Arbitration Act is a self contained code; No LPA against non-appealable orders - Supreme Court

Section 50 of the Arbitration and Conciliation Act, 1996 states:

"(1) An appeal shall lie from the order refusing to -

(a) refer the parties to arbitration under section 45;

(b) enforce a foreign award under section 48,

to the court authorised by law to hear appeals from such order.

(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court."

In Fuerst Day Lawson Ltd. vs Jindal Exports Ltd., (decided on July 8, 2011), the Supreme Court was faced with the question of whether this provision precludes Letters Patent Appeals.

Before the Court could move on to answering this question, it had to deal with an application placed before it by the petitioners for the transfer of this case to a larger bench. The petitioners referred to  Orma Impex Pvt. Ltd. v. Nissai ASB PTE Ltd., (1999) 2 SCC 541, in which a two-judge bech of the Supreme Court had referred the same question to a three judge bench citing an apparent conflict in precedents. However, before the three judge bech could answer the question the matter was compromised. The Court held that Orma Impex was not a binding precedent as the matter was compromised before a decision could be reached. As to the conflict referred to in Orma Impex, the Court drew a distinction between the statutory schemes of Part I and Part II of the Act. While the opening language of Section 37 and Section 50 of the 1996 Act is similar to that of Section 39 of the 1940 Act, only Section 37 (and not Section 50) is similar in its statutory scheme and object and purpose to Section 39 of the 1940 Act. Hence, judgments rendered on whether Section 39 of the 1940 Act excluded Letters Patent Appeals was not relevant in interpreting Section 50.

Before going on to determine whether the current statutory framework excludes Letters Patent Appeals, the Court lays down several 'broad principles' gathered from precedents:

"1. Normally, once an appeal reaches the High Court it has to be determined according to the rules of practice and procedure of the High Court and in accordance with the provisions of the charter under which the High Court is constituted and which confers on it power in respect to the method and manner of exercising that power.


2. When a statute merely directs that an appeal shall lie to a court already established then that appeal must be regulated by the practice and procedure of that court.


3. The High Court derives its intra-court appeal jurisdiction under the charter by which it was established and its powers under the Letters Patent were recognized and saved by section 108 of the Government of India Act, 1915, section 223 of the Government of India Act, 1935 and finally, by Article 225 of the Constitution of India. The High Court, therefore, cannot be divested of its Letters Patent jurisdiction unless provided for expressly or by necessary intendment by some special statute.


4. If the pronouncement of the single judge qualifies as a "judgment", in the absence of any bar created by a statute either expressly or by necessary implication, it would be subject to appeal under the relevant clause of the Letters Patent of the High Court.


5. Since section 104(1) CPC specifically saves the letters patent appeal it could only be excluded by an express mention in section 104(2). In the absence of any express mention in section 104(2), the maintainability of a letters patent appeal is saved by virtue of section 104(1).


6. Limitation of a right of appeal in absence of any provision in a statute cannot be readily inferred. The appellate jurisdiction of a superior court cannot be taken as excluded simply because a subordinate court exercises its special jurisdiction.


7. The exception to the aforementioned rule is where the special Act sets out a self-contained code and in that event the applicability of the general law procedure would be impliedly excluded. The express provision need not refer to or use the word "letters patent" but if on a reading of the provision it is clear that all further appeals are barred then even a letters patent appeal would be barred."

Based on these 'broad principles' the Court goes on to hold that a Letters Patent Appeal would stand excluded under the present statutory scheme of Section 50.

For this proposition, the Court advances two independent reasons -

1. Under Section 6(2) the Foreign Awards (Recognition and Enforcement) Act, 1961, all appeals including LPAs were barred except where an enforcing court issued a decree which was in excess of the award which was being enforced. In the present statutory scheme, no decree in terms of the award is necessary for a foreign award to enforced. By doing away with this procedural requirement, the statute has also done away with the possibility that a decree in excess of the award can be issued and hence has removed the only limited ground on which a LPA could have been entertained under the 1961 Act. "It would be futile, therefore, to contend that though the present Act even removes the limited basis on which the appeal was earlier maintainable, yet a Letters Patent Appeal would lie notwithstanding the limitations imposed by section 50 of the Act. The scheme of sections 49 and 50 of the 1996 Act is devised specially to exclude even the limited ground on which an appeal was earlier provided for under section 6 of the 1961 Act."

2. The Arbitration and Conciliation Act is a self contained code. "It is, thus, to be seen that Arbitration Act 1940, from its inception and right through 2004 (in P.S. Sathappan) was held to be a self-contained code. Now, if Arbitration Act, 1940 was held to be a self-contained code, on matters pertaining to arbitration the Arbitration and Conciliation Act, 1996, which consolidates, amends and designs the law relating to arbitration to bring it, as much as possible, in harmony with the UNCITRAL Model must be held only to be more so. Once it is held that the Arbitration Act is a self- contained code and exhaustive, then it must also be held, using the lucid expression of Tulzapurkar, J., that it carries with it a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done. In other words, a Letters Patent Appeal would be excluded by application of one of the general principles that where the special Act sets out a self-contained code the applicability of the general law procedure would be impliedly excluded."

