News and Opinions

Today's The Hindu contains an editorial by senior advocate Mr. KK Venugopal on the need for restricting the functions of the Supreme Court of India as a mere constitutional court.

Economic Times reports that the judgement in RIL-RNRL gas dispute might be delivered by the Supreme Court sometime next week. We energy law guys are eagerly awaiting the decision as it would have a great impact on the exploration and production industry.

Another important news for the downstream petroleum industry and the crores of Indians is that an Empowered Group of Ministers would be deciding within a fortnight on whether to free prices of petrol and diesel from government control. 

Two Chief Justices of India Give Contradictory Evidence as to Indian Law

Shashoua v. Sharma is an interesting decision. Its a must read for those who want to know the (ill?-)effects of Venture v. Satyam (where the Supreme Court decided that it could set aside an arbitral award passed in international commercial arbitration held outside India). Apart from this very obvious aspect of the case, there is another notable aspect to the case. The English court hearing the case had to find out what the law in India was on a particular issue. As is well known, a question regarding foreign law is a question of fact, and not of law, and courts employ expert evidence to find out what the foreign law is. In Shashoua v. Sharma, two retired Chief Justices of India had given conflicting evidence on what the Indian law was on that particular issue!!!!

Recent Developments in Arbitratration

Two developments in arbitration worth noting:

1) In a recent judgement, the Supreme Court has effectively negated extension of arbitration to a non-signatory affiliate which had not consented to the arbitration agreement. In this judgement, it was contended that corporate veil had to be lifted and the arbitration agreement must be extended to that non-signatory affiliate. The court rejected this contention.

2) Law and Legal Developments Blog contains a post which provides the link to an article in the www.barandbench.com on a recent case on amendment of pleadings in petitions for setting aside arbitral awards. In the said case, it was held that no amendment of petition is allowed for adding additional grounds for setting aside arbitral awards beyond three months from the date of receipt of arbitral award. The point which the judgement makes is that the time within which a party can amend its petition to set aside award cannot be more than the time within which a party would be entitled to challenge the award.

A comment off-the-cuff on the second case: Supposing I challenge an award under, say, S. 34(2)(a)(iii) [lack of proper notice of appointment of arbitrator or of arbitral proceedings etc. The ninety day period has expired and one fine day I come across new evidence of an arbitrator accepting bribe from the other party. Would I be allowed to challenge the arbitral award on this new ground? Would not the public policy of India [see, Explanation to S. 34(2)(b)(ii)] be violated if the court disallows me from challenging the arbitral award on this new ground?

SEBI Asks Stock Exchanges to Publish Regulatory Orders and Arbitral Awards

SEBI has, vide Circular SEBI/MRD/DSA-OIAE/CIR.-09/2010, dated 1 April 2010 asked all stock exchanges to publish regulatory orders and arbitral awards by Stock Exchanges in their websites.See here for arbitral awards under the Bye-laws of NSE.

Arbitration News

NLSIU and NUJS are reportedly in talks with arbitral institutions to set up courses for training students and others in arbitration. These institutions must be congratulated for taking steps towards creation of arbitral infrastructure (especially in terms of supply of competent and most importantly, honest, commercial arbitrators). However, it would do well if even the judges (who also form a part of the arbitral infrastructure) are trained in the principles of commercial arbitration. If we had adequate and competent arbital infrastructure, the Arbitration and Conciliation Act, 1996 might have worked.

P.S. I use the term 'arbitral infrastructure' to mean the participants, concepts, laws, rules, regulations, institutional rules etc that form a part of, or is involved, in the mechanism of arbitration as a means of settlement of commercial disputes. This would also include, inter alia, the judiciary (which performs supervisory and complementary functions vis-a-vis arbitration) arbitrators, arbitral institutions and their rules, the arbitration law and so on. (See, Gillian Hadfield, Law for a Flat World: Legal Infrastructure and the New Economy, where Hadfield introduces the concept of 'legal infrastructure'. Hadfield seems to restrict the meaning of the term to what the legal actors produce.)

News Reflections

News reports suggest that the CJI has nominated Justice SH Kapadia to be the next CJI. In a recent lecture titled "Developing Framework of Modern Litigation", Justice Kapadia is reported to have argued:

"Yesterday, I have reliably learnt that arbitration work and construction of contract is going back from India to abroad. We are likely to lose our investment if we are not aware of these concepts..."

Further, he seems to have said that his priority would be business and commercial laws. 

This is good news. We'll be, as usual, closely watching developments in contract and arbitration laws. Let us hope for the best.

Also, see this article in Business Standard which says that poor drafting of arbitration law has led to much confusion. On this aspect, and on the consultation paper, we'll be doing a lengthy post (or several small ones analysing the changes suggested. 

Amaravati District Central Co-operative Bank Ltd. v. United India Fire and General Insurance

Decided by: RV Raveendran and KS Radhakrishnan. JJ

On: 15th April 2010

Amaravati entered into a contract with United India in 1976 for insuring against losses due to acts or omissions of Amaravati's employees.Disputes arose between Amaravati and United India regarding the quantum of reimbursable loss to be paid by United India to Amaravati.Amaravati appointed the sole arbitrator for resolution of the dispute. However, United India did not participate in the arbitration proceedings even after due notice of the arbitration. Hence, the arbitrator granted an ex parte award in favour of Amaravati in August 1983.

In January 1984, United India challenged the arbitrator's award under S 30 of the Arbitration Act, 1940. In June 1990, the civil court dismissed the petition for setting aside. On appeal, the High Court of Bombay allowed the appeal in February 2008.The Supreme Court has dