Against whom can remedy under Section 9 lie? Guest post by Shantanu Naravane

After a guest post by Niranjan V., we are glad to publish another guest post from Shantanu Naravane, a final year student of National Law School of India University, Bangalore and one of the most widely read student bloggers in the country. Other writings by Shantanu can be found on the Indian Corporate Law Blog.

Section 9 of the Arbitration and Conciliation Act, 1996 allows parties to approach a court for interim measures, before, during or after an arbitral award. The corresponding provision granting competence to the tribunal to grant interim measures is section 17. However, unlike section 17, which specifically allows for measures to be directed only against parties, section 9 is silent on whom the court-granted measures may be directed against. There has been a fair degree of debate in the High Courts over this question, and the matter is yet to be settled by the Supreme Court.

Recent Developments on the Scope of S. 11 Jurisdiction: Guest Post by Niranjan V.

We are happy to publish here a guest post by Niranjan V. Niranjan is a final year student of law at National Law School of India University Bangalore. He is a Rhodes Scholar elect for the present academic year and will proceed to read for BCL at Oxford University. The following is the text of Niranjan's post. We express our sincere gratitude to Niranjan for this post.

It is no surprise that the Government of India released a Consultation Paper in April 2010, proposing (effectively) a new Arbitration Act. In its short history of fourteen years, the Arbitration and Conciliation Act, 1996, has attracted strong criticism, especially on account of a series of well known Supreme Court decisions that are said to have interpreted the Act widely. As these decisions themselves are too well-known to require discussion, the purpose of this post is to highlight interesting developments arising out of one of these – SBP v. Patel Engineering, AIR 2006 SC 540.

Rent a Center v Jackson: Guest Post by Mr. Badrinath Srinivasan

Mr. Badrinath Srinivasan (Badri) has been one of the most supportive readers of this blog. He has contributed several comments on this blog and an interesting piece on amendment of applications filed under Section 34 of the Arbitration and Conciliation Act. Recently, he published a short post on The Practical Academic Blog on Rent a Center v Jackson. While signing off, he had promised to come back with further analysis on the topic soon. In this guest post, he analyses the decision in further detail. Following is the text of Badri's post.

Recently, the US Supreme Court judgement (USSC) has delivered the judgement in Rent-A-Center v Jackson (Jackson) which is probably one of the most closely followed cases in the recent times on arbitration. We had several blogs like the Contract Professor Blog, ADR Professor Blog post quite a few posts on it.

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

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

Camel's nose under the tent: should courts interfere with arbitrations under BITs?

In the previous post, I had promised I would deal with this topic soon. In the meanwhile, Mr. Prabhash Ranjan and Mr. Daniel Mathew have published a post on Law and Other Things as to how the proposed amendments do not serve to protect investment arbitration in India from interference by courts. In this post, I examine the more fundamental question of whether domestic courts in India, which have taken an expansionist view of their own powers in respect of arbitration in general, should extend that stand to investment treaty arbitrations too.

Revenge time: Arbitral tribunals strike back at national courts?

National courts in different jurisdictions have, for long, jealously guarded their monopoly in adjudication. In this process they have sought to keep private adjudication mechanisms including arbitration under their strict control. We have had some discussions on how Indian courts have interpreted the statute to give themselves larger powers over arbitral tribunals. Now, it seems the arbitral tribunals are striking back at courts by holding sovereign States liable under Bilateral Investment Treaties for anti-arbitration decisions taken by their courts.

Bhatia will survive the amendments: Anyone in mood for a bet?

Rukmini had discussed in a previous post how the proposed amendments to the Arbitration and Conciliation Act would negate the basis of the decision in Bhatia. It just dawned on me what a bench of the Honourable Supreme Court of India is likely to say if confronted with the S. 2(2) as proposed to be amended. Well, as Justice Holmes puts it, study of law concerns nothing but “prophecies of what the courts will do”. So here goes my prediction.

