Call for Papers: Indian Journal of Arbitration Law

Below is the Call for papers for the Indian Journal of Arbitration Law:

The Indian Journal of Arbitration Law is a biannual, student reviewed Journal by the Centre for Advanced Research and Training in Arbitration Law of National Law University, Jodhpur.

National Law University, Jodhpur, one of the premier law schools in India, is taking successful initiatives for the promotion of areas related to the specialized fields of law. To strengthen the promotion of knowledge, research and legal interaction in the subject of arbitration law, it has established the Centre for Advanced Research and Training in Arbitration Law. The Indian Journal of Arbitration Law is one such initiative of this centre towards the development of this expert legal arena.

The Journal strives to inculcate the prevalent theories in the field of arbitration with their practical relevance. The editorial board seeks to achieve this feat by including contributions from individuals with varied expertise of practicing arbitration and by focusing on developing trends. In this regard, the board would give due emphasis to the rich thought processes of students of law, who bring to the forefront the innovative academic research currently underway in most law schools all over the world. Inclusion of changing regional trends will play a vital part in understanding the scope and extant of this discipline and would therefore find due importance in the Journal.

The Indian Journal of Arbitration Law is pleased to announce its upcoming issue (Volume 4: Issue 1), which is to be published in April, next year.

Theme: UNCITRAL Model Law’s 30^th Anniversary. We also welcome notes on the 246^th Law Commission Report.

The Board of Editors cordially invites original, unpublished submissions for publication in the following categories:

- Articles

- Notes

- Comments

- Book Reviews

Manuscripts may be submitted via email to editor.cartal@gmail.com latest by 5^th February, 2015.

For further details regarding Editorial policy and submission guidelines please visit the website here.

Substitution of Arbitrator(s) by Indian Courts: Aiding, not Intervening

Below is a guest post from Bharatendu Agarwal. Bharatendu did his Bachelors from NLU, Jodhpur and Masters in International Arbitration from Stockholm University. He is currently interning at SIAC.

An earlier post on this blog discussed the Bombay High Court’s decision dealing with the issue of delay in rendering an arbitral award. Here, the Delhi High Court’s decision of terminating a tribunal’s mandate on account of delay in the arbitral proceedings had been highlighted.

In the recent decision of Union of India (UOI) v. U.P. State Bridge Corporation Ltd.[1] the Supreme Court addressed a similar issues with primary focus on the issue of appointing substitute arbitrator(s)/tribunal. This post aims to briefly map out the relevant issues, arguments and legal nuances involved, followed by a short analysis on the case.

Brief Facts and Procedural History

The case revolves around an agreement entered into between the Railway Authority of India (the ‘Railway Authority’) and a Contractor (collectively referred to as the ‘Parties’) for the construction of a railway bridge across river Ganges. This agreement was subject to certain terms and conditions, which provided for an arbitration agreement. The relevant portion of the arbitration agreement reads as follows:-

64.(1)(i) Demand for Arbitration - In the event of any dispute or difference between the parties as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such case, but except in any of the expected matters referred to in Clause 63 of these conditions, the contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters, shall demand in writing the dispute or difference be referred to arbitration.

...

64.(3)(a)(ii) In cases not covered by Clause 64(3)(a)(i), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers not below JA grade, as the arbitrators. For this purpose, the Railway will send a panel of more than 3 names of Gazetted Railway Officers of one or more departments of the Railway to the contractor who will be asked to suggest to General Manager upto 2 names out of the panel for appointment as contractor's nominee. The General Manager shall appoint at least one out of them as the contractor's nominee and will, also simultaneously appoint the balance number of arbitrators either from the panel or from outside the panel, duly indicating the presiding arbitrator from amongst the 3 arbitrators so appointed. While nominating the arbitrators it will be necessary to ensure that one of them is from the Accounts department.

...

64.(3)(a)(iii) If one or more of the arbitrators appointed as above refuses to act as arbitrator, withdraws from his office as arbitrator, or vacates his/their office/offices or is/are unable or unwilling to perform his functions as arbitrator for any reason whatsoever or dies or in the opinion of the General Manager fails to act without undue delay, the General Manager shall appoint new arbitrator/arbitrators to act in his/their place in the same manner in which the earlier arbitrator/arbitrators had been appointed. Such re-constituted Tribunal may, at its discretion, proceed with the reference from the stage at which it was left by the previous arbitrator(s).

After a while some dispute arose between the Parties and pursuant to the arbitration agreement an arbitral tribunal (the ‘Tribunal’) was constituted in 2007. After the Tribunal’s constitution, four years passed, however the arbitral proceedings were still pending on account of transfers, retirements and adjournments. Frustrated by the delay the Contractor, in accordance with Section 14(2) of the Arbitration and Conciliation Act, 1996 (the ‘Act’), approached the Patna High Court (the ‘High Court’) so as to seek fulfilment of a vacancy in the Tribunal. By the time the Contractor’s application was taken up by the High Court the said vacancy was filled up by the Railway Authority. In light of the developments, the High Court issued an order by which it gave the Tribunal a lifeline and ordered for the arbitral proceedings to be completed within three months from the date of receipt of the order. The High Court, however, also stated that in case the proceedings were not completed within the stipulated duration, the Contractor would be at liberty to approach the High Court again which would then be forced to pass appropriate orders in accordance with the Act.

Despite the High Court’s direction, the proceedings were not completed within the stipulated three month duration and the Contractor again approached the High Court alleging non-cooperative attitude of the Tribunal members. The Railway Authority disputed this contention by stating that the proceedings could not be completed within time due the extreme urgency of the members of the Tribunal. After considering the Parties respective arguments and materials on record the High Court concluded that the delay in the proceeding was intentional and the Tribunal members continued their dilatory tactics regardless of the Court’s order. Most of the times one or the other member of the Tribunal were not available and they saw to it that the three month time expired. The Court went on to state that:-

“these facts also disclose a very sorry state of affairs that the members of the arbitral tribunal are inept and ineffectual by any standard, completely negligent towards their duties and having no sanctity for any law or for the orders of the High Court, which are binding upon them.”[2]

Based on these findings the High Court terminated the mandate of Tribunal and appointed a sole arbitrator to conduct the arbitration expeditiously.

Proceedings before the Supreme Court

The Railway Authority appealed against the High Court’s decision in the Supreme Court arguing that the High Court could not appoint the sole arbitrator as it was not empowered to constitute a tribunal of its own, that too, contrary to the arbitration agreement. Even if the tribunal’s mandate was to be terminated, a fresh tribunal could only be constituted in accordance with the arbitration agreement, i.e. in accordance with Clause 64(3)(a)(iii).

On the other hand, the Contractor defended the High Court’s decision arguing that in circumstances where the very purpose of arbitration was frustrated by the Tribunal members, who were dragging the proceedings, the Court was not powerless to travel beyond the framework of the arbitration agreement and appoint an arbitrator. The Contractor supported its argument by reliance on North Eastern Railway v. Tripple Engineering Works, (the ‘Tripple Engineering’ case) another recent Supreme Court decision.

The Issue

Based on the Parties’ arguments the Supreme Court categorized the issue as follows:-

“[w]hether .. a course of action has to be necessarily adopted by the High Court in all cases, while dealing with an application [u]nder Section 11 of the Act or there is a room for play in the joints and the High Court is not divested of exercising discretion under some circumstances?”[3]

Deliberations by the Supreme Court

At the outset, the Supreme Court highlighted that to decipher the answer to the issue Sections 11(6) & (8) (appointment of arbitrators), 14 (failure or impossibility to act), 15 (termination of mandate and substitution of arbitrator) & 32 (termination of proceedings) of the Act were the relevant sections.

The Supreme Court mentioned that Section 14(2) allowed a party to approach the Court to seek termination of mandate ‘when there is a failure on the part of the Arbitral Tribunal to act and it is unable to perform its function either de jure or de fact’.^[4] Accordingly, the decision of the High Court to terminate the Tribunal’s mandate, on account of its ‘cavalier manner’, was flawless.[5]

Moving on to Section 15, the Supreme Court acknowledged that ordinarily, pursuant to Section 15(2), substitute arbitrators have to be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.[6] At this point, however, the Court raised the question as to whether there could arise circumstances in which there would be deviation from this approach. This led the Court to the case of the Tripple Engineering case, which it discussed in length.

The Tripple Engineering case had facts very similar to the case at hand and the Supreme Court in that case had made reference to a series of judgements before stating that:-

“[t]he power of the Court under the Act has to be exercised to effectuate the remedy provided thereunder and to facilitate the mechanism contemplated therein. In a situation where the procedure and process under the Act has been rendered futile, the power of the Court to depart from the agreed terms of appointment of arbitrators must be acknowledged in the light of the several decisions noticed by us.”

A few of the decisions so noted in the case were:-

• Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corporation Ltd. where the Supreme Court had taken the view that typically the contract between the parties must be adhered to, however deviations from it would be permissible in exceptional circumstances.
• Union of India v. Bharat Battery Manufacturing Co. (P) Ltd. where the Supreme Court had held that once an aggrieved party files an application under Section 11(6) of the Act to the High Court, the opposite party loses its right of appointment of the arbitrator(s) as per the terms of the contract.
• Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Co. Limited where the Supreme Court emphasized on the expression ‘to take the necessary measure’ in Section 11(6) and stated that the expression has to be read along with the requirements of Section 11(8).
• Indian Oil Corporation Limited and Ors. v.Raja Transport Private Limited where the Supreme Court stated that while exercising power under Section 11(6) all efforts should be made to give effect to the appointment procedure prescribed in the arbitration agreement, however, if circumstances warrant ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore such procedure.
• Union of India v. Singh Builders Syndicate where the Supreme Court upheld the appointment of an arbitrator contrary to the arbitration agreement on the grounds that the arbitration proceedings had not concluded for over a decade making a mockery of the process.[7]

The Supreme Court particularly quoted some paragraphs from Union of India v. Singh Builders Syndicate, the relevant parts for our discussion are:-

“The object of the alternative dispute resolution process of arbitration is to have expeditious and effective disposal of the disputes through a private forum of the parties' choice. If the Arbitral Tribunal ... is made non-functional on account of the action or inaction or delay ... the Chief Justice or his designate, required to exercise power Under Section 11 of the Act, can step in and pass appropriate orders ... [T]he matter has now been pending for nearly ten years from the date when the demand for arbitration was first made with virtually no progress ... The delays and frequent changes in the Arbitral Tribunal make a mockery of the process of arbitration.”

Findings of the Supreme Court

Taking a note of the case laws mentioned above the Court pointed out that the classical notion that the respective authority while exercising its power under Section 11 of the Act must appoint the arbitrator as per the agreement between the parties has seen a significant erosion in recent past. The provisions of the Act have to be applied purposively and hence the appointment of arbitrator by the court, of its own choice, departing from the arbitration clause, has become an acceptable proposition of law which can be termed as a legal principle established by a series of judgments.[8]

Concluding it findings the Supreme Court stated that courts were not powerless under Section 11 and could spring into action to constitute an arbitral tribunal so as to ensure that interest of parties were equally protected.[9]

Analysis

This decision of the Supreme Court is a welcoming decision in the context of the arbitral regime in India. Indian courts of late have been very particular not to repeat their mistakes by poorly interpreting the provisions of the Act and interfering in the arbitral proceedings. This decision, in fact, is a very informed one because the Supreme Court realized that the issue of delay in arbitral proceedings on account of the tribunal itself was often encountered in arbitration in India, particularly where the arbitration clause provided for appointment of serving officers. Although the same issue had been dealt with in bits and pieces before, with this decision the Supreme Court has set the record straight once and for all.

With its decision the Supreme Court in fact brings the position of the Act akin to the position taken by leading arbitral institutions of the world, for example, the International Chamber of Commerce (the ‘ICC’) and the London Court of International Arbitration (the ‘LCIA’). Article 15(4) ICC Rules 2012 and Article 11(1) LCIA Rules 2014 both state that in situations where replacements have to be made, discretion vests with the institution as to decide whether or not to follow the original nominating process. Similar provisions can be found in the Stockholm Chamber of Commerce Rules[10] and the UNCITRAL Rules.[11]

The most direct implication of this decision will be that arbitration proceedings will no longer suffer because of an irresponsible or lackadaisical tribunal. In general, proceedings will be completed within a reasonable time frame. Besides, the decision will also push those who are not full time arbitrators or arbitration practitioner to adopt a professional approach. Additionally, it would discourage counsels to indulge in dilatory tactics by seeking outrageous extensions under the patronage of the tribunal. All in all the Supreme Court has sought to ensure that one of the fundamental features of arbitration, i.e. expeditiousness, remains intact.

The decision indicates a continuing trend on the part of Indian courts to develop and project India as an arbitration friendly jurisdiction. Despite being modelled on the UNCITRAL Model Law on International Commercial Arbitration (the ‘Model Law’), in the past there had been instances where interpretation of the Act’s provisions were far from what was envisioned by its drafters (there is, however, an interesting post by Advocate Sujoy Chatterjee on the extent of making reference the Model Law to interpret the provision of the Act).  Therefore, in conclusion, it can be said that unlike several earlier instances, this time when the court took the matter in its own hands it was too aid, and not intervene in the arbitration.

[1] Civil Appeal No. 8860 of 2014 (Arising out of Special Leave Petition (Civil) No. 20183 of 2012) decided on 16.09.2014

[2] U.P. State Bridge Corporation Ltd.v. The Union of India, 2012(1)ARBLR390(Patna) at paragraph 11

[3] Supra note 1, paragraph 15

[4] Ibid, paragraph 13

[5] Ibid

[6] Ibid, paragraphs 14, 15

[7] In this case the Supreme Court also recommended to the government that they should consider phasing out arbitration clauses providing for appointment of serving officers and encourage professionalism in arbitration.

[8] Supra note 1, paragraph 21

[9] Ibid, paragraph 22

[10] Article 17(1) SCC 2010 Rules

[11] Article 14(2) UNCITRAL Rules 2010

A Wake Up Call to Speed up Arbitral Proceedings.

Below is a guest post from Vaisakh Shaji. In the post below Vaisakh discusses a judgment on the importance of giving a reasoned award as well as result of delaying rendition of an award. 