Recent decision of the Supreme Court on existence of an arbitration agreement

The Supreme Court, in a judgment last Monday, clarified the law regarding existence of an agreement to arbitrate under section 7 of the Arbitration and Conciliation Act, 1996.

In State of Orissa & Ors. v. Bhagyadhar Dash, contractors had applied under section 11, Arbitration and Conciliation Act, for appointment of arbitrators to decide disputes between them and the state government. Clause 10 of the 'Conditions of Contract', part of the series of agreements between the parties, was held to be an arbitration clause by the Chief Justice of the Orissa High Court and the same was challenged before the Supreme Court.

Grounds of Decision

The Supreme Court decided the case on two grounds: first, based on judicial precedent on the essentials of an arbitration agreement and second, by tracing the history of the Standard Conditions of Contract of the Orissa government.

The Clause in Question

Clause 10 of the contract, purported to contain an arbitration agreement, stated thus:

"The Engineer-in-Charge shall have power to make any alterations in or additions to the original specifications, drawings, designs and instructions that may appear to him necessary and advisable during the progress of work, and the contractor shall be bound to carry out the work in accordance with any instructions which may be given to him in writing signed by the Engineer-in-Charge and such alterations shall not invalidate the contract, and any additional work which the contractor may be directed to do in the manner above specified as part of the work shall be carried out by the contractor on the same conditions in all respects on which he agreed to do the main work, and at the same rates as are specified in the tender for the main work. The time for the completion of the work shall be extended in the proportion that the additional work bears to the original contract work and the certificate of the Engineer-in-Charge shall be conclusive as to such proportion. And if the additional work includes any class of work for which no rate is specified in this contract, then such class of work shall be carried out at the rates entered in the sanctioned schedule of rates of the locality during the period when the work is being carried on and if such last mentioned class of work is not entered in the schedule of rates of the district then the contractor shall within seven days of the date of the rate which it is his intention to charge for such class of work, and if the Engineer-in-Charge does not agree to this rate he shall be noticed in writing be at liberty to cancel his order to carry out such class of work and arrange to carry it out in such manner as he may consider advisable.

No deviations from the specifications stipulated in the contract nor additional items of work shall ordinarily be carried out by the contractor, nor shall any altered, additional or substituted work be carried out by him, unless the rates of the substituted, altered or additional items have been approved and fixed in writing by the Engineer-in-Charge, the contractor shall be bound to submit his claim for any additional work done during any month on or before the 15th days of the following month accompanied by a copy of the order in writing of the Engineer-in-Charge for the additional work and that the contractor shall not be entitled of any payment in respect of such additional work if he fails to submit his claim within the aforesaid period.

Provided always that if the contractor shall commence work or incur any expenditure in respect thereof before the rates shall have been determined as lastly hereinbefore mentioned, in such case he shall only be entitled to be paid in respect of the work carried out or expenditure incurred by him prior to the date of the determination of the rates as aforesaid according to such rate or rates as shall be fixed by the Engineer-in-Charge. In the event of a dispute, the decision of the Superintending Engineer of the Circle will be final."

Attributes of an agreement to arbitrate

Relying on K. K. Modi v. K. N. Modi, Bihar State Mineral Development Corporation v. Encon Builders, Jagdish Chander v. Ram Chandra, State of U. P. v. Tipper Chand, State of Orissa v. Damodar Das and Bharat Bhushan Bansal v. U. P. Small Industries Corporation Ltd., the Court gleaned the following attributes of an arbitration agreement:

written consent to submit future disputes to arbitration, contemplation of a binding decision of an impartial Tribunal which will decide in a judicial manner, contemplation that substantive rights of parties will be determined by the agreed tribunal, enforceability of the decision of the Tribunal in a court of law, and intention 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.

Further, there is no specific form of an arbitration agreement, even absence of words like 'arbitrator' or 'arbitral tribunal' does not retract from the clause being an arbitration agreement if all requisite elements are present. Conversely, mere use of these words do not render it an arbitration agreement.

Where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the Authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the Authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement.

If the purpose of the clause is only to vest in the named Authority, the power of supervision of the execution of the work and administrative control over it from time to time, it is not an arbitration agreement.

The Apex Court has laid emphasis on the distinction between adjudication of disputes and prevention of disputes, the latter not amounting to arbitration.

The clause under consideration in this case related to power of the Engineer-in-Chief to make additions and alterations in the drawings and specifications and execution of non-tendered additional items of work (that is items of work which are not found in the bill of quantities or schedule of work). The last sentence of the proviso to clause 10 was purported to be an arbitration agreement. It stated: "in the event of a dispute, the decision of the Superintending Engineer of the Circle will be final".

This, according to the Court, did not refer to arbitration as the mode of dispute resolution and it did not provide for reference of disputes between the parties to arbitration. There was no displayed intention to make the Superintending Engineer an arbitrator in respect of disputes that may arise between the Engineer-in-Charge and the contractor. It operated in a limited sphere.