Some background to the prediction:

The text of S. 2(2) [unamended] reads: "This Part shall apply where the place of arbitration is in India". The Supreme Court in Bhatia held that this is not equivalent to "This Part shall apply only where the place of arbitration is in India". 

The Section, after the proposed amendment will read, “2.(2) (a) Save as otherwise provided in clause (b), this Part shall apply where the place of arbitration is in India. (b) Sections 8, 9 and 27 of this Part shall apply to international arbitration (whether commercial or not) where the place of arbitration is outside India or where such place is not specified in the arbitration agreement.” It is pertinent to note that though the consultation paper proposes the addition of the word "only", the Bill as it stands now reads the way I have quoted.

What a reasonable reader would infer:

In this context the word "reasonable" has been used as we use it in the context of "reasonable man". This is not to attribute unreasonability to honourable courts for adopting a different reading from what I call the "reasonable reader" would adopt.

To a reasonable reader it would appear from the insertion of the words "Save as otherwise provided in clause (b)" and from the fact that S.2(2)(b) makes Sections 8, 9 and 27 applicable specifically to arbitrations held outside India as well, that provisions of Part I other than those named in S.2(2)(b) will not apply to arbitrations held outside India.

But, the reasonable reader is not much of an assistance when it comes to predicting judicial behaviour in context of arbitration in India. I would say that a reasonable reader would, while reading unamended Section 2(2), have supplied the word "only" and confined the application of Part I to arbitrations held in India alone.

What those exercising exclusionary reasons will say - the prediction:

I remember studying in jurisprudence that a court of law exercises exclusionary reason. That is, once a matter is decided by it, the reasons agitated before it become irrelevant and the only reason for the validity of a legal proposition becomes the fact that it has been upheld by the authority. So, our reasonable reader and her reasoning will no more be relevant except for academic purposes the day a court exercises its exclusionary reason. Here is my prediction on what the courts will say and based on what reasons:

"Even while amending Section 2(2), the legislature has not included the word "only". If the legislature, which was fully aware of the decision in Bhatia and the fact that the decision hinged on the absence of the word "only" in S.2(2) did not insert the word "only" even during its amending exercise, no legislative intent can be inferred that the statute depart from the position laid down in Bhatia. This takes us to the question of what the effect of the amendment is. It is our considered view that while adhering to the position in Bhatia, the legislature additionally provided for mandatory application of Sections 8, 9 and 27. Therefore, the current position of law in this regard is - (i) Whole of part I applies mandatorily where the place of arbitration is in India; (ii) All provisions of Part I except Sections 8, 9 and 27 apply to arbitrations held outside India if not specifically excluded by the contract between the parties; (iii) Sections 8, 9 and 27 apply mandatorily to all arbitrations whether held in India or abroad."

Any one in mood for a bet? I will enter into the bet only if the agreement to bet is NOT governed by the laws of India (or any other country where wagers are unenforceable) AND any disputes arising out of or in connection with the bet are subject to arbitration with its seat outside India AND lex arbitri not being Indian law.

Guest Post: Permissibility of amendments to applications under S. 34 of the Arbitration and Conciliation Act - Supreme Court disagrees with the AP High Court's position in Satyam v Venture

I had discussed in an earlier post the decision of the Andhra Pradesh High Court in the Satyam Venture dispute that no application under Section 34 can be amended after the limitation period for filing such application has passed. I had argued that this amounted to judicial law making and had no statutory basis. Badri Srinivasan, a reader of our blog brought to our attention a recent judgment of the Honourable Supreme Court on the same point that takes a stand diametrically opposite to the position advocated by the AP High Court. In the following paragraphs, Badri provides a summary of the decision and highlights the portions relevant to the question of whether an application under Section 34 can be amended after the limitation period to file the application has passed. This decision is of interest especially given that the Satyam venture dispute is soon making its second trip to the Apex Court.