The Bombay High Court’s (‘The Court’) recent decision in Dirk India Private Ltd[1] (“Petitioner”) vs Maharashtra State Electricity Generation Company Ltd (“Respondent”) AND Maharashtra State Electricity Generation Company Ltd (as ‘Petitioner’) vs Dirk India Private Ltd (as ‘Respondent’) brings into focus certain important issues regarding the consequence of delay in rendering arbitral award and also the importance of stating reasons for the award.   

Note: The Court decided two different claims arising from the same arbitral award. In the second claim, Dirk India is the respondent and the issue therein is with respect to damages sought by the original Respondent. This part of the judgment will be discussed as second part of this note.

Part one

Brief Facts:

The dispute between the parties relate to Nashik Thermal Power Station (‘the plant’), which uses coal as fuel for generation of electricity. The parties entered into an agreement dated October 4^th, 2000, according to which the Petitioner would use its technology to dispose of waste product that is generated at the plant. The Petitioner, a company based in United Kingdom specializes in recycling by-products generated by thermal power stations. Pulverised Fly Ash (‘PFA’) which is a waste product generated in coal fired thermal power stations, is used by the Petitioner to manufacture cement replacement material.

As per the agreement, there were two stages involved in disposing off PFA. In the first stage, the Respondent was to provide PFA from the plant and deliver the PFA to the Plaintiff by depositing the same in the Hoppers constructed by the Plaintiff and for this purpose a Dense Phase Conveying System was to be built by the Respondent.

In the second stage, the Plaintiff was to transport the PFA from the Hoppers to the PFA plant situated at the site at the Plaintiff’s own cost and is its sole responsibility. Accordingly there were two stages of transportation of PFA i.e. (a) ESP to Hoppers and (b) from Hoppers to the PFA Plant.

Plaintiff’s case:

A Dense Phase Conveying System was to be built by the Respondent at their cost to enable them to provide PFA to the Petitioner. Further, the Respondent was required to deposit the PFA in the Hoppers constructed by the Petitioner. However, as the Respondent did not construct the Dense Phase Conveying System, the Plaintiff had to resort to manual removal of PFA.  The Respondent terminated the agreement illegally by alleging that it was the duty of the Plaintiff to construct the Dense Phase Conveying System.

Respondent’s case:

The respondents alleged that as per the agreement, the Plaintiff was supposed to construct the hoppers and as they did not do so, the question of Respondents releasing PFA through the hoppers did not arise. Further they alleged that the Plaintiff was implementing the agreement at their own will by constructing only one hopper and the rest manually, resulting in spillage and causing pollution.

Arbitral Tribunal

To adjudicate the dispute between the parties, an Arbitral Tribunal of three Arbitrators, constituting senior retired Judges was formed in 2007. The Arbitrators initially framed twenty two issues, however modified them subsequently and narrowed it down to four issues and a final award was passed in 2011.

The decision of the Tribunal was challenged under section 34 of the Arbitration and Conciliation Act, 1996 (‘the act’) by the Plaintiff on the grounds that:

•  the Tribunal did not adjudicate on the real issues between the parties;
• Secondly, the award is without reason and did not consider the submissions made by the parties;
• Further there was gross delay in making the award which resulted in abandoning the issues that were framed and the arbitrators consequently missing key issues to be decided.

On examining the reasoning by the Tribunal, the Court ascertained that during the process of adjudicating, the Tribunal intermixed the issues and kept referring to Phase two of the agreement which was never in dispute. The arbitrators brought onto themselves to decide an issue which was never in dispute.

For deciding the dispute in the first stage of the agreement, the arbitrators adjudicated by deciding the second stage and mixed up the issues such that it was not possible to divest the two from the Tribunals reasoning. The Court observed that the failure to distinguish between two stages is a fundamental flaw.

Arbitral award:

The Plaintiffs contended that, firstly there was inordinate delay in rendering the award, as a consequence of which the Tribunal lost its focus from the core issues of the dispute and secondly, that the award is not without reasons.

The Court observed that, even though an arbitral award need not be very detailed, unless the parties agree to the contrary, the reasons have to be given in the award. If the parties go to the Arbitrators with specific issues to be decided, not only they must be decided, but the parties must be informed why the dispute was decided in a particular manner.

Further, the Court held that, “they may choose an arbitrator with a judicial background if judicial expertise is what they want. Their choice reflects how they want the arbitration to be conducted. Once the parties choose an arbitrator with a judicial background, they expect that the arbitrator would apply judicial and legal expertise and resolve the dispute evaluating the veracity of assertions of both the sides. Parties expect the judicial mind will understand and appreciate the real dispute between the parties better and bring it into focus and give a just and reasoned decision”.[2]

On the issue of delay in rendering the award, the Court noted that the Tribunal took more than a year in rendering its final award and observed that had it been a lone consideration, it would not have been sufficient to set aside the award, however the perverse reasoning by the Tribunal coupled with the delay in its final decision would go in the direction of attributing the delay as one of the factors due to which the Tribunal side tracked from the real issues.

Applicability of Section 34:

The Court stated that it may not be possible to test the merits of the award, however if it is found that there exists a fundamental flaw and it is intermixed, the entire award will be vitiated.

The second aspect with the award is with respect to the issues that were framed. The Tribunal framed 22 issues initially and at the time of passing the award, it narrowed it down to 4 issues. The serious fall out of this was that the Tribunal lost its focus on identifying issues which are vital to the claims by the parties and ended up overlooking or divesting certain issues which had to be addressed together such as determining the Plaintiff’s liability for not collecting the PFA by overlooking the issue of installing Dense Phase Conveying System.

The Court did not lay down any further grounds on which a challenge can be brought under section 34 and relied on the decision in ONGC vs Saw Pipes on the applicability of section 34 of the Arbitration and Conciliation Act, 1996 for setting aside an award for error apparent on the face of it.

It relied on ONGC vs Garware Shipping Corporation to state that courts can interfere if the award by an Arbitral Tribunal contains perverse conclusions and finding on wrong basis.

Analysis:

This case once again brings into focus the conduct of arbitration proceedings in India. The facts of the case shows that, inordinate delays would lead to intermixing issues especially and a speedy remedy as contemplated by parties cannot be achieved through an alternate process. This will further, discourage foreign parties who make huge investments in India to shy away from going for an alternate dispute resolution process and comes in the way of making India a dispute resolution friendly nation.

As stated in the 246^th Report of the Law Commission of India for reforms in the Arbitration and Conciliation Act, 1996 the arbitration proceedings are becoming a replica of court proceedings and frequent adjournments would lead to setting aside of arbitral awards.

In Ircon International vs Arvind Constructions, the Court the question of sufficiency is left with the arbitrator. And the duty of the court is to look into the nexus between the reasons and the material before the arbitrator. As long as the reasons lead to the conclusion made, it is sufficient. However in Ircon the arbitrator was an expert, being a retired Financial Commissioner of the Railway Board.

While appointing arbitrators from technical background sufficiency of the arbitrators reasoning might be not over-emphasised. However, in the present dispute, the three arbitrators were retired judges and though there is no onus to pronounce a judgment as that of a Court, the necessary nexus between the issue and the final adjudication is lacking.

Part two:

The second appeal decided by the Court is regarding the counter-claim  by Maharashtra State Electricity Generation Co. (‘Mahgenco’) against Dirk India which was dismissed in its entirely by the Tribunal.

The tribunal stated that Mahgenco did not provide enough documentary evidence and on the additional ground that Mahgenco did not challenge various orders passed by the High Court from time to time.

It was contended for Mahgenco that, it being a statutory body decided to comply with the orders of the High Court, and that cannot be a reason to deprive it form claiming damages.

The court held that the mere fact that interim order under section 9 of the act has not been challenged by Mahgenco were not challenged by it, is not sufficient reason to dismiss its claims.

Further it stated that the entire claim of Mahgenco was dismissed in two paragraphs and the Tribunal refused to look into the counter-claims. The Court agreed with the contention that such approach by the Tribunal is perverse. Additionally, even though Dirk India contested that Mahgenco is entitled to damages, they agreed with Mahgenco that the awards passed are perverse and hence the Court found it an additional ground to set aside the award.

---

[1] MANU/MH/1071/2014

[2] Para 45.

Briefing on the Law Commission of India's Report on Changes to the Arbitration Law

I recently wrote a post for Kluwer Arbitration Blog on the 246th Report of the Law Commission of India on the "Amendments to the Arbitration and Conciliation Act, 1996". The post covers the suggestions and amendments proposed by the commission and can be viewed on this link. 

To Rein if Not Tame the 'Unruly Horse' of Public Policy

Below is a guest post from Garv Malhotra who is a final year student at GNLU, Gandhinagar.

A substantial amount of literature has been dedicated to the topic of the Scope of Public Policy as a ground for 'set-aside' of Domestic arbitral awards under Section 34 (2)(b)(ii) of the Arbitration and Conciliation Act, 1996, especially in the past decade since the infamous expansive interpretation of the term 'public policy' by the Apex court. The decision in the case of ONGC v. Saw Pipes[1] has attracted much flak from all quarters[2]. However, recent decisions of the Supreme Court in the McDermott[3], Sumitomo[4], Rashtriya Ispat[5] among other[6] cases among others that have attempted to water down the ONGC Doctrine without overruling the same. 

The Law relating set-aside of Domestic arbitral awards in India is laid down under Section 34 of the Arbitration and Conciliation Act, 1996. It is based on Article 34 of the Model Law and states that the grounds contained therein are the "only" grounds on which an award may be set aside. However in the Indian context the word "only" prefixing the grounds is a bit of a misnomer as two additional grounds have been created by the Act itself under Section 13(5) and 16(6). Besides another ground of fraud and corruption is found in an Explanation to the public policy ground in Section 34.[7]

The scope of challenge and set-aside of a final award of a tribunal is very restricted as there is a legal presumption in favour of the validity of an award.[8] The arbitrator's interpretation of the contract and his decision on the merits of the case cannot be re-examined by the court and it cannot substitute its own decision in place of the final and binding award.[9] Additionally, the reasonableness of the reasons given by the arbitrator cannot are not subject to challenge in a court of law.[10] The court cannot simply term the award on fact and/or law erroneous and substitute the award with their own judicial decision[11] and where the opinion of the arbitrator is plausible[12], the courts will not interfere. In effect, if the tribunal passes an award (as per Section 31) or an order under Section 16(2) or 16(3) after considering rival submissions on both fact and law, its decision cannot be interfered with unless the conclusion shocks the consciousness with a blatant error apparent from a prima facie perusal of the award. 

Though most other grounds of set-aside mentioned in Section 34 can be literally constructed, the most malleable among all grounds is the residuary ground under S. 34 i.e. the award can be set aside if found violative of the 'public policy' of India, leaving room for immense 'judicial legislation' on the point. It is known that the term 'public policy' is incapable of any precise definition, however, some light may be drawn from the Ministry of Law, Justice and Company Affairs, Government of India's attempt[13]- "A set of principles in accordance with which communities need to be regulated to achieve the good of the entire community or public" 

The reason why Public Policy is incapable of any precise definition is because it is a concept premised on the socio-cultural needs of every society as distinguished from the socio-political Policies. e.g. the consumption of alcohol, though ubiquitous in most countries may be against the Public Policy in some Gulf Countries. 

The term 'public policy' has been called an 'unruly horse'[14] as it is a dynamic concept, not being static at anytime, in any jurisdiction . It is a residuary ground that vests with the judges a powers analogues to a 'Henry VIIIth Clause' i.e. 'power to remove difficulties' in Administration Law. This power can also be compared to the common law canon of Justice, Equity and Good Conscience. Clearly, the term public policy is very open ended and is impossible to straitjacket[15]. However, unlike the two analogies hereinbefore mentioned, the interpretation of 'public policy' has to be done in the backdrop of the intervention-restrictive scheme of the Act as seen from the Statement of Objects and Reasons and Section 5.

The term public policy is capable of both a narrow and a broad interpretation depending upon the socio-cultural needs of the society[16] and the pendulum of the Apex Court's interpretation has oscillated between both these stands for decades without conclusive settlement[17]. However, in the ONGC case, the court disturbed the delicate balance between party autonomy and judicial supervision sought to be achieved by Section 34 and tilted the scales strongly in favour of the latter thereby setting the clock back to the old position where an award could be challenged on merits and indeed renders the court (testing enforceability of an award) as a court of appeal. It opened the floodgates to many previously barred challenges on vague assertions of statutory violations or interpretation of documents or the law. Invariably today, almost every dispute being arbitrated is further being litigated under the garb of challenge.

Recent Developments 

It has been over a decade since the highly criticised ONGC Judgement but no bench faced with a similar question has recommended the Chief Justice to constitute a review bench. ONGC still stands as the Locus Classicus on the interpretation of Public policy. However, a few recent decision benches of the Supreme Court of equivalent strength as ONGC have attempted to dilute its overtly expansive interpretation without sitting in review of the ratio.

In the McDermott Industries v. Burn Standard[18] the Supreme Court held-

"The 1996 Act makes provision for the supervisory role of courts for review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct the errors of the arbitrators...this can be justified as the parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."

In Sumitomo Heavy Industries Ltd. v. ONGC Ltd.[19] the Hon'ble Supreme Court, relying on another recent decision in SAIL v. Gupta Brothers Steel Tubes Ltd.[20] held that the umpire is legitimately entitled to take the view which he holds to be correct...hence if the conclusion of the arbitrator is based on a possible view of the matter, the court is not expected to intervene. The Court further reiterated the position that a 'perverse view' is not a finding against the weight of the evidence but against the evidence itself of the grounds of inadmissibility or irrelevance.

Further in the Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran[21], the Supreme Court upheld the interpretation of the court in Sumitomo Case and SAIL Case and opined that even if the decision of the arbitrator is possible if not plausible, the court would not be justified in interfering.

The author submits that the overtly expansive stance on Public Policy as laid down in the ONGC Case is defeating the main objectives of the Act. It renders the Arbitral Tribunal a mere forum at the bottom of the Court hierarchy subject to just as many actions as a traditionally litigated dispute. Invariably today, most of the arbitral awards are challenged on grounds of violation of public policy and patent illegality premised on vague assertions of statutory violations imploring the court to 're-adjudicate' issues of fact and law under the pretext of a challenge. The recent decisions of the Supreme Court and a few High Court decisions mark a welcome trend in watering down the ONGC Doctrine and upholding the restrictive sanctity of the Act. However, it is only up to the next bench faced with a similar question to request the Chief Justice of India to constitute a larger bench to review this position and salvage the Domestic Arbitration scenario in India. 

[1] (2003) 5 SCC 705. 

[2] Sumeet Kachwaha, Arbitration Law of India: A Critical Analysis, Asia International Arbitrational Journal, Volume 1, Number 2, P. 105 http://www.kaplegal.com/upload/pdf/arbitration-law-india-critical-analysis.pdf ; Speech delivered by Mr. F.S. Nariman at the inaugural session of “Legal reforms in Infrastructure”. 

[3] (2006) 11 SCC 181. 

[4] (2010) 11 SCC 296. 

[5] (2012) 5 SCC 306. 

[6] SAIL v. Gupta Brothers Steel Tubes Ltd (2009) 10 SCC 63, Kwality Mfg. Corpn. v. Central Warehousing Corporation (2009) 5 SCC 142; Arulvelu v. State (2009) 10 SCC 206. 

[7] Sumeet Kachwaha, Enforcement of Arbitration Awards in India, Asian International Arbitration Journal, Volume 4, Number 1, PAGES 64-82. 

[8] Union of India v. Jai Narayan Misra AIR 1970 SC 753; Food Corporation of India v. Joginder Mahinderpal AIR 1989 SC 1263. 

[9] Union of India v. Jai Narayan Misra AIR 1970 SC 753; Francis Klein Pvt. Ltd. v. Union of India 1995 2 Arb LR 298. 

[10] Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar AIR 1987 SC 2316; Id. 

[11] Lakshmi Mathur v. CGM, MTNL 2000 (2) ArbLR 684 Bom. 

[12] Supra Note 4, 5, 6. 

[13] P Anklesaria, "Scope of the expression Public Policy in Domestic and Foreign Awards". 9 AIR (2005) at 310. 

[14] Burrough, J., Richardson v. Mellish (1824), 2 Bing. 252; (1824) 130 Eng. Rep. 294, 303. 

[15] O.P. Malhotra, The Law and Practice of Arbitration and Conciliation (New Delhi: Lexis Nexis Butterworths, 2002) at 768. 

[16] Supra Note 19. 

[17] For a narrow view refer- Gherulal Parekh v. Mahadeodas Maiya AIR1959 SC 781 and Renusagar Power Co. Ltd. v. General Electric Co. AIR 1986 SC 1571; For a Broad view refer- Central Inland Water Transport Corp. Ltd. v. Brojo Nath Ganguly1986 SCR (2) 278 and ONGC v. Saw Pipes AIR 2003 SC 2629. 

[18] (2006) 11 SCC 181 para 52. 

[19] (2010) 11 SCC 296 para 41-43. 

[20] (2010) 11 SCC 296. 

[21] (2012) 5 SCC 306 para 43-45.

The Panna-Mukta Arbitrations: The Indian Supreme Court Adopts a Pro-Arbitration Stance. Another Step In The Right Direction?

Below is guest post from Nimoy Kher who is a third year student at NLSIU, Bangalore. 

In what may be seen as yet another step towards a more arbitration-friendly atmosphere in India, the Supreme Court of India on 27^th May, in the case of Reliance Industries and Anr. v. Union of India denied Indian courts’ jurisdiction over an ongoing foreign arbitration proceeding.

By way of context, the factual matrix surrounding the case is as follows. There were two Production Sharing Contracts (PSCs) between the parties to the dispute. These PSCs dealt with the exploration and production of petroleum from the Tapti and Panna-Mukta Fields located just off the western coast of Mumbai. In 2010, certain disputes arose between the parties with regard to these PSCs, and Reliance Industries referred the disputes to arbitration, in accordance with the contracts. The government argued that the claims before the tribunal were non-arbitrable on several grounds. The arbitral tribunal, however, passed a final partial award declaring that it had jurisdiction over the parties’ disputes.

Subsequently, the government sought to set-aside this partial award under S.34 of the Indian arbitration statute. Reliance Industries opposed the maintainability of the setting aside petition. Reliance Industries based their challenge to the setting-aside petition on the argument that S. 34 falls under Part I of Indian Statute, and would therefore apply only to domestic or Indian seated arbitrations. Further, Reliance Industries argued that the arbitration agreements in the PSCs expressly named England as the seat of the arbitration and as such, all challenges to the award would lie in England. The government, on the other hand, argued that S.34 would apply to the award since it was clear from parties’ agreement that they did not intend to oust the applicability of the Indian statute, and also since the disputes between the parties involved substantial questions affecting Indian public interest.

The High Court placed heavy reliance on judgments such as Bhatia International v. Bulk Trading S.A and Venture Global Engineering v. Satyam Computer Services to assert jurisdiction over the award under S.34. The court opined that S.34 would apply since there was neither an explicit nor implicit rejection of the domestic provisions of the Indian statute, as per the requirements of Bhatia International. To the contrary, the court gleaned a manifest desire to subject the arbitration agreement to Indian law, from parties’ choice of Indian law as proper law of the contract. The court reasoned that the fact parties had chosen the law of India to govern the substantive contract clearly indicated that parties did not intend to oust the applicability of Indian law. By choosing England as the seat, parties had merely desired that the English law would be the curial law, and would apply only to questions of the conduct of arbitral proceedings. For all other matters, including challenge of an award, Indian law would apply.

Further, the court reasoned that S.34 would apply since the parties in the instant case did not wish to exclude the applicability of Indian public policy. The court relied on Art.15 (1) of the PSCs which stated that “the companies and the operations under this Contract shall be subject to all fiscal legislation of India” to support this conclusion. In any case, irrespective of the parties’ intention, the High Court declared that it would retain jurisdiction over the award, since the question of the arbitrability of certain kinds of disputes must not be decided just against the touchstone of the lex arbitri. It stated that:

“Since the question of arbitrability of the claim is a larger question effecting public policy of State it should be determined by applying laws of India.”

It must be bourne in mind, that in Bharat Aluminium Co. Ltd. v. Kaiser Aluminium Technical Service Inc., a 2012 Supreme Court judgment, the court has overruled the judgments in Bhatia International and Venture Global. The Supreme Court has clearly stated that Part I of the Indian arbitration statute would not apply to foreign-seated arbitrations. However, as the High Court correctly recognized, the holding in the Bharat Aluminium Case applies prospectively, to arbitration agreements executed after 6^th September 2012. Since the arbitration agreements in the present case were entered into before that date the High Court relied upon the ratio in Bhatia International and Venture Global to come to the aforementioned conclusions.

Fortunately, in appeal the Supreme Court comprehensively overruled the High Court on both issues. In light of the High Court judgment, the first issue that had to be determined was whether the choice of seat in the instant case, amounted to an implicit exclusion of the provisions of the arbitration act, and excluded the award from the ambit of S.34, as per the requirements laid down in Bhatia International. The Supreme Court found that in the instant case the choice of seat did, in fact, amount to an implicit exclusion of the Indian statute. The court concluded that a ‘meaningful reading’ of the terms of the contract clearly indicated that parties understood the distinction between the proper law of the contract and proper law of the arbitration agreement, and parties intended both to be different. The court opined:

“In our opinion, it is too late in the day to contend that the seat of arbitration is not analogous to an exclusive jurisdiction clause”

The court relied on a number of previous judgments such as Videocon Industries Ltd. v. Union of India and Anr. and Dozco v. Doosan Infracore Co.Ltd  to find that the choice of seat clearly amounted to an ouster of the jurisdiction of Indian courts. Further, in clear contrast to the High Court ruling, the court held that the mere fact that Indian law applied to the PSC would not indicate that parties intended Indian law to be the proper law of the arbitration agreement.

With regard to the second issue – whether the Indian statute would apply by virtue of the fact that substantial questions of Indian interest involved - the court found that the applicability of the provisions of the statute would not depend on the nature of the challenge of the award. For the standard of public policy laid down in the Indian statute to apply, it would first have to be proved that the statute applied to begin with. Since, in the instant case the arbitration agreement fell outside the scope of the statute by virtue of the seat of the arbitration being England, an award passed thereunder would not be subject to setting aside proceedings under S.34. The mere fact that question of Indian public interest were involved was not sufficient to attract the applicability of the statute.

This judgment is commendable, since despite being forced to rely on the ruling in Bhatia International, the court still carved out a niche, which excluded the applicability of Part I of the Indian statute to the arbitration proceedings. This judgment clearly indicates the change in the attitude of Indian courts towards international arbitration. It indicates that the Indian judiciary is increasingly hesitant to exercise control over international arbitrations. Further, the Supreme Court has correctly identified the inconveniences that are likely to be caused to parties by allowing the applicability of the Indian statute to international arbitration. Finally, this judgment is significant because it explicitly recognizes the need to follow international trends embodied in other UNCITRAL Model Law and New York Convention. Post the holding in Bharat Aluminium Co Ltd. v. Kaiser Aluminium Technical Services Inc., this judgment will no doubt help bolster the confidence of the international arbitration community in India.  The question remains, though: are these cases just flashes in the pan, or are they representative of a true change in the Indian arbitration landscape?