Supreme Court to reconsider Bhatia

The Hindu reports that the Supreme Court has constituted a five judge bench to reconsider the decision in Bhatia International v. Bulk Trading S.A. (Bhatia International). As we have discussed in several posts in the past, the Supreme Court's interpretation of Section 2(2) of the Arbitration and Conciliation Act, 1996 has been at the root of a chain of cases that have had severe adverse impact on the institution of arbitration in India.  This decision, by making Part I of the Act (and the powers under it, like the power to set aside an award under Section 34) applicable to arbitrations held outside India, rendered the Indian approach to arbitration extremely parochial. Some problems arising out of the decision, especially in the context of investment treaty arbitration was discussed here. Also, we had reported here how a Calcutta High Court decision following Bhatia had resulted in India being dragged into its first ever investment arbitration by an Australian investor.

The decision to reconsider Bhatia is a welcome one. Recently, the Government proposed overcoming the effects of Bhatia through legislative action. However, now the judiciary appears to be willing to clean up the mess that is its own creation.

The decision of the constitutional bench in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., which will finally decide the fate of Bhatia (and with it, the fate of arbitration in India) is eagerly awaited.

PCA Rules on Arbitration of Disputes relating to Outer Space

Earlier this month, the Permanent Court of Arbitration's ("PCA") Administrative Council adopted new rules of arbitration, called the PCA Optional Rules for Arbitration of Disputes Relating to Outer Space Activities ("Outer Space Arbitration Rules"). These Rules were formulated by the International Bureau of the PCA along with an Advisory Group of leading experts in air and space law, to address the need for specialised dispute resolution mechanisms in the field of outer space law, which is rapidly evolving. 

The Advisory Group, among other distinguished scholars, includes Indian Dr. V. S. Mani.  

Brief overview of the Rules:

 

The Outer Space Arbitration Rules are loosely based on the 2010 UNCITRAL Arbitration Rules, 

- with emphasis on the public international law element that pertains to disputes that may involve States and the use of outer space, and international practice appropriate to such disputes; 

- indicate the role of the Secretary-General and the International Bureau of the PCA; 

- provide for establishment of a specialized list of arbitrators and a list of scientific and technical experts; 

- aim to ensure confidentiality;

- emphasise flexibility and party autonomy.

The Rules are open to States, international organisations and private parties. 

The Rules provide for submission of a document agreed to by the parties, to the arbitral tribunal, summarizing and providing background to any scientific or technical issues that the parties may wish to raise in their memorials or at oral hearings. 

Standard clauses regarding statements of claim and defence and amendments thereto are present in these Rules, and the rule of Competence-Competence is spelt out in Article 23.

The tribunal is empowered to grant interim measures under Article 26. 

There are specific rules for appointing 1, 3 or 5 arbitrators to form a tribunal. Other standard provisions such as challenge to, or replacement of, an arbitrator are also present. A key time-saving provision in Article 15 is the non-repetition of hearings in case of replacement of an arbitrator. It is, however, questionable whether this is an entirely useful provision from the perspective of getting a holistic view of arguments put forth by parties. 

On the Interventionist Attitude of Indian Judiciary.

Here is an interesting post on the Kluwer Arbitration Blog on the interventionist attitude of the Judiciary in India in International Arbitrations.  The post is written by Mr.Ankit Goyal who is South Asia head of SIAC and Mr. Vivekananda N. who is the deputy South Asia head.

The post briefly traces the trend of the Indian Judiciary on its treatment to foreign awards arising from international arbitrations.  An interesting read for all our readers! 

National Seminar on Critical Issues in International Commercial Arbitration.

The following is an announcement from the “Centre for Business and Commercial Laws (CBCL)” at National Law Institute University, Bhopal  for a National Seminar on Arbitration .

The Centre for Business and Commercial Laws (CBCL) at National Law Institute University, Bhopal is pleased to announce a call for papers for the UGC sponsored National Seminar on Critical Issues in International Commercial Arbitration 2012 to be held on 3rdand 4th March, 2012.

In our endeavor to encourage scholarship in the area of Corporate Law among law students, CBCL is specifically looking forward to receiving scholarly articles on the subject of Critical Issues in International Commercial Arbitration authored by students, faculties and academicians from Indian law schools. Further, CBCL will also publish select entries in a Special Issue dedicated to International Commercial Arbitration which would contain views and opinions expressed by eminent personalities in the field of Arbitration law.

For further details, kindly visit our website here, where you can pursue our Submission Guidelines. For any other queries, feel free to contact us at: cbcl.nliu@gmail.com . Alternatively, you can also contact Albin George Thomas, Convener: (+91)989-335-4883 albin.georgethomas@gmail.com and Nikita Nehriya, Editor: (+91)999-377-6839 Nikita.nehriya@gmail.com

Supreme Court on existence of arbitration agreement

Reva Electric Car Co. P. Ltd. v. Green Mobil, decided by the Supreme Court on 25 November 2011, was an application under sections 11(4) and (6) of the Arbitration and Conciliation Act, 1996 (the "Act") for appointment of arbitrator by the Chief Justice of India ("CJI"). 

Facts

Petitioner had entered into a Memorandum of Understanding ("MoU") with Respondent for marketing of cars by Petitioner. The term of the MoU was from 25 September 2007 until December 2007, but it was extendable at the sole discretion of Petitioner in terms of clause 2 of the MoU and, according to Petitioner, was in fact extended by acts of Parties. These acts were various requests in 2008 and 2009 by Respondent for supply of cars in terms of the MoU. In September 2009, according to Petitioner, disputes arose between the Parties, with Petitioner claiming that Respondent did not have necessary resources to build Petitioner's brand, since enough cars were not sold in the Belgium region. Via email on 25 September 2009, Petitioner asked Respondent to cease marketing on behalf of Petitioner, thus constituting termination of the MoU, according to Petitioner. 

Petitioner received on 14 January 2010, a writ of summons of legal proceedings initiated by Respondent in the Commercial Court in Brussels, Belgium. Respondent claimed damages for termination of the MoU. An email from Respondent dated 15 March 2010 suggested a global settlement with Petitioner and the latter construed this as acknowledgement of the fact that the rights and obligation of both the parties were covered by the MoU, which stood duly terminated. 

On appointment of a sole arbitrator by Petitioner, for confirmation by Respondent, under the terms of the MoU, Respondent denied existence of a contractual relation between Parties on 25 September 2009. A Section 9 application was thus filed by Petitioner in Bangalore, attempting to restrain legal proceedings in Brussels. On this being granted, the present section 11 application was filed, in terms of clause 11 of the MoU. 

Contentions

Respondent claimed that the MoU expired on 31 December 2007, and claims made by Petitioner related to commercial distribution of cars, commencing in 2008 and the distribution agreement, entered into after expiry of the MoU in 2007. Respondent also contended that Petitioner had invoked arbitration proceedings only to avoid legal proceedings in Brussels, as evident from the arbitration clause being invoked after Petitioner was intimated of proceedings in Brussels. 

Petitioner, on the other hand stated that it was Respondent’s intention to avoid arbitration by starting legal proceedings in Brussels. Moreover, Petitioner submitted that irrespective of the continued existence of the MoU, the arbitration clause would survive. Further, the Court, when acting under section 11 of the Act, is required to refer disputes without in-depth examination. It must only be satisfied that the disputes fall within the ambit of the arbitration clause. 

Respondent contended that the arbitration clause in the MoU related only to the test and trial period when the MoU was subsisting. Thus, disputes pertaining to a period after this were outside the ambit of the arbitration clause and could not be referred for arbitration by the Court. 

Decision

The Court, relying on Patel Engineering, National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., A. P. Tourism Development Corporation Ltd. v. Pampa Hotels Ltd. [(2010) 5 SCC 425], and Alva Aluminium Ltd., Bangkok v. Gabriel India Ltd., stated that while entertaining a section 11 application, the CJI was bound to decide on: 

a) The existence of an arbitration agreement; and 

b) Whether the party applying under such an agreement was a party to that agreement. 

The issues which the CJI had the option of deciding are: 

a) Whether the claim is barred by time; and 

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. 

Issues which are to be left for decision by the tribunal are: 

a) Whether a particular claim falls outside the scope of the arbitration clause; and 

b) Merits of any claim involved in the arbitration. 

Therefore, existence of the arbitration agreement itself is a question which must be decided by the CJI in the first instance, since without the existence of an arbitration agreement, a reference under section 11 of the Act cannot be made. 

The Court, in light of the material on record already stated above, ruled in favour of Petitioner that the MoU had been extended by actions of the parties. Therefore, the arbitration clause was in existence, and did merit appointment of arbitrators under Section 11 of the Act. The Supreme Court further observed, relying on Everest Holding Ltd. v. Shyam Kumar Shrivastava and Ors., that irrespective of continued existence of the MoU, the arbitration clause would survive. This is in view of section 16(1)(a) of the Act, which reiterates the independent existence of an arbitration clause in a contract, separate from the main contract. Invalidation of the parent contract does not automatically entail invalidation of the arbitration clause, as evident from Section 16(1)(b) of the Act. Since disputes arising between the parties clearly related to subject matter of the contract, they must be adjudicated upon, through the arbitration agreement in that contract.

Conclusion

Thus, although section 16 of the Act, incorporating the principle of Competence-Competence, empowers the arbitral tribunal to adjudicate on matters pertaining to its own jurisdiction, under Indian law it is well-settled that when the Chief Justice is approached (whether for a domestic or international arbitration) to appoint arbitrators, he holds the power of making a preliminary determination of whether there exists an arbitration agreement at all.