NLSIR Public Law Symposium

The following is an announcement from the Editorial Board of National Law School of India Review. Though the symposium is not on arbitration or related issues, we thought some of our readers may be interested in the same:

The National Law School of India Review, the flagship journal of National Law School of India University, Bangalore is pleased to present the first NLSIR Public Law Symposium to be held on 10 December, 2011 at the National Law School campus. The theme of the symposium is "Adjudication of Socio-Economic Rights by the Indian Supreme Court", an issue which has seen significant legal developments in the recent past. The symposium will be attended by renowned legal luminaries including Justice Muralidhar, Mr. T. R. Andhyarujina, Mr. Shyam Diwan, Mr. Arun Kumar Thiruvengadam, Prof. U R Rai and Prof. B B Pandey amongst others.

The discussion will be divided into two sessions. In the first session (scheduled between 10.30 A.M.-12.30 P.M.) the panel will discuss the substantive adjudication of socio-economic rights undertaken by the Supreme Court concerning questions of the ever-widening ambit of Article 21 and the content of the new rights so evolved. The changing nature of the relationship between Part III and Part IV of the Constitution due to such expansion will form an important part of the session. The second session (scheduled between 1.30 P.M.-3.30 P.M.) will focus on the manner in which the Supreme Court has enforced these rights and consider the variety of procedural innovations employed for the same, including PILs and continuing mandamus.

The registration fee for the symposium is Rs. 500 for professionals. There is no registration fee for students. All those interested are requested to register their attendance here.

For any further details regarding the symposium, please contact Krishnaprasad K.V. (Chief Editor, NLSIR) at +91-9916589670 or Ashwita Ambast (Deputy Chief Editor, NLSIR) at +91-9986478265 or email us at mail.nlsir@gmail.com.

Supreme Court on definition of an arbitration agreement

A three-judge bench of the Supreme Court, on 14 November 2011, in Powertech World Wide Limited v. Delvin International General Trading LLC, reiterated the law on existence of an arbitration agreement and also carved out an exception, in light of particular facts and circumstances of the case. 

The petitioner was an Indian company, and the respondent, incorporated in Dubai. A purchase contract entered into between the parties had the following arbitration clause: 

“Any disputes arising out of this Purchase Contract shall be settled amicably  between both the parties or through an Arbitrator in India/UAE” 

On disputes regarding payments arising between the parties, a series of letters and legal notices were exchanged. On 30 May 2008, the petitioner invoked arbitration proceedings in Mumbai, India and appointed a retired judge of the Bombay High Court as sole arbitrator. The respondent was required to concur with the above appointment or nominate another arbitrator within 30 days from receipt of the petitioner’s notice. 

Respondent’s response on 27 June 2008 requested the petitioner not to approach or adopt legal proceedings for appointment of arbitrator as telephonically respondents were instructed to suggest some other name as an arbitrator subject to petitioner’s consent. 

Receiving no response from the respondent thereafter, the petitioner filed the present petition for appointment of arbitrator under section 11(6) of the Arbitration and Conciliation Act, 1996 [the "Act"], (read with section 11(12)(a), for an international commercial arbitration) on 20 March 2010. 

A question arose as to whether the arbitration clause quoted above was a binding arbitration agreement, enforceable under the Act. 

The prevailing legal position on definition of an arbitration agreement was then discussed. "Arbitration agreement" is defined in section 7 of the Act. It is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement and is mandatorily an agreement in writing. An arbitration agreement is in writing if it is contained in any of the clauses i.e. clauses (a) to (c) of Section 7(4) of the Act. 

In the case of Jagdish Chander v. Ramesh Chander and Ors., (2007) 5 SCC 719, a similar clause, which mandated that a dispute "shall be mutually decided by the partners or shall be referred for arbitration if the parties so determine", was held to be not a valid reference to arbitration. This was because there was an option given to the parties, to resort to arbitration. 

According to K. K. Modi v. K. N. Modi, (1998) 3 SCC 573, a valid arbitration agreement – 

- must contemplate that the decision of the tribunal will be binding on the parties to the agreement; 

- must contemplate that substantive rights of parties will be determined by the agreed tribunal; 

- must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal; 

- jurisdiction of the tribunal to decide the rights of parties must be derived either from the consent of the parties or from an order of the Court or from a statute, the terms of which make it clear that the process is to be an arbitration; 

- the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides; and 

- agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law. 

Smitha Conductors v. Euro Alloys Ltd., (2001) 7 SCC 728 held that even where only certain correspondences indicated a reference to the contract containing arbitration clause for opening the letter of credit addressed to the bank, and no correspondence between the parties disagreed with terms of the contract or arbitration clause, it was a valid arbitration agreement. 

