Monday, August 29, 2011

Supreme Court reiterates the Patel Engineering ruling on Competence - Competence

On 25th August, the Supreme Court, in Bharat Rasiklal Ashra vs Gautam Rasiklal Ashra reiterated its previous position on what issues are to be considered by the Chief Justice or his designate in disposing an application under Section 11 of the Arbitration and Conciliation Act and what questions are to be left to the arbitrators to decide.

Relying on its previous decisions in S.B.P. & Co. vs. Patel Engineering Ltd. [2005 (8) SCC 618] and  National Insurance Co. Ltd. vs. Boghara Polyfab Pvt. Ltd. [2009 (1) SCC 267] the Court arrived at the following conclusions:

1. Issues to be necessarily decided by the Chief Justice or his designate before appointing arbitrators under Section 11:

(a) Whether the party making the application has approached the appropriate High Court.
(b) Whether there is an arbitration agreement and whether the party who has applied under section 11 of the Act, is a party to such an agreement.

2. Additional issues that may be decided by the Chief Justice or his designate:

(a) Whether the claim is a dead (long barred) claim or a live claim.

(b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

3. Issues that are to be necessarily left to the consideration of the arbitrators:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration.

Monday, August 22, 2011

Guest Post: Prelude to Introduction of Modern Arbitration Laws in Colonial India - a Brief Account

Following is a Guest Post by Mr. Adithya Reddy, who needs no introduction for readers of this blog. He has posted on this blog in the past, and today brings us a brief but fresh look at the introduction of modern arbitration laws in colonial India.

It is now well recognized that the first attempt to codify arbitration practices in India was made by the British in the late 18th century through a series of regulations made applicable to the three presidency towns.
The Orissa High Court in State of Orissa and Ors. v. Gangaram Chhapolia, gives a brief description of the sequence of legal developments leading to the formal codification of arbitration laws in the Code of Civil Procedure, 1859, as they occurred in eastern India -
"The first attempt at codifying the law was made by the Bengal Regulations of 1772 and 1780 where provision was made for submission of disputed accounts to decision by arbitration. In 1781, Sir Elijah Impey's Regulation included a provision that "the Judge do recommend, and so far as he can, without compulsion, prevail upon the parties to submit to the arbitration of one person, to be mutually agreed upon by parties." In 1787, regulation for the Administration of Justice was passed and it contained rules for referring suits to arbitration with consent of parties. There was no detailed provision, however, to regulate the arbitration proceedings. In 1793 Regulation XVI was enacted with a view to promoting reference of disputes of certain categories to arbitration and to "encourage people of credit and character to act as arbitrators". Regulation VI of 1813 made some improvement to the Regulation of 1793 and arbitration was available in cases of disputes in regard to land. Bengal Regulation VII of 1822 authorised the Revenue Officers to refer rent and revenue disputes to arbitrators and the Collectors were enjoined to induce parties to agree to such arbitration. Bengal Regulation IX of 1883 authorised the Settlement Officers to refer disputes to arbitration."

The various regulations framed by the East India Company touching upon arbitration were: Bengal Regulations I of 1772, 1781, 1787, XVI of 1793, 1795, 1893, etc.; Bombay Regulations I of 1799, IV, VI of 1827 and Madras Regulations I of 1802 and IV, VI, VII of 1822. The regulations introduced compulsory arbitration, prescribed the limits of judicial intervention, provided safeguards to ensure fairness and laid down the procedure for attendance and examination of witnesses. Many of these provisions were rudimentary and even inconsistent with each other. But there can be no doubt that they contained the first albeit unrefined versions of provisions that form part of modern arbitration law. A brief description of the notable features of these regulations can be found in the Law Commission of India's Sixth Report on the Arbitration Act, 1940.

The events preceding the introduction of these regulations offer an interesting account of how the Company not necessarily ensured progression from the pre-colonial era but only attempted to repair the functioning of a legal system that had never adapted itself to the parallel functioning of indigenous legal systems and colonial courts. While much has been written about the virtues of arbitration-like dispute settlement mechanisms in ancient India, it is more or less accepted among modern scholars that indigenous dispute management even in pre- and early-colonial India was centered on arbitration at various levels. A Jesuit missionary living in south India, Joannis Bouchet "described in 1714 the indigenous judiciary as consisting of three levels- the local headman who would determine local disputes. Appeals could be taken to the maiagar, who controlled a number of villages and finally to the king. In addition to this…caste leaders decided matters relating to the rules of the community. Bouchet praised the system for cheapness and efficiency…" (Niels Brimnes, Beyond Colonial Law: Indigenous Litigation and the Contestation of Property in the Mayor's Court in Late Eighteenth Century Madras, Modern Asian Studies, Vol. 37, No. 3 (2003), at p. 519). Another prominent scholar explains how the colonialists understood the efficacy of these systems, especially in communal matters- "…the superstitious fear which the caste Hindus had of excommunication or of anathema at the hands of tribunals…and the helplessness of a defeated litigant or delinquent who would not accept the decision of a tribunal entitled to apply a complete boycott, impressed Europeans with the notion that this system hardly required civil or criminal penalties in the western sense, and that it was grounded in immemorial usage and unalterable custom…" (J. Duncan. M. Derret, The Administration of Hindu Law by the British, Comparative Studies in Society and History, Vol. 4, No. 1 (Nov., 1961), at p. 19). The British therefore left dispute settlement amongst natives to the panchayats or Kacheri courts, which performed very much the same function as arbitral tribunals.

The establishment of the Mayor's Court, first in Madras in 1687 and later in Bombay and Calcutta, marked the first significant attempt to dispense justice to all inhabitants of the towns through colonial institutions. The Mayor's Court proved to be so popular with the natives that important residents of Madras, concerned primarily with the loss of authority, petitioned that "they might be restor'd to their former liberties and privileges of deciding all disputes and difference which may arise among them by their accustomary (sic) Method of Arbitration among themselves…"(Beyond Colonial Law, at p. 520) The popularity of the Mayor's Court with the natives appears to have stemmed partly from the "belief…that except for direct and downright bribery, an Englishman had no motive to hold the scales of justice evenly between Indian disputants." (P. B. Vachha, Famous Judges, Lawyers and Cases of Bombay, 2011 reprint, Universal Law Publishing Co., at p. 13) The other reason behind the Indian preference for the Mayor's Court over indigenous arbitrations was the tremendously effective albeit merciless methods of execution of judicial orders by colonial authorities (the Sheriff). A party facing an adverse order from the Mayor's Court had no chance of evading consequences. This coupled with the costs involved in litigation ensured that a mere threat of litigation before the Mayor's Court forced an erring party to settle or give-in. To put it crudely, the Mayor's Court emerged as an effective 'alternative dispute resolution mechanism' for the natives.

The Company, however, never intended to displace indigenous arbitrations nor did it expect its courts to assume jurisdiction over disputes between natives. Therefore in 1753, in response to petitions from locals, it expressly excluded from the jurisdiction of the Mayor's Court disputes between natives unless both parties submitted them to its determination. This however did not prevent natives from continuing to knock the doors of the Mayor's Court, sometimes even without the required mutual consent (See Beyond Colonial Law, at p. 533).

By and large the Company strived to maintain the dual system of having indigenous arbitrations for exclusively native disputes and Courts for the rest. This system left the natives in a 'precarious situation' because by the second half of the 18th century indigenous arbitration councils and mechanisms were no longer functioning in the same way as they used to in most parts of the Country, resulting in the domination of the system by native officials with little accountability. About the situation in Bengal it is written that though "military forces available for extorting land revenue and keeping the peace might be used to enforce compliance with decrees… Actual determination was in the hands of subordinate native officials who tried ineffectively to end disputes which would previously have been settled at leisure amongst the local leaders, or might never have arisen in the form of litigation at all. The results of this system spelt to Warren Hastings nothing but corruption. It became essential to dispose of disputes through well-qualified arbitrators or arbitrators chosen by the parties, to whose "award" the judges should give the force of a decree" (The Administration of Hindu Law, at p. 21). This perception led to the first major attempt at judicial reform through Hastings's Judicial Plan of 1772, which provided for arbitration under the supervision of the proposed judicial institutions. In Madras the situation appears to have been more acute. Stephen Popham, the Company solicitor and the first person to have warned the Court of Directors against leaving natives at the mercy of defunct indigenous arbitrations, wrote that "the references of arbitration are said to have been generally made under the immediate influence of the native Dubashes of the British Magistrates and carried into execution under their auspices, by which a door has been opened for the commitment of a multitude of frauds & impositions." The Dubashes were peculiar creatures of Madras colonialism whose primary job was that of translators to English officials. They are said to have acquired so much clout and disrepute for corruption that their hand was suspected "whenever land settlement plans in the neighboring districts were subverted, when low castes rebelled, when investigations into allegations of corruption involving Company officials were thwarted, or when the Mayor's Court's decisions seemed clearly biased against particular individuals." (Susan Neild-Basu, The Dubashes of Madras, Modern Asian Studies, Vol. 18, No. 1 (1984), at p. 3). Not only did they preside over and influence indigenous arbitrations, but even the Mayor's Court made them arbitrators if it chose to refer any dispute before it for arbitration or reconciliation. With the more equitable Mayor's Court kept out of their reach and traditional arbitrations having lost their original character, the situation was indeed precarious for native litigants.

To the credit of the Company the situation was taken note of and remedied to a large extent by introducing major judicial reforms that brought about a system more akin to modern ones. These changes were partly a result of the expansion of British power in India. "With the victories of Clive, Sir Eyre Coote and Lord Lake, and development of trade and commerce, the need for the establishment of a more regular and satisfactory system of civil and judicial administration became imperative. This was recognized by the Regulating Act, 1773 by which Warren Hastings was appointed Governor General of Bengal and the Supreme Court of Calcutta was established." (Famous Judges, at p. 19). The changes have also been attributed to the shift in British politics from an era of corruption and nepotism under Sir Robert Walpole and his ilk to one of benignity under ministers and parliamentarians of 'purer principles' like William Pitt the younger, Edmund Burke and James Fox. (Famous Judges, at p. 20).

