Wednesday, June 23, 2010

GoI to shun the "litigation giant" tag: Moily promises to be good to arbitration

   In a late realisation that the Government of India was contributing an unnecessarily huge bundle of cases to the already sky-high pile of pending cases, the Law Minister Veerappa Moily has released a National Litigation Policy. Times of India reports here that the Central Government and the state Governments contribute 70% of the 3 crore cases pending in various courts in India. The Policy states that its aim is to "transform Government into an Efficient and Responsible litigant". The policy goes on to state that Government should cease to be a "compulsive litigant" and should discard the current "Let the court decide" attitude.

  The Policy states that government departments and PSUs should employ ADR mechanisms, especially arbitration, where possible and be Efficient and Responsible in respect of arbitration too. The portion of the policy dealing with arbitration is reproduced below:

"A) More and more Government departments and PSUs are resorting to arbitration particularly in matters of drilling contracts, hire of ships, construction of highways, etc. Careful drafting of commercial contracts, including arbitration agreements must be given utmost priority. The Ministry of Law and Justice recognizes that it has a major role to play in this behalf. 

B) The resort to arbitration as an alternative dispute resolution mechanism must be encouraged at every level, but this entails the responsibility that such an arbitration will be cost effective, efficacious, expeditious, and conducted with high rectitude. In most cases arbitration has become a mirror of court litigation. This must be stopped. 

C) It is recognized that the conduct of arbitration at present leaves a lot to be desired. Arbitrations are needlessly dragged on for various reasons. One of them is by repeatedly seeking adjournments. This practice must be deplored and stopped. 

D) The Head of Department will call for the data of pending arbitrations. Copies of the roznama, etc. (record of proceedings) must be obtained to find out why arbitrations are delayed and ascertain who is responsible for adjournments. Advocates found to be conducting arbitrations lethargically and inefficiently must not only be removed from the conduct of such cases but also not briefed in future arbitrations. It shall be the responsibility of the Head of Department to call for regular review meetings to assess the status of pending arbitration cases. 

E) Lack of precision in drafting arbitration agreements is a major cause of delay in arbitration proceedings. This leads to disputes about appointment of arbitrators and arbitrability which results in prolonged litigation even before the start of arbitration. Care must be taken whilst drafting an arbitration agreement. It must correctly and clearly reflect the intention of the parties particularly if certain items are required to be left to the decision of named persons such as engineers are not meant to be referred to arbitration. 

F) Arbitration agreements are loosely and carelessly drafted when it comes to appointment of arbitrators. Arbitration agreements must reflect a well defined procedure for appointment of arbitrators. Sole arbitrator may be preferred over a Panel of three Arbitrators. In technical matters, reference may be made to trained technical persons instead of retired judicial persons. 

G) It is also found that certain persons are “preferred” as arbitrators by certain departments or corporations. The arbitrator must be chosen solely on the basis of knowledge, skill and integrity and not for extraneous reasons. It must be ascertained whether the arbitrator will be in a position to devote time for expeditious disposal of the reference. 

H) It is found that if an arbitration award goes against Government it is almost invariably challenged by way of objections filed in the arbitration. Very often these objections lack merit and the grounds do not fall within the purview of the scope of challenge before the courts. Routine challenge to arbitration awards must be discouraged. A clear formulation of the reasons to challenge Awards must precede the decision to file proceedings to challenge the Awards." 

Reading these paragraphs, I can't help recalling the facts of Union of India v Singh Builders [(2009)4SCC523], which I summarise below:

1. Singh Builders made a request for arbitration under its contract with Northern Railways in the year 1999. As per the contract, the arbitrators were to be employees of the Railways and a procedure for their appointment was provided.

·      2. As the Railways failed to appoint arbitrator, Singh Builders filed an application under Section 11. An Arbitral Tribunal was constituted.

·     3. Before the proceedings could commence, one of the Arbitrators was transferred by Railways and consequently he resigned in May, 2004.

·       4. Singh Builders again approached the High Court. A fresh panel was made available by the Railways from which Builders nominated Shri Ashok Gupta. Hardly after one sitting, Shri Ashok Gupta was also transferred and he tendered his resignation on 21.7.2005.

·      5. Builders approached the Court again. In pursuance of an order passed by the High Court, again a panel was made available and the respondent made its choice. As no steps were taken in pursuance of it by the Railways, Builders sent a reminder. There was no response.

·      6.  The Builders again approached the High Court for appointment of an independent sole arbitrator. During the pendency of the said petition, the General Manager of Northern Railways appointed Sri Ved Pal as the contractor's nominee arbitrator on 22.11.2005.

·      7. The High Court was of the view that no useful purpose will be served by again reconstituting a 3 member Arbitral Tribunal consisting of employees of the Railways. Therefore, the High Court appointed Justice Jaspal Singh, a retired Judge of the Delhi High Court as the arbitrator.

·      8. Justice Jaspal Singh recused himself and the High Court appointed Justice R.C. Chopra, another retired Judge of the Delhi High Court as the arbitrator.

·       9.  Railways challenged the appointment unsuccessfully before the Supreme Court.
           In short, the Railways successfully avoided arbitration from 1999 till 2009.

         Does the current lack of Efficiency and Responsibility on part of Government in arbitrations need any further proof? I hope Moily's magic pill goes some way to cure this malady.


1 comment:

  1. Often, my commercial department insists on having technical persons as arbitrators. Invariably I delete the portion of the arbitration clause necessitating appointment of technical persons as arbitrators not because I believe the retired judges make better arbitrators (mostly they do not), but because of two concerns I mention below... On the issue as to appointment of technical persons in 'technical' arbitrations instead of arbitrators, there are two fundamental problems:

    a) Most of the technical persons might be well connected with either of the parties, or at times, even both and there might be impartiality related issues. Retired judges, on the other hand, are expected to be independent. (though, I am not sure if they really are, mostly because they favour the side which appointed them so they would be appointed as arbitrator in future).

    b) the award which the technical person might render might not meet the strict legal standards of S. 34(2)(b)(ii) which the Indian courts have laid down. Technically or Techno-commercially the award might make sense but from a strictly legal point of view, it might not...


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