As evident from Rickmers Verwaltung GmbH v. Indian Oil Corp. Ltd., (1999) 1 SCC 1 and Shakti Bhog Foods Ltd. v. Kola Shipping Ltd., (2009) 2 SCC 134, the Court has always striven to understand the true intention of parties and whether there existed consensus ad idem. Also, in VISA International Ltd. v. Continental Resources (USA) Ltd., (2009) 2 SCC 55, where the clause in question stated: "any dispute arising out of this agreement and which cannot be settled amicably shall be finally settled in accordance with the Arbitration and Conciliation Act, 1996", the Court held that in spite of the respondent contending that the arbitration would not be cost effective and will be premature, the Court held that there was an arbitration agreement between the parties and the petitioner was entitled to a reference under Section 11 of the Act, since no party could be permitted to take advantage of inartistic drafting of an arbitration clause when clear evidence of intention to proceed for arbitration was evident from the material on record. 

In the present case, too, the Court held that there was consensus ad idem between parties to amicably settle their disputes or settle through arbitration in India or UAE. Notwithstanding the judgment in Jagdish Chander, the correspondence between parties dated 30 May 2008 and 27 June 2008 indicated that the petitioner had invoked arbitration and the respondent, not denying the existence of the arbitration clause invoked, had in fact referred to appointment of arbitrator. 

Thus, the Court in this case, enumerated an additional factor to determine existence of an arbitration agreement – apart from the terms of the clause itself, the related documents indicating the intention of parties.

Interesting News article on Arbitration in India.

Here is an interesting article in the Mint Newspaper on Arbitration in India.While the article recognises increasing use of arbitration and ADR methods, it also discusses the challenges faced by the Indian arbitration industry in a succinct manner. The article also contains data presented through pie-charts which can be viewed here. 

India-Nepal BIT.

All our readers would be familiar with Shashank who had earlier written a guest post on the Kishanganga dispute. Below is a guest post from him on the India-Nepal BIT which was recently concluded in October. This post was first published here.

During the Nepalese Prime Minister’s recent state visit to India, Nepal’s Minister for Industries and India’s Minister of Finance signed a bilateral agreement for the promotion and protection of investments between the two countries (“Nepal-India BIT”/”BIT”/”BIPPA”).

Possible Motivations

The underlying objective behind the BIT seems to be the belief that the treaty would serve as a catalyst in boosting investment flows between the two countries. India’s motivations, however, may well have been influenced by the problems faced by Indian investors in the recent past. For example, Colgate-Palmolive India was forced to shut shop and sell its Nepalese subsidiary following harassement and extortion demands by rebels and Maoists. The company claimed that the local government officials in Nepal provided little support in response to its requests for greater security. In fact, a leaked US Embassy cable from Kathmandu notes that:

“when he [the Colgate-Palmolive factory manager] told the local Chief District Officer (CDO) (the civil servant responsible for security in the district) that Colgate-Palmolive was considering closing the plant, the CDO responded, ‘Maybe you should.’"

Drawing from the Colgate-Palmolive incident, on the general climate for foreign investment in Nepal, the cable goes on to conclude:

“This is not the first time that a major high-profile foreign investor has been targeted by the Maoists. Extortion is commonplace, but many businesses choose to pay for 'security.' Those who refuse to pay, like Coca-Cola and Colgate-Palmolive, complain that they receive inadequate support from the GON [Govt. of Nepal] in protecting their security and investment. During a period of economic and political instability and declining business activity in Nepal, this does not bode well for the future of foreign investment here.”

In a region marred by security and stability concerns, considering India’s economic growth and physical proximity to Nepal, such fears may well have precipitated India’s desire for an investment agreement.

Is Nepal Warming up to the use of BITs?

Historically, Nepal has not been overly active in negotiating BITs with other states. It signed a BIT with France in 1983, followed by one with Germany in 1986, the United Kingdom in 1993, and Mauritius in 1999. This was followed by a lull, broken only by the signing of a BIT with Finland in 2009. The Nepal-India BIT makes it two treaties in less than three years. I am no expert on Nepal’s economic and trade policy and, as such, wonder if these recent BITs suggest that Nepal has come to see BITs as a means of attracting foreign investment, or, at the very least, improving its global image as a host state. Comments welcome.

Early Trouble for the BIT?

Meanwhile, the baby seems to have developed complications even before its birth (the BIT has only been signed, and not yet ratified, by the two countries). News reports indicate that a senior Nepalese lawyer, Balkrishna Neupane, has filed a writ at the Supreme Court of Nepal, challenging the the India-Nepal BIT. The gist of the challenge seems to be that the agreement is unequal and give undue benefits to India. Specifically, the report indicates that the challenge raises three issues:

“While the agreement mentions the “air space” of India, it does not mention that of Nepal, which, Neupane argues, is incorrect as Nepal seems not to have taken into account its own air space while signing the agreement. The deal, the writ contends, has given India the right of uninterrupted use of Nepali air space while Nepal clearly does not have such rights.

Similarly, the petitioner mentions that the term “republic” has been obliterated from the accord unlike in the case of India. This, Neupane affirms, might have happened either because India has not been able to take note of the changes–republican set up in Nepal–or the Nepali side could not clarify it to India.

Neupane has taken serious exception to the provision in the BIPPA that would allow Indian companies to bring in their own workers and staff. This will not create additional job opportunities, as envisaged, for the Nepalis but will have an opposite effect.

The deal is against Labour Act, which doesn’t permit non-Nepalis to work, the writ argues. The petitioner has also challenged the compensatory provision in the agreement in case the Indian companies incur non-commercial losses.”

At least one Nepalese author (Sapkota), however, suggests that the opposition to the BIT is based on “misinformation and faulty comprehension of the scope and depth of the agreement”, and is politically motivated. In his opinion:

“While the private sector has openly welcomed BIPPA, selfish political leaders are politicizing it just to make themselves heard. For instance, former Prime Minister Jhalanath Khanal rebuked the government for signing BIPPA, which he thinks is not in our national interest. He seems to be so lost in the dirty political game that he forgot what was mentioned in Economic Survey 2009/10 published by the Ministry of Finance during his tenure as PM.

It stated that “a Bilateral Investment Promotion and Protection Agreement is signed with India to promote Indian Investment in Nepal, while preparation is being made to continue such agreements with other countries as well” (page 187). This shows how poor our leaders like Khanal are in understanding economic issues and also remembering what they officially endorsed while at the helm of power. Similarly, some influential leaders have been arguing that BIPPA is against the interest of our country and the workers. Their argument is that BIPPA will increase Indian dominance and erode rights of domestic workers.

These arguments are senseless, baseless and outright illogical. If BIPPA is against our national interest, why did we not hear loud outcry of this intensity when Nepal signed BIPPA with other countries? Importantly, the self-centered leaders opposing BIPPA should explain how exactly Nepal was dominated and workers’ rights eroded by signing such agreement with five countries before it was done with India. In our investment strapped economy, more investment is definitely a good thing and is in our national interest because it will lead to more jobs, revenue and potentially stimulate growth.”

I will try to post an analysis of the BIT itself soon, but in the meanwhile would love to hear more on this from our Nepalese readers.

The text of the India-Nepal BIPPA is available here.  

Foreign awards that patently violate Indian substantive law are not enforceable: Supreme Court

Phulchand Exports Ltd. v. OOO Patriot is yet another case of a foreign award being challenged before Indian courts for non-conformity with substantive provisions of Indian law, but this time with more disastrous consequences.

The case surrounded the enforceability of an award dated October 18, 1999 (yes, it has been 12 years!) given by the International Court of Commercial Arbitration at the Chamber of Commerce and Industry of Russian Federation, Moscow in a dispute between an Indian seller and a Russian buyer. The arbitral tribunal had found that the seller was in breach and passed an award directing the seller to make partial reimbursement under a contractual clause providing for reimbursement in case of breach. The seller challenged the enforcement of the award claiming that the reimbursement clause was in nature of a penalty and hence violated Section 74 of the Indian Contract Act.

The Supreme Court on October 12th passed its judgment in the matter. It relied on ONGC v Saw Pipes to hold that an award that patently contravenes substantive laws of India will be against the public policy of India. However, the Court refused to engage in detail with the submission that the Saw Pipes judgment dealt with the definition of public policy under Section 34 of the Arbitration and Conciliation Act and there was no reason to extend the same definition to Section 48. The only observation of the Court in this regard is, "There is merit in the submission of learned senior counsel that in view of the decision of this Court in Saw Pipes Ltd., the expression `public policy of India' used in Section 48 (2)(b) has to be given wider meaning and the award could be set aside, `if it is patently illegal'."

This is extremely unfortunate as the Court has pronounced a position that can have far reaching implications without giving reasons for the same or considering submissions on this point with the due consideration they deserve. This hurry on the part of the Court to dispose off the matter has is explained by the following sentences in the judgment: "At the first blush we thought of remanding the matter to the High Court, but on a deeper thought, we decided to hear the objections relating to patent illegality in the award ourselves as the award by the Arbitral Tribunal was given as far back as on October 18, 1999 and about 12 years have elapsed since then. We thought that the issue relating to enforceability of the subject award must be brought to an end finally one way or the other." The Court went on to examine whehter the impugned award in this case was patently illegal and held it was not, allowing the enforcement of the award. Thus, the hurried decision of the Court appears to be motivated by the good intention of allowing enforcement of the award without any further delay. But just like the well intentioned judgment in Bhatia (which was motivated by the consideration that if the Court took a different stance, interim measures in support of arbitration could not be granted), this judgment will have devastating effects on the enforceability of foreign awards and the institution of arbitration as a whole.

It is well accepted in statutory interpretation that the same word, when used in different parts of the same statute carries the same meaning. But this is not so, if the context requires the word to be accorded different meanings in different parts of the same statute.

Section 34 is located in Part I and is concerned with the setting aside of awards. Section 48 is located in Part II and deals with the enforcement of awards. Great harm has already been done by Indian decisions holding that 'public policy' under Section 34 includes patent illegality and even foreign awards can be set aside for non-conformity with Indian law. While extending this definition to Section 48 too, the Court appears to have forgotten its own earlier judgment in Renusagar, which drew a clear distinction between public policy considerations in setting aside an award before a domestic court and public policy considerations while enforcing a foreign award:

"The Foreign Awards Act is, therefore, intended to reduce the time taken in recognition and enforcement of foreign arbitral awards. The New York Convention seeks to achieve this objective by dispensing with the requirement of the leave to enforce the award by the courts where the award is made and thereby avoid the problem of "double exequatue'. It also restricts the scope of enquiry before the court enforcing the award by eliminating the requirement that the award should not be contrary to the principles of the law of the country in which it is sought to be relied upon. Enlarging the field of enquiry to include public policy of the courts whose law governs the contract or of the country of place of arbitration, would run counter to the expressed intent of the legislation."

Though Renusagar decision was passed under the Foreign Awards Act, not the 1996 Act, neither the staturtory language nor the legislative intention appears to have undergone a transformation after that decision in such a manner as to permit the stance taken by the Court in the present case.

The present decision will have the effect of subjecting every single arbitral award, irrespective of its country of origin, to Indian law. While this was already achieved by the Venture-Satyam decision which permitted challenge of a foreign award under Section 34, the position has been worsened by the present judgment as a challenge based on Indian substantive law will operate even in cases where the award debtor does not take the active step of challenging the award under Section 34.

Vindobona Junction - Industry Research: Myth or necessary evil ?

by Smaran Shetty

Most people who are in a position to give out advice for merits speakers at the Vis moot, readily concede that some level of research must be undertaken to understand the realities of the industry of the good in question, be it squid, pipes, cars or wine. They advocate that such research, grounds legal arguments in commercial realities of the industry and therefore is far more reasoned and mature. In this post I examine this long standing (and almost universally accepted proposition) to discuss what is the true place of commercial knowledge in the moot.

Industry based research is an arduous and almost always a frustrating experience, as materials are not readily available. Additionally, materially that is actually available online is either not authoritative (credible enough to be used for arbitral proceedings and cite in a memorandum) or is far too technical to be comprehended by an average law student. But the effort in some senses is worthwhile, when material is eventually found that shapes the nature of the argument being made either for the memorandum, or while speaking.

If participants do decide to undertake industry specific research for the purpose of the moot, then I would advise caution and insist that the research is limited to certain predetermined questions. Teams must be careful not to spend weeks on trying to find obscure information, that may eventually have no bearing on the memorandum. Having said that, points of research that teams may focus on are: What is the nature of flow of capital in the trade ? What are the specific laws that impact the conduct of your client, by virtue of being part of the industry ? What are the acceptable norms or standard practices in the industry ? What is the nature the production line in the industry, i.e how many actors are involved ? What are the technical implications (if any) of the product ? All these questions help to limit the scope of research, yet focussing on the most relevant aspects of the commercial knowledge that may have a bearing on a legal argument.

Having said that, I must warn against excessive dependence on commercial knowledge in terms of facts and technical jargon. For instance last year when I was a participant, while arguing in the round of 32, the opposing team referred extensively to FAO Official Reports and Internationally recognized health regulations concerning the freezing and handling of squid. The information presented before the bench did not scare me, as I had come across all the information during my research and had used the same material, in a watered down manner in previous rounds. However the judges gave the verdict to our team. Later on, I approached the opposing merits speaker and asked him the reason for the judges decision (as I believed that the opposing team should have won). In response he told me that the judges did not appreciate the excessive dependence on external material, that undermined the confines of the moot problem. The judges although impressed with the thoroughness of research, were still convinced by innovative logic that was developed within the confines of the facts.