The establishment of the Supreme Courts in Bengal and Madras and the Recorder's Court in Bombay through these reforms changed the entire landscape of the Indian judicial system, including the conduct of arbitrations, for the better.

Saturday, August 6, 2011

The Essential Kishanganga Guest Post.

We have earlier covered the arbitration between India and Pakistan on the Kishanganga Project which can be accessed here, here, here and here.

Below is a Guest Post on further development of the dispute from Shashank P. Kumar. Shashank recently completed his LL.M. from Yale Law School, with a special focus on international arbitration and dispute settlement. The post first appeared on Shashank's blog "International Law Curry" here.

Readers may be aware of an international dispute between India and Pakistan over the Kishanganga (var. Kishenganga) project under the Indus Waters Treaty (1960, available here) currently pending at the Permanent Court of Arbitration (PCA). (India is also involved in another arbitration with Bangladesh pending at the PCA [see here].) This is the first time a dispute under the Indus Waters Treaty (persistently surviving many wars for over 50 years now) has been referred to arbitration. From an international legal perspective (which is certainly not the only one, see below), the use of arbitration as a means for dispute settlement between India and Pakistan certainly seems quite promising. Earlier, in a dispute over the Baglihar project between the two countries, the matter was referred to a neutral expert under the Treaty, who, under the aegis of the World Bank and ICSID, issued his expert determination in 2007 (summary of expert report here).

Without getting into the merits of the dispute at this stage, this post notes some recent developments and resources on the Kishanganga arbitration:

1. The Tribunal (headed by Stephen Schwebel, composition here) conducted a week-long site visit in June, 2011. Arriving in Islamabad, they traveled to inspect the Neelum-Jhelum hydroelectric project, crossed the Line of Control and traveled to Srinagar, inspecting the Kishanganga project, before finally reaching Delhi. According to the PCA Press Release, the Tribunal observed “expert briefings and features” during the visit. The PCA Press Release is available here, and is accompanied by this photograph of the members inspecting the Kishanganga project (I quite like the transparency of the PCA on this thus far)

2. A wonderful summary of the dispute and the main arguments by both the countries is provided by Athar Parvaiz (available here). Parvaiz notes:

Pakistan has raised objections to a number of controversial projects undertaken by India in Kashmir in the past, including the Baglihar project on the Chenab River and the Wullar Barrage on the Jhelum River. But the Kishanganga dispute assumes a greater significance because Pakistan is also vying to construct its own project – the Neelum-Jhelum hydro scheme – on the Pakistani side of the Neelum River. The IWT states that the country that completes its project first will secure priority rights to the river.

The dispute over the Kishanganga project itself centres on the diversion of water from one tributary of the Indus River to another. Pakistan said this violates the IWT, while India argues the diversion is well within treaty provisions. India maintains that it will only divert the Neelum to join the Jhelum River, which also flows through Pakistan – and that therefore the water will ultimately reach Pakistan anyway.

3. A different, and essentially non-legal, perspective is offered by Maaz Gardezi of the LUMS Water Programme here. Gardezi argues that there is a “trust deficit” between the two riparians and that:

The difference between Kashmir and the water issue is that the latter is an existential issue. Therefore, the consequence of bringing water to a pedestal on India-Pakistan relations can have devastating effects on regional security and prosperity. We need to work closely with our neighbours in order to share this resource, rather than divide it.

4. There have been several reports about a domestic controversy in Pakistan over its legal representation in the dispute. Details on this can be found here (posted Jan. 18, 2011), here (posted Jul. 2010), and here (posted Jul. 7 2011).

5. Ramaswamy Iyer, a noted Indian expert on water, recently published an insightful opinion on the issue (available here). According to Iyer, water has the potential of becoming a new ‘core issue’ of even greater importance than Kashmir. He goes on to identify and analyze the common arguments raised by Pakistan against Indian actions. He concludes noting that:

Right or wrong, certain misperceptions on water persist and are widespread in Pakistan. This has serious implications for India-Pakistan relations and for peace on the subcontinent. Persistent efforts are needed at both official and non-official levels to remove misperceptions and to reassure the people of Pakistan that their anxieties are uncalled for.

(Interestingly, even after the matter was referred to arbitration, Iyer published an article in June 2010 (available here) arguing that despite the initiation of arbitration, India and Pakistan should settle the dispute by an agreement, as opposed to arbitration which is an expensive, time consuming and adversarial process.)

6. Meanwhile, in addition to the Kishanganga dispute, other reports indicate that a recent meeting between officials of India and Pakistan in May 2011 over the Wullar Barrage dispute also failed to resolve the deadlock. (report here.)

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