court's appellate jurisdiction, it may, subject to the provisions of Rule 20, issue a commission for the examination of such witness”
(2) Evidence may be given of the matters specified in clauses (a), (b) and (c) of sub-rule (1)-
(a) by a certificate signed by the consular officer of the foreign country of the highest rank in India and transmitted to the High Court through the Central Government, or
(b) by a letter of request issued by the foreign Court and transmitted to the High Court through the Central Government, or
(c) by a letter of request issued by the foreign Court and produced before the High Court by a party to the proceedings.

Rule 20 specifies the mode of approaching the Court for this purpose. Also, “there is nothing in Order 26 Rule 19 to limit the language to only oral evidence" and even documentary evidence can be sought through foreign commissions (Upaid Systems Ltd. vs. Satyam Computer Services & Anr., 164 (2009) DLT 45). Therefore, an order from a Foreign Court under a provision sinilar to Section 2 for assistance from Court in taking evidence is perfectly enforceable in India.

In my view, the inclusion of Section 27 as an exception to Section 2(2) is an unnecessary digression from the principle that Part I will apply only to “arbitration in India”. There is no need to apply Section 27 to arbitrations taking place outside. There need not be apprehensions that the procedure contemplated under Order 26 Rule 19 might cause undue delay for the reason that the scope of enquiry of the Indian Court as contemplated under Sub-Rule 1 of Rule 19 is extremely limited and enforcement of such foreign commissions is only a formality. Also, the argument that there is no corresponding provision to Section 27 in Part II might not hold good for the reason that other provisions which do not find place in Part II have not been made applicable to foreign arbitrations. Sections 8, 35 and 36 though find mention along with Sections 9 and 27 as exceptions in the draft Section 2(2) recommended by the 176th Law Commission, they have been excluded from the proposed Section 2(2) in the consultation paper.

Importantly, the provision to seek assistance from Court for getting evidence under English Law (Section 43 of the English Act) is not listed as a provision that will be applicable “if the seat of the arbitration is outside England and Wales or Northern Ireland” (Section 2(2)). This is relevant because the consultation paper relies heavily on the English Act.

Also, unlike the limited discretion availability to Indian Courts under Order 26 Rule 19 of the CPC to enforce a foreign Court’s order of commission, under Section 27 of the Act “a Court is not expected to pass an order automatically and it has been conferred with discretion whether to order the request or not” by determining the necessity of the documents/ evidence sought (Ennore Port Ltd vs. Hindustan Construction Co., AIR 2007 Mad. 73). A proceeding in which an Indian Court exercises ‘direction’ will inevitably entail the usual delays that, unfortunately, characterize the functioning of Indian Courts.

Keeping in mind the legislative intent behind Section 2(2) and the underlying object of the Act, namely “speedy disposal with least court intervention”, it is my view that Section 27 should be removed from the proposed Section 2(2) as an exception to the rule that Part I “shall apply only where the place of arbitration is in India”.

1 comment:

  1. Hello all, in a catch 22.
    Going by the procedure laid down in order 26 rule 19-22 CPC, I have gone ahead and sent a letter of request to the designated High Court for the examination of witnesses in India with regard to a case being contested in the United States of America. A request for examining few more witnesses has now come through, but we are clueless about their address. How do we serve them notice and is there a court order compelling their attendance at the depostion?


counter on blogger