The lesson to take away from this, is that industry research has an important place in the moot, but often that importance is overstated and may not always have the desired results. Teams who decide to venture outside of the problem, should do so with caution and more importantly for a clearly defined purpose.

India to file counter-memorial in the Kishanganga arbitration.

We have earlier discussed about the Kishanganga Arbitration Dispute between India and Pakistan here, here, here, here, and here.

According to the latest news coming in it is supposed that India is soon to file its counter memorial before the Permanent Court of Arbitration (PCA) by end of this month in response to Pakistan's memorial seeking a complete moratorium on the 330-MW Kishanganga Hydro Electricity Project, J&K.

The reports speculate that India will base its argument on the provisions of the 1960 Indus Water Treaty, which it claims, allows use of western rivers - Chenab, Jhelum and Indus - for hydro power projects, with certain restrictions. India thus, would base its arguments on not violating the treaty.

It is also being thought that the Indian side would try convincing the court that because Neelum-Jhelum Hydroelectric Project in PoK which Pakistan claims will be affected is "India territory" occupied by Pakistan, Pakistan cannot raise the Kishenganga project before the PCA.

The matter was taken by Pakistan to the PCA claiming India had violated the 1960 Indus Water Treaty and the dam would gravely put at risk Pakistan's interest and the Neelum-Jhelum Hydroelectric Project near Muzaffarabad, capital of PoK. Following this, an arbitration proceeding with seven-judge bench was started in January. Later, in June Pakistan sought interim measures from the PCA asking India to stop all work on the dam.

We shall try and keep the readers updated of the events as they unfold.

CIArb's Alexander Lecture on the Dallah Case.

We have earlier posted on the Dallah v Pakistan case here and here and there was some discussion here too.

In this year's Alexander Lecture, President of the UK Supreme Court and CIArb Patron The Right Hon the Lord Phillips of Worth Matravers will analyse the judgments made by the Supreme Court and the Paris Court of Appeal in the landmark case of Dallah v Pakistan.  Lord Phillips will consider why the two courts came to different conclusions, exploring the possible implications for the arbitration community as a whole.

Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan is arguably a case which has been waiting to happen for years. An award rendered in Paris to be enforced in London saw the English courts seeking to determine whether a government could be liable to honour an arbitration award rendered against it in relation to a contract and arbitration clause which did not name it as a party.

As a former eminent arbitration practitioner and President of the Supreme Court, Lord Phillips had a unique front-row seat in the proceedings and is ideally placed to offer his observations on a case which has gripped the arbitration community in recent months.

The lecture takes place on November 16 in London. More information on the event can be accessed here.

Journal of Dispute Prevention and Resolution - Board of Editors

The Journal of Dispute Prevention and Resolution, the new venture of the Lex Arbitri team, is happy to announce the composition of its Board of Editors as follows:

Editor in Chief: 

Prof. Eric Bergsten 

Advisory Panel:

Prof. George A. Bermann

Justice Clyde Croft 
Emmanuel Gaillard

Lord David Hacking 

Prof. Martin Hunter

Managing Editors:

Deepak Raju, Associate, Amarchand Mangaldas & Suresh A. Shroff & Co., Mumbai

Rukmini Das, Associate, PXV Law Partners, Kolkata

Ashutosh Ray, Gujarat National Law University

Dhruv Sharma, Associate, Amarchand Mangaldas & Suresh A. Shroff & Co., Mumbai

Puneeth Nagraj, NALSAR University of Law

Content Editors:

Diane Desierto, Yale Law School

Mario Micciché, Oxford University
Mark L. Rockefeller, Columbia University

Sumit Rai, Geneva Master in International Dispute Settlement

Rahul Donde, Geneva Master in International Dispute Settlement

Mihir Naniwadekar, Advocate, Bombay High Court

Citation Editors:

Souvik Kumar Guha, National University of Juridical Sciences, Kolkata

Shabdita Gupta, National University of Juridical Sciences, Kolkata

Anagh Sengupta, National University of Juridical Sciences, Kolkata

Pankhuri Agarwal, National University of Juridical Sciences, Kolkata

Editorial Assistants:

Prianka Mohan, National Law University, Jodhpur

Srishti Aishwarya Srivastava, National University of Juridical Sciences, Kolkata

Telma Raju, National University of Advanced Legal Studies, Cochin

Prateek Andheria, NALSAR University of Law, Hyderabad

Vidyullatha Kishore Reddy, National University of Juridical Sciences, Kolkata

Coordinator, Administrative Affairs: 

Pankhuri Agarwal, National University of Juridical Sciences, Kolkata