It intended to avoid future disputes regarding rates for non-tendered items, not to refer future disputes for settlement. The decision of the Superintending Engineer was not a judicial determination, but a decision open to challenge in a court of law.

Thus relying on precedent alone, the Court held that clause 10 was not an agreement to arbitrate.

Amending History of Standard Conditions of Contract

Second, the Court analysed the history of the Standard Conditions of Contract of the Orissa government. Prior to 1981 there was a clause 23 in the Standard Contract which provided for binding arbitration. Since this was consciously deleted, according to the Court, therefore the intention was not to have any arbitration clause.

Furthermore, the Court relied on Executive Engineer RCO v. Suresh Chandra Panda, which held that even when the Standard Conditions of Contract contained a provision for arbitration (clause 23), clause 10 was considered to be a provision dealing with a matter excepted from arbitration. Thus, in the absence of the arbitration clause, clause 10 cannot be considered an agreement to arbitrate.

Thus, from prior history of the Standard Conditions of Contract, it became evident that the clause in question was not an agreement to arbitrate.

This judgment provides a useful recapitulation of the legal position regarding the existence of an arbitration agreement.

The Peculiar Case of Pakistan

This April, Pakistan enacted the Investment Disputes Act to make awards under the ICSID Convention enforceable in Pakistan. This was following a ruling in SGS v. Pakistan before an ICSID Tribunal. The Bill was passed following an ordinance issued almost four years ago which has been renewed under successive regimes, before finding fruition in April. This puts Pakistan in a unique and unenviable position as it does not have a law to bring the New York Convention or the UNCITRAL Model Law into effect, but will now recognise ICSID awards.

Background

Arbitration in Pakistan is still largely governed by the 1940 Act which was enacted by the British for the undivided Indian colony. Though Pakistan has signed the NYC, the enforceability of foreign arbitral awards is unclear as the NYC has not been implemented. The first attempt to implement the NYC was made in 2005, when the new Arbitration Act was passed as an Ordinance (along with an Ordinance to implement the ICSID Convention in 2006, which is now the Investment Disputes Act) almost 50 years after they signed on the NYC.

Ordinances in Pakistan have a limited life under Article 89 of the Constitution and must be tabled before the Houses of Parliament within 4 months of issue. Owing to the declaration of Emergency, they never saw the light of day and in Sindh High Court Bar Association v. The Federation of Pakistan, they were repealed as they were not passed within the requisite period.

Enactment and Controversy

But, in April 2010 President Zardari controversially re-promulgated the repealed Ordinances along with 11 others while the National Assembly was still in session, in alleged violation of Article 89. On the expiry of successive 4 month periods, the Ordinances were granted further 4 month extensions until April this year when the Investment Disputes Act was finally passed.

However, there is no word on when the new Arbitration Act will be enacted, but it is expected to follow the Investment Disputes Act. Thus, Pakistan finds itself in a position where it has given full effect to the ICSID Convention while not bringing the NYC or the UNCITRAL Model Law into effect. In doing so, Pakistan is not only one of the few countries to have not implemented the NYC, but is probably the only country to have implemented the ICSID Convention, while not implementing the NYC.

Lessons for India?

Unlike Pakistan, India is not a party to the ICSID Convention. However, India still lacks a framework for the implementation of Investment Treaty Awards. The issues surrounding ITAs have been dealt with in some detail in this paper, co-authored by Deepak.

The enactment of the Investment Disputes Act in Pakistan is part of the larger trend of settling investment disputes through arbitration. It also underscores the need for a legislation or an adequate mechanism to deal with Investment Disputes in India.

On the Applicability of Part I- A Guest Post

Anupama Kumar, a 4th year at NLS and member of the NLS Vis team that made it to the Round of 16 at this year's competition examines the question of implied exclusion of Part I of the Arbitration and Conciliation Act, 1996.

S. 2(2) of the Act provides that “this Part shall apply where the place of arbitration is in India.” In Bhatia International, this was read to mean that the application of Part I to international commercial arbitration had not been excluded. Nevertheless, parties to an international commercial arbitration would be free to derogate from even the non-derogable provisions of Part I, provided that such exclusion was express or implied in the agreement.

The question that follows here is, what exactly is an implied exclusion? According to Indtel Technical Services v. W.S. Atkins, merely designating a foreign law would not amount to an implied exclusion of Part I, notwithstanding the presumption that the proper law of arbitration follows the proper law of contract in NTPC v. Singer. A similar view was taken in Citation Infowares v. Equinox Corporation. Read together, it would appear that the only way by which parties could exclude the application of Part I would be to expressly specify the proper law of arbitration in the agreement.

Indeed, this appears to be the view of the Supreme Court in Dozco India v. Doosan Infracore, where it observed the specification of a seat of arbitration in the arbitration agreement would amount to an express exclusion of Part I. While Mr. V. Niranjan has noted – and I agree with this – that the treatment of this as an express exclusion may not be correct, it is nevertheless a positive step in clarifying the law on Part I.

Furthermore, the Court distinguished Citation and Indtel on the grounds that the seat of arbitration was not specified here, but appears to make a distinction between the seat of arbitration and the law governing the arbitration agreement itself. The Court analysed the interpretation of the seat of arbitration in some depth, referring to the discussion of this by Redfern and Hunter in considerable detail. Yet, the judgment appears to turn on the latter – that the law governing the arbitration agreement was stipulated in the arbitration agreement. Does specifying the seat of arbitration therefore amount to an implied exclusion of Part I? It is submitted that Dozco leaves this question unanswered.

It next remains to be asked whether the decision in Videocon served to shed some light on the matter. The question before the Supreme Court in Videocon related to the applicability of s. 9 of the Arbitration and Conciliation Act. The relevant provisions of the arbitration agreement read as follows:

33.1 Indian Law to Govern

Subject to the provisions of Article 34.12, this Contract shall be governed and interpreted in accordance with the laws of India.

33.2 Laws of India Not to be Contravened

Subject to Article 17.1 nothing in this Contract shall entitle the Contractor to exercise the rights, privileges and powers conferred upon it by this Contract in a manner which will contravene the laws of India

34.12. Venue and Law of Arbitration Agreement

The venue of sole expert, conciliation or arbitration proceedings pursuant to this Article, unless the Parties otherwise agree, shall be Kuala Lumpur, Malaysia, and shall be conducted in the English language. Insofar as practicable, the Parties shall continue to implement the terms of this Contract notwithstanding the initiation of arbitral proceedings and any pending claim or dispute. Notwithstanding the provisions of Article 33.1, the arbitration agreement contained in this Article 34 shall be governed by the laws of England. (Emphasis mine)

Would this amount to an implied exclusion of Part I of the Act?

The Supreme Court answered this in the affirmative, approving the view of the Gujarat High Court in Hardy Oil and Gas Limited v. Hindustan Oil Exploration Company Ltd., (2006) 1 GLR 658 that

...in cases of international commercial arbitrations held out of India provisions of Part-I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case laws or rules chosen by the parties would prevail. Any provision, in Part-I, which is contrary to or excluded by that law or rules would not apply. Thus ... if the parties have agreed to be governed by any law other than Indian law in cases of international commercial arbitration, same would prevail. In the case on hand, it is very clear... that the parties' intention was to be governed by English law in respect of arbitration. ... It can be interpreted only to mean that in case of any dispute regarding arbitration, English law would apply. When the clause deals with the place and language of arbitration with a specific provision that the law governing arbitration will be the English law, such a narrow meaning cannot be given. (Emphasis mine)

It is my submission, that Hardy Oil does not apply in the circumstances. The curial law in Hardy Oil was English law.

But in Videocon, English law was the law governing the arbitration agreement, and not the arbitration itself, as pointed out here. The implication of this is that, where a foreign law governing the arbitration agreement is provided for, Part I of the Act is excluded. It is submitted, with respect, that this conclusion would be incorrect – the law governing the arbitration agreement is distinct from the curial law.

Where does that leave us? One may argue that, as per Dozco, the curial law is presumed to be that of the seat of arbitration chosen by the parties, and that in facts such as those in Videocon, the specification of a seat of arbitration would in turn amount to an implied exclusion of Part I. However, this would not be a correct reading of Dozco, nor indeed, is it the implication of Videocon. One may also argue that the law in Videocon is clear enough – that the parties must specify a foreign law of arbitration for Part I to be excluded, and the judgment simply overlooked the wording of the arbitration clause. This conclusion isn’t a particularly comfortable one, however, it leads to a far less absurd result.

So when is Part I excluded, and what amounts to implied exclusion? The answer remains as hazy as ever. It is submitted that a close reading of Videocon leads us to the same result, and that the decision itself is the result of incorrect reading of facts. We are therefore left where we started- if Part I of the Act is to be excluded, a foreign law of arbitration mus be specified n the arbitration agreement.

If you had a real life arbitration experience, fill the survey and help the arbitration community.

The Chartered Institute of Arbitrators (CIArb) has launched a major survey into the costs of international arbitration. The ‘Costs of Arbitration’ survey will gather data to inform parties, legal representatives and arbitrators about the overall costs of international commercial arbitration and how these are incurred at each stage.

The results will be analysed and presented at an international conference organised by CIArb and sponsored by Alvarez & Marsal on 27 - 28 September 2011 in London, aimed at uncovering ways in which costs might be reduced and the process streamlined to become more cost-effective and efficient. International arbitration has a justifiable reputation as the preferred method of dispute resolution for international commercial disputes. The worldwide economic downturn has accelerated a rising trend in favour of the use of international arbitration, where the enforceability of awards under the New York Convention gives it a major advantage over litigation in national courts. Globally, governments have invested in bringing their arbitration laws up-to-date and building modern arbitration centres to capitalize on this growing market.

However, as the size and complexity of disputes referred to international arbitration has increased, so too have concerns about the growing complexity, cost and time involved in the process, diminishing some of the very factors that make it preferable to the courts for commercial dispute resolution.

CIArb’s Costs of Arbitration survey will play a key role in understanding the present position and, together with the international conference on the Costs of International Arbitration, finding ways of tackling the problem and reducing the costs of arbitration.

Doug Jones SC FCIArb, Vice President of CIArb, a leading Chartered Arbitrator and a member of the organising committee for the conference said: “We invite all legal representatives, in-house counsel and arbitral tribunal members to contribute to this major survey into costs in international arbitration. The survey report and conference will provide an invaluable contribution to the debate on costs, helping to generate proposals to restore speed and cost-effectiveness to the arbitration process. This is essential if international arbitration is to maintain its position as the commercial dispute resolution method of choice.

“To make the survey effective, we need corporate counsel, party representatives, arbitrators and tribunal members to give us as much data as possible on arbitrations in which they have been involved.”

All participants in the survey will receive a report of the survey findings and a discount on the cost of attending the conference.

The launch of CIArb’s survey reflects the sustained growth of international arbitration worldwide and its importance to global corporations. Last month Queen Mary University of London released the findings of its 2010 survey exploring the factors that influence corporate choices about arbitration. CIArb’s survey will focus specifically on the crucial aspect of costs, a factor not specifically examined in the Queen Mary survey but one which is becoming ever more critical to all businesses, especially in the present economic climate.

The conference will assemble an array of distinguished speakers to discuss the impact of costs in different jurisdictions and sectors. It will include contributions from all those involved in the process, from in-house counsel in the commercial, construction, maritime and oil and gas sectors to lawyers, arbitrators and expert witnesses.

It will be an essential date in the diary for all practitioners, corporate counsel, chief executives, commercial and finance directors, international trade lawyers, investment advisers, policymakers and contract drafters.

To complete the Costs in Arbitration Survey (party representatives or arbitral tribunal members) please visit www.shape-the-future.com/costsurvey

To find out more information about CIArb’s Costs of International Arbitration conference or to register your interest, please visit CIArb’s conference site: www.ciarb.org/conferences/costs

The Vis Experience

An arbitrator who judged the memos and the oral rounds at this year's Vis moot shares his experinces here.

I would recommend it to anyone planning on doing the moot this year,as it gives you a complete picture of the goings on in Vienna during the period of the moot. Also recommended for those who wish to relive what many describe as the best week of their student life.

Hannover invites applications for the position of Vis coach

Leibniz Universität Hannover, Germany has invited applications for the post of Coach to the university teams for Willem C. Vis International Commercial Arbitration Moot, Vienna and Willem C. Vis (East) International Commercial Arbitration Moot, Hong Kong. The position is to be held for three years. The communication circulated by email is reproduced below:

Job Posting for the position of the Coach for the Hanover Vis Moot Team

The Institute for Procedural Law and Attorney Regulation is seeking for a Research and Teaching Associate (wissenschaftlicher Mitarbeiter; 50 % E-13). The position will be available from 1 September 2011 and will be limitedfor a time period of three years. The position is allocated at the Chair for Civil Law, International, European and German Civil Procedure (Professor Dr. Christian Wolf). The job holder will have the opportunity to do his/her Ph.D.-thesis (Doktorarbeit). The thesis can be written in Englishor German.

Job description

The Research Assistant will be in charge of the universities Willem C. Vis program including the participation in Hong Kong and Vienna. In addition to that s/he has to teach a one hour course per term in English language (in the field ofInternational Sales or Trade Law). Furthermore the job holder has to assist faculty members with their English publications.

Anti arbitration injunctions - A guest post by Puneeth Nagraj

The following is a guest post by Mr. Puneeth Nagraj of NALSAR University of Law, Hyderabad. Mr. Nagraj was a member of the NALSAR team that reached the round of 16 in the Willem C. Vis International Commercial Arbitration Moot this year.

The New York Convention (NYC) and the UNCITRAL Model Law (UML) have certainly come a long way in creating a framework within which international arbitrations can proceed with minimal interference from courts. However, certain jurisdictional issues sometimes act as roadblocks for the smooth resolution of such disputes. One such issue is that of anti-arbitration injunctions. The main purpose of anti-arbitration injunctions is to prevent parallel proceedings which are against the will of the parties. By issuing such injunctions, courts 'preserve' their jurisdiction over the dispute.

LCIA without LC?!

According to the latest reports coming, LCIA India has been issued a notice by the High Court of Delhi, thanks to the petition filed by Mr.Chandrashekhar Pal on behalf of Association of Indian Lawyers (AIL). The petition seeks to remove the word “London Court” from “London Court of International Arbitration”.

Senior Counsel Ranjan Mukherjee is appearing on behalf of AIL .It has been alleged that:
• LCIA-India has tried to create an impression that it is part of English Legal machinery.
• LCIA-India is trying to create a parallel system of administration of law which is against the existing judicial system in India
• LCIA-India has formed its own justice delivery system which goes against the Indian Constitution.
• LCIA-India is introducing foreign lawyers deceitfully through arbitrations.
• The majority of arbitrators on the LCIA -India Panel are from UK.
• LCIA is acting biased and is rendering awards that are against Indian Parties.

However, it is interesting and pertinent to note that in the case of Venture Global Engineering v Satyam Computer Services, LCIA was the arbitral institute involved and the award was passed in favour of the Indian party. Later, it was the Supreme Court of India which obliged to the objections of the foreign party, thus making the case infamous.

The petition is rather amusing as LCIA in London also is in no way associated to the Municipal Court System. It is just an arbitral institution (rather a famous one around the world) having its “name” as “LCIA” due to the history attached to it. It is believed that no reasonable person in the arbitration field would confuse LCIA to be part of the English Municipal Law. Also, as the petition specifies, even if litigants are mislead in the first instance, the rules of LCIA will make things clear.

It is sad to see such developments on the Indian Arbitration canvas. On one hand the Law Minister wants to develop India into an International Arbitration Hub and on other hand the Indian Arbitration scene is witnessing such petitions. It is a warning sign amidst all fanfare as it can set the Indian Arbitration on a retrograde motion. Such uncalled petitions will only deter reputed arbitral institutions to enter into India as it would only add to their “Operational Costs of operating in India”! There is also news that the Singapore International Arbitration Centre (SIAC) is planning to establish a centre in India. Will it face a similar opposition if it comes, to remove the “S” from SIAC? Will it at all consider stepping on Indian soil if this thing with LCIA gets worse?

Notices have been also issued to Central Government, BCI and Bar Council of State of Delhi. Replies have to be submitted by July 25.

We shall keep the readers informed of any new developments that happen in this regard.

Enforceability of Investment Treaty Arbitration Awards in India

The latest issue of the Asian Journal of Comparative Law (Vol. 6, Issue 1, 2011) contains an article critically reviewing the enforceability of investment treaty arbitration awards in India. The paper is titled "The Enigma of Enforceability of Investment Treaty Arbitration Awards in India" and is co-authored by Mr. Prabhash Ranjan, Assistant Professor at National University of Juridical Sciences, Kolkata (currently on leave to read for PhD at King's College, London) and Mr. Deepak Raju, my co-blogger on lexarbitri.

This paper first discusses relevant provisions of arbitration law in India and its interpretations by the Indian judiciary to understand the ramifications of Indian law for the enforcement of investment treaty arbitration awards against India. Further, the paper discusses proposed amendments to Indian arbitration law and its effect on investment treaty arbitration.

This issue of enforcement of investment treaty arbitration awards is of importance today due to India's large international investment treaty programme wherein each treaty provides for investor-state treaty arbitration to settle disputes between India and individual investors. There is also a growing observation that enforcement of foreign commercial awards has become increasingly difficult in India especially after the case of Venture Global v. Satyam Computers. For this reason, too, India is seeking to modify its arbitration law, so as to alter this perception. The above paper puts forth the proposition that in spite of proposed amendments, enforcement of investment treaty arbitration awards may nevertheless face several hurdles.

In conclusion, the paper suggests that India must address the issue of enforceability of investment treaty arbitration awards give its large investment treaty arbitration programme aimed at attracting foreign investment.

SC rules that mortgage suits are non-arbitrable

In a landmark judgment last month, Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. & Ors. (judgment dt. April 15, 2011) a two-judge bench of the Supreme Court ruled in an appeal by special leave that a suit for enforcement of a mortgage by sale is non-arbitrable.

The scope of section 8 of the Arbitration and Conciliation Act, 1996 was under consideration in this SLP.

Facts:

Capstone Investment and Real Value Investment, both Respondents in this case and owners of flats, had borrowed loans from SBI Home Finance, another Respondent, under two loan agreements by securing the two flats in favour of SBI. The Appellant was permitted to use the above two flats under leave and license agreements signed by Appellant, the respective flat owners as well as SBI as confirming parties.

A tripartite deposit agreement was also entered into by Capstone and Real Value as one party, Appellant as second party and SBI as third party. As per this agreement, Appellant was to pay the flat owners a certain sum of money as refundable security deposit according to the terms and conditions of the leave and license agreement and deposit agreement, and the three agreements formed a single integral transaction. A part of the security deposit was paid directly to SBI towards payment of loan taken by Capstone and Real Value. As a result, the loan due by Capstone was cleared but the loan due by Real Value was outstanding. Capstone however became guarantor for repayment of the amount due by Real Value and its flat was used as security.

Clause 16 of the deposit agreement provided for arbitration.

In about July 1997, Real Value applied to the Board of Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies Act, pursuant to which the official liquidator took over the flat owned by Real Value.

As the loan amount due by Real Value had not been paid, SBI filed a mortgage suit about two years later before the Bombay High Court against Capstone, Real Value and the Appellant, in regard to the mortgaged property, which was the flat owned by Capstone. SBI sought a declaration that Capstone as mortgagor owed a certain amount of money to SBI and if the same is not paid by the date fixed by the Court for redemption, SBI had the right to redeem the amount due from proceeds of sale of the suit property. It also sought a declaration that Appellant would vacate the property at the earliest.

High Court

Among other arguments by various parties, Appellant prayed that the parties to the suit be referred to arbitration, as per clause 16 of the deposit agreement. SBI resisted this application.

The High Court (single judge) rejected the application on three grounds:

(a) Clause 16 of the deposit agreement did not cover the dispute, subject matter of the claim by SBI against its borrowers (Capstone and Real Value) and thus it was not open to Appellant to request the court to refer the parties to arbitration;

(b) The counter-affidavit filed by Appellant, in regard to the notice of motion for temporary injunction, amounted to submission of the first statement on the substance of the dispute, before filing the application under section 8 of the Act and therefore Appellant lost the right to seek reference to arbitration; and

(c) The suit was filed on 28.10.1999. Appellant filed the counter affidavit opposing the application for temporary injunction on 15.12.1999. The application under section 8 of the Act was filed in October 2001 nearly 20 months thereafter, during which period Appellant had subjected itself to the jurisdiction of the High Court. In view of the inordinate delay, Appellant was not entitled to the relief under section 8 of the Act.

Supreme Court

Appellant preferred appeal by special leave from this decision. Appellant contended that parties to the suit were all parties to the deposit agreement containing the arbitration agreement. SBI's claim was for enforcement of the charge over Capstone's flat and realisation of sale proceeds from it, which was specifically mentioned as an arbitrable dispute. Under section 8 of the Arbitration and Conciliation Act, the Court should have thus referred the dispute to arbitration.

The Court was required to decide on four questions:

(i) Whether the subject matter of the suit fell within the scope of the arbitration agreement contained in clause 16 of the deposit agreement;

(ii) Whether the appellant had submitted his first statement on the substance of the dispute before filing the application under section 8 of the Act;

(iii) Whether the application under section 8 was liable to be rejected as it was filed nearly 20 months after entering appearance in the suit;

(iv) Whether the subject matter of the suit is 'arbitrable', that is capable of being adjudicated by a private forum (arbitral tribunal); and whether the High Court ought to have referred the parties to the suit to arbitration under section 8 of the Act.

On the first question, the Court held that the subject matter of the suit fell within the scope of the arbitration agreement.

With regard to the second question, the Supreme Court was of the opinion that filing a detailed objection to an application for interim relief cannot be considered to be submission of a statement on the substance of the dispute resulting in submitting oneself to the jurisdiction of the court. Moreover, in this case, the counter-affidavit contained a disclaimer that the reply was being filed for the limited purpose of opposing the interim relief.

Regarding question number three, facts in this case demonstrated that the plaintiff in the suit had filed an application for temporary injunction and appointment of Receiver that was pending. Thereafter, talks were in progress for arriving at a settlement out of court. On failure of such talks, Appellant filed an application under section 8 of the Act before filing the written statement or filing any other statement which could be considered to be a submission of a statement on the substance of the dispute. The High Court was therefore not justified in rejecting the application on the ground of delay.

Arbitrability

On the final issue, the Court first stated that the nature and scope of issues arising in a section 11 application for appointment of arbitrators is far narrower than of those arising in a section 8 application. In a section 11 application, the issue of 'arbitrability' is left for decision by the tribunal, whereas the Court must decide the same in a section 8 application.

'Arbitrability' covers three contexts - whether the disputes, having regard to their nature, are capable of being resolved by a private forum, or fall exclusively within the domain of public fora; whether the disputes, by agreement of parties, are covered by the arbitration agreement; and whether the disputes fall within the scope of submission to the arbitral tribunal, that is, whether parties have referred the dispute to arbitration.

Elaborating on the first category of 'arbitrability' the Court first went on to state that certain categories of proceedings were reserved for public fora for public policy reasons either expressly or by necessary implication.

Examples given by the Court of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

All of the above examples are of rights in rem, exercisable against the world at large, as opposed to rights in personam, interests protected against specific individuals. A judgment in rem refers to a judgment that determines the status of property which operates directly on the property itself. Disputes relating to rights in rem are thus generally considered to be unsuitable for private arbitration, although this is not a rigid rule.

The only indication regarding arbitrability in the Arbitration and Conciliation Act, 1996 are sections 34(2)(b) and 48(2) of the Act which provide that an arbitral award would be set aside if the court found that the subject matter is incapable of settlement by arbitration (in other words, inarbitrable).

The Court also relied on Mustill and Boyd on Law and Practice of Commercial Arbitration in England where they have stated by way of example that an arbitrator cannot render and award which might bind third parties.

In Haryana Telecom Ltd. v. Sterlite Industries India Ltd., (1999) 5 SCC 688, the Apex Court held that notwithstanding agreement of parties, an arbitral tribunal has no authority to order winding up of a company.

In Olympus Superstructures v. Meena Vijay Khetan, (1999) 5 SCC 651, it was held that an arbitrator had the power and jurisdiction to grant specific performance of contracts relating to immovable property.

In Chiranjilal S. Goenka v. Jasjit Singh and Ors., (1993) 2 SCC 507, a grant of probate, being a judgment in rem, was held to be inarbitrable, even if the parties had agreed otherwise.

An agreement to mortgage does not involve transfer of a right in rem but create only a personal obligation. Therefore if specific performance is sought in regard to an agreement to mortgage, the claim for specific performance will be arbitrable. On the other hand, a mortgage is a transfer of a right in rem. A mortgage suit for sale of the mortgaged property is an action in rem, for enforcement of a right in rem. A suit on mortgage is not a mere money suit. Being enforcement of a right in rem, it will have to be decided by courts of law and not by arbitral tribunals.

The Court was also of the opinion that Order 34 of the Civil Procedure Code (CPC), read with provisions of the Transfer of Property Act relating to mortgages, made it abundantly clear that mortgage suits were intended to be decided by public fora. Order 34 Rule 1, for example, provides that all persons having interest in the mortgage security or in right of redemption are required to be joined as parties, whether or not they were parties to the mortgage. This is not possible in case of an arbitration. The court can direct that an account be taken of what is due to the mortgagee and declare the amounts due and direct that the mortgagor pays into court, the amount so found due, on or before such date as the court may fix. Where in a suit for sale subsequent mortgagees or persons deriving title from, or subrogated to the rights of any such mortgagees are joined as parties, the court while making the preliminary decree for sale could provide for adjudication of respective rights and liabilities of parties to the suit in a manner and form set out in an appendix to the CPC. The court has the power under Rule 4(2), on good cause being shown and upon terms to be fixed by it, from time to time, at any time before a final decree is passed, extend the time fixed for payment of the amount found or declared due or the amount adjudged due in respect of subsequent costs, changes, expenses and interest, upon such terms as it deems fit.

Most importantly, a decree for sale of a mortgaged property as in the case of a decree for order of winding up, requires the court to protect the interests of persons other than the parties to the suit and empowers the court to entertain and adjudicate upon rights and liabilities of third parties. None of the above, according to the Court, are possible in an arbitration. Therefore, a suit for sale, foreclosure or redemption of mortgaged property cannot be submitted to arbitration.

Finally, although the issues referred to arbitration by Appellant could separately be submitted to arbitration, the issues in a mortgage suit cannot be divided. As held in Sukanya Holdings v. Jayesh Pandya, (2003) 5 SCC 531, and relied upon by the Court, section 8 of the Arbitration and Conciliation Act does not provide for bifurcation of a suit and partly referring a dispute to arbitration.

In light of all these, the Court held that a suit for enforcement of a mortgage by sale was not capable of being settled by arbitration or 'arbitrable'.

Israel-Palestine Arbitration Centre

May 1, 2011 was a historic day in Israel-Palestine business relations. On this day, business leaders from the Israel and Palestine Chapters of the International Chamber of Commerce (ICC) met in the Sheikh Jarra region of Jerusalem, pledging to create the Jerusalem Arbitration Centre (JAC). This will be the country's first arbitration centre, which will function under the aegis of the International Court of Arbitration of the ICC.

The Memorandum of Understanding signed between these two chambers and the ICC sets forth a number of conditions to be met by the Israeli and Palestinian Chambers, such as adequate neutral funding. On fulfilment of these conditions, the International Court of Arbitration and the ICC will provide training and advice to support the development and operations of the JAC.

Drafting of arbitration rules, selection of arbitrators and fulfilment of other such essential requirements will ensure that the Centre is not operational until 2012.

This MOU, however, is a welcome step in ensuring at least peaceful economic relations between Israel and Palestine. At present, Israeli courts are perceived by Palestinians to be biased. Thus this is a neutral method of resolving one kind of disputes (economic) between Israeli and Palestinian entities.

More details on this, as and when official, will be posted here.

Arbitration clause does not bar jurisdiction of Writ Courts - Supreme Court reiterates its position

The Supreme Court of India, in Union of India v Tantia Construction Pvt. Ltd., held that the existence of an arbitration clause does not ipso facto bar the writ jurisdiction of the High Courts and the Supreme Court under Articles 226 and 32 of the Constitution respectively.

The case concerned a contract for the construction of a rail over-bridge. The respondent approached the High Court requesting the issuance of a writ to quash a decision of the Deputy Chief Engineer (Construction) of the Indian Railways. The impugned decision of the Deputy Chief Engineer, according to the company, had the effect of requiring the company to execute works of larger quantity than originally agreed upon. The writ was issued and the same was appealed against before the Supreme Court.

INVESTMENT ARBITRATION LIVE VIDEO STREAMING

A hearing of Pac Rim Cayman LLC v. Republic of El Salvador (ICSID Case No. ARB/09/12) will be transmitted live via internet feed from 9:00 a.m. on Monday, May 2, 2011 through 5:00 p.m. on Wednesday May 4, 2011. The case concerns a mining enterprise in the Republic of El Salvador. The live streaming is being made available pursuant to Article 10.21.2 of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA).

More information can be found here.