Badri is an alumnus of NUJS and currently works for a corporation. He writes on a wide range of topics on the Practical Academic blog.

Here goes Badri's post:

State of Maharashtra v. Hindustan Construction Company

RV Raveendran & RM Lodha, JJ.

01.04.2010

Civil Appeal No. 2928/ 2010 (Out of SLP (C) No. 3937/ 2009)

MANU/SC/0215/2010

The State of Maharashtra (SOM) and Hindustan Construction Company (HCC) entered into an agreement in 1992 for construction by HCC of some civil works. Certain disputes arose between the parties, which were referred to an arbitral tribunal. The arbitral tribunal rendered the award in 2003. SOM applied to the court to set aside the award. The District Court rejected SOM’s application. An appeal was filed before the High Court of Bombay on 6^th February 2007. More than a year after the filing of the appeal, on 23^rd June 2008, SOM applied to the said court for allowing amendment of the memorandum appeal.

The court had to decide whether such an appeal adding additional grounds challenging the award is allowable notwithstanding the fact that S 34(3) allows a party to file an application for setting aside the arbitral award within a maximum period of three months plus 30 days.

A brief summary of the decision of the Supreme Court is given below|:

1.         Amendment of pleadings is a matter of procedure. Granting leave for amendment             is a matter of discretion of the court, to be exercised based on settled principles.

2.         Amendments which evade the laws of limitation shall not, as a rule, be allowed.    However, even such amendments may be allowed in the interests of justice

4.         The above stated principles would apply even in case of memoranda of appeal.

5.         The period allowed for filing petition under S 34 is prescribed by S 34(3) and is     not extendable.

6.         However, amendments to file additional grounds may not always amount to filing             fresh application. If that is so, no material or relevant ground for setting aside             award may be added.

7.         Under S 34(2)(b), if the court finds that the award deals with a dispute that           is not arbitrable or if the award is against public policy. The wordings of S     34(2)(b) allow the court to grant leave for such amendments even after the period   prescribed in S 34(3).

8.         Every amendment in an application for setting aside an arbitral award cannot be    taken as a fresh application.

The court, unlike the AP HC in Satyam v. Venture Engineering seems to allow amendments adding additional grounds to an application for setting aside an arbitral award:

(a)        where justice demands it or

(b)        where such amendments do not amount to filing a fresh application.

[In Satyam v. Venture Engineering, the AP HC had made a blanket prohibition against amendments to S 34 petitions beyond period specified in S 34(3).]

Considering the structure of the Arbitration and Conciliation Act, 1996 and the liberal attitude of the courts in allowing amendments to pleadings, the court should sparingly and only when the situation absolutely demands it allow such amendments. It must also be noted that an award cannot be enforced if an application is filed for setting aside an award (S 36). Hence, a court should ideally decide a S 34 petition as soon as possible and should ensure there is no delay in finally deciding on the matter. The Court should have strictly gone by the well-established legal principle: What cannot be done directly cannot be indirectly. However, Instead the court seeks to employ a test that, I believe, is nebulous, and would result in courts allowing amendments akin to what was done with Order VI Rule 17. I would only quote the following portion of the Supreme Court’s decision in Revajeetu Builders and Developers v. Narayanaswamy and Sons and Ors.:

31. In a recently published unique, unusual and extremely informative book "Justice, Courts and Delays", the author Arun Mohan, a Senior Advocate of the High Court of Delhi and of this Court, from his vast experience as a Civil Lawyer observed that 80% applications under Rule VI Order 17 are filed with the sole objective of delaying the proceedings, whereas 15% application are filed because of lackadaisical approach in the first instance, and 5% applications are those where there is actual need of amendment. His experience further revealed that out of these 100 applications, 95 applications are allowed and only 5 (even may be less) are rejected. According to him, a need for amendment of pleading should arise in a few cases, and if proper rules with regard to pleadings are put into place, it would be only in rare cases. Therefore, for allowing amendment, it is not just costs, but the delays caused thereby, benefit of such delays, the additional costs which had to be incurred by the victim of the amendment. The Court must scientifically evaluate the reasons, purpose and effect of the amendment and all these factors must be taken into consideration while awarding the costs.

…

According to the view of the learned author Arun Mohan as observed in his book, although the proviso has improved the position, the fact remains that amendments should be permissible, but only if a sufficient ground therefore is made out, and further, only on stringent terms. To that end, the rule needs to be further tightened”.

In fact, as the said judgement notes, in 1999 Order VI Rule 17 was proposed to be deleted in on recommendations by the Justice Malimath Committee. However, due to protests from the Bar, the said provision was left unamended except for a proviso, which read:

“Provided that no application for amendment shall be allowed after the trial has commenced, unless the Court comes to the conclusion that is spite of due diligence, the party could not have raised the matter before the commencement of trial.”

On the other hand, taking an absolute view that no amendments should be permitted (as the AP HC did) may also lead to unwarranted results. For example, additional grounds that have been discovered post-expiry of limitation under S 34(3) have to be allowed. Hence, proper balancing needs to be done. It would have been better if the court had more clearly defined the circumstances that might warrant allowing such amendments. The point is that when the court allows new grounds to be added "in the interests of justice".

As a general rule in case of adding additional grounds beyond the period specified in S 34(3) should be strictly dealt with. I only cite certain provisions to state that the Act does not give a second chance to do what one had not done in the first instance. For example, in case you contend in your S 34 petition that the arbitration agreement suffered some incapacity, you'll have to make objection to the tribunal first. If the tribunal rejects such contention, you may make it subsequently before the setting aside court. S 4 is another example. What these provisions tend to do is that it negates all "afterthought"-contentions and reduce the time for settlement of the dispute finally.

As far as amendments which are not in the nature of additional grounds, they may be less strictly viewed and the directions given in Revajeetu Builders and Developers v. Narayanaswamy and Sons and Ors may strictly be followed, relevant portions of which are quoted herebelow:

“65. The Courts have consistently laid down that for unnecessary delay and inconvenience, the opposite party must be compensated with costs… The costs cannot and should not be imposed arbitrarily. In our view, the following parameters must be taken into consideration while imposing the costs. These factors are illustrative in nature and not exhaustive.

(i) At what stage the amendment was sought?

(ii) While imposing the costs, it should be taken into consideration whether the amendment has been sought at a pre-trial or post-trial stage;

(iii)The financial benefit derived by one par- ty at the cost of other party should be properly calculated in terms of money and the costs be awarded accordingly.

(iv) The imposition of costs should not be symbolic but realistic;

(v) The delay and inconvenience caused to the opposite side must be clearly evaluated in terms of additional and extra court hearings compelling the opposite party to bear the extra costs.

(vi) In case of appeal to higher courts, the victim of amendment is compelled to bear considerable additional costs.

All these aspects must be carefully taken into consideration while awarding the costs.

66. The purpose of imposing costs is to:

a) Discourage malafide amendments designed to delay the legal proceedings;

b) Compensate the other party for the delay and the inconvenience caused;

c) Compensate the other party for avoid- able expenses on the litigation which had to be incurred by opposite party for opposing the amendment; and

d) To send a clear message that the par- ties have to be careful while drafting the original pleadings.

…

[S]ome basic principles emerge [] ought to be taken into consideration while allowing or rejecting the application for amendment.

(1) Whether the amendment sought is imperative for proper and effective adjudication of the case?

(2) Whether the application for amendment is bona fide or mala fide?

(3) The amendment should not cause such prejudice to the other side which cannot be compensated adequately in terms of money;

(4) Refusing amendment would in fact lead to injustice or lead to multi- ple litigation;

(5) Whether the proposed amendment constitutionally or fundamentally changes the nature and character of the case? and

(6) As a general rule, the court should decline amendments if a fresh suit on the amended claims would be barred by limitation on the date of application.”

To paraphrase the caution which the Supreme Court in Revajeetu Builders and Developers v. Narayanaswamy and Sons and Ors gave, the decision on an application made for amending a S 34 petition is a very serious judicial exercise and the said exercise should never be undertaken in a casual manner.

Landmark French decisions on anti arbitration injunctions

Kluwer Arbitration Blog reports here that in the recent months the Paris Tribunal de Grande Instance (Court of First Instance) has taken the view that anti arbitration injunctions could not be granted even in cases where manifest lack of jurisdiction of the arbitral tribunal and irreparable injury were pleaded. In S.A. Elf Aquitaine and Total v. Mattei, Lai. Kamara and Reiner, an anti arbitration injunction was prayed for on the ground that appointment of arbitrator on behalf of Elf was done by an administrator whose appointment had been annulled by the appointing court and that the continuation of arbitration would cause irreparable injury. In Republic of Equatorial Guinea v Fitzpatrick Equatorial Guinea, de Ly, Owen and Leboulanger the grounds for seeking anti arbitration injunction were that local judicial remedies had not been exhausted as required by the relevant laws and the contract between the parties and that one of the parties was insolvent and hence could not be represented by persons other than the insolvency representative.

In both the cases it was held that the arbitral tribunal enjoyed absolute priority in determining its own jurisdiction. More importantly, a blanket rule appears to have been laid down that French courts were devoid of any jurisdiction to interfere with the arbitral proceedings or to give injunctions to an arbitral tribunal, even when the Tribunal is seated in France.

For a background on judicial interference in arbitration and a summary on the position on intervention in India, U.K., Singapore, Switzerland, France, Sweden, Germany, Netherlands and Austria, readers may find it beneficial to refer to an article titled Judicial Intervention In International Arbitration In India co-authored by Rukmini Das and Anisha Keyal and published in the most recent issue of NUJS Law Review (Volume 2, Issue 4). The full text of the paper is expected to be uploaded here shortly.

Satyam – Venture, Phase II: A case of judicial law making by the AP High Court

Bar & Bench reports here that the Satyam – Venture dispute could land in the Supreme Court for a second time. Andhra Pradesh High court allowed a civil revision petition under Art. 227 by Satyam directed against the decision of the Civil Court permitting Venture to amend its application to set aside an award rendered by the London Court of International Arbitration in a dispute between Satyam and Venture. Amendment of the application was sought so that the letter of Mr. Ramalinga Raju, the former Chairman of Satyam, confessing to massive fraud and other documents relating to the episode could be placed on record to be considered while deciding the application to set aside the award.

The procedural history of this case up to the controversial decision in Venture Global v. Satyam Computer Services Ltd, [(2008) 4 SCC 190] is fairly well known. In short, after failing to get the award in favour of Satyam set aside before courts in Michigan and Illinois courts and after the enforcement of the award was granted in the United States, Venture filed a sought setting aside of the award in India. Though the civil court and Andhra Pradesh High court ruled that a foreign award could not be set aside under Section 34 of the Arbitration and Conciliation Act, 1996, Supreme Court in Venture Global v. Satyam Computer Services Ltd, [(2008) 4 SCC 190] held that a foreign award could be set aside under Section 34 and remanded the application under Section 34 to be decided by the Civil Court.

While the matter was pending before the Civil Court, Mr. Ramalinga Raju confessed to acts of fraud in relation to the books of Satyam and subsequently Satyam was taken over by Tech Mahindra and renamed Mahindra Satyam. An application was moved by Venture seeking amendment of the application to place on record matters relating to the fraud. This application was allowed by the Civil Court. However, in the Civil Revision mentioned above, the Andhra Pradesh High Court struck down this decision and held (i) that the fraud had no nexus with the foreign award, (ii) a court while deciding on an application to set aside an award cannot consider material that was not available to the arbitral tribunal, (iii) despite Order VI of the CPC being applicable, no application under Section 34 for setting aside an award could be amended after the time period to file such an application has elapsed.

The third observation of the Court seems to suggest a blanket rule that “[a]n amendment can be permitted if it is sought within the unextendable stipulated time under Section 34(3) and an amendment sought after a period of 120 days would not be permissible”. The Court here imposes a limitation period for an application for amendment in a proceeding under Section 34, which coincides with the limitation period for the filing of the application. The court relies in this regard on the judgments of the Bombay High Court in Pushpa P Mulchandani v Admiral Radhakrishin Tahilani [2001 (2) Arb LR 284 (Bombay)], Vastu Invest & Holdings Private Limited v Gujarat Lease Financing Limited [2001 (2) Arb LR 315 (Bombay) (DB)] and Patel Engineering Company Limited v Konkan Railway Corporation Limited [MANU/MH/0383/2009].

Does this have any statutory backing? To me the answer appears to be no. This appears to be another case of judicial law making in the arena of arbitration law in India. It is true that the decision of the Court could be sustained on other grounds independent of this observation. However, given the far reaching implications that this proposition can have for litigators if accepted as a blanket rule, it is pertinent to examine the relevant statutory provisions.

To begin with, the Court accepted that the Code of Civil Procedure, including Order VI, Rule 17 which speaks of “Amendment of pleadings” applies to proceedings under Section 34 by virtue of Rule 12 of Andhra Pradesh Arbitration Rules, 2000. Even independent of the Rules, it has been held by the Supreme Court in ITI Ltd. v Siemens Public Communications Network Ltd. [(2002) 5 SCC 510] that when a special statutes vests powers in an ordinary court of law without prescribing a special procedure, ordinary procedural laws of the land apply. Applying this principle, CPC applies to proceedings before civil courts under Section 34 as no special procedure has been provided.

Section 34(3) of the Arbitration and Conciliation Act states:

“An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.”

Order VI, Rule 17 of the CPC says:

“The Court may at any stage of the proceedings allow either party o alter or amend his pleadings in such manner and on such terms as may be just, and all such amendments shall be made as may be necessary for the purpose of determining the real question in controversy between the parties. Provided that no application for amendment shall be allowed after the trial has commenced, unless the Court comes to the conclusion that in spite of due diligence, the party could not have raised the matter before the commencement of trial.”

It is clear from a plain reading of Section 34 that the limitation period imposed by this section is only on the institution of a proceeding under Section 34 and not for amending an application under Section 34 which has already been filed. Further, Order VI, Rule 17 of the CPC which has been held to be applicable by the same Court in the same decision, does not impose any limitation period beyond which a court would be incapable of accepting an application for amendment of pleadings in a case. Also, there exists no general rule that pleadings cannot be amended after the expiry of the limitation period to institute the proceedings in connection with which they are filed. Further, amendment of pleadings could be of highest necessity for parties after expiry of the limitation period as it will no more be open for them to terminate the proceedings and institute fresh ones. Under these circumstances, the construction suggested by the court is untenable unless something in the text of the Arbitration and Conciliation Act suggests such a construction. As already discussed, nothing in the text seems to suggest this. A more reasonable decision would have been to say that while courts have discretion under Order VI, Rule 17 to entertain applications at any stage, the wording of the proviso of that section in respect of amendments after the commencement of the trial should be strictly adhered to.

The only reason that the court has given in support of its decision is that the allowing amendments would defeat the intent behind Section 34(1) read with (3) of Arbitration Act. This “intent” appears to be one of speedy disposal of matters under Section 34. With an appeal against the decision of the High Court being taken to the Supreme Court with the prospect of another longwinded litigation before the Apex Court, speedy disposal seems a far cry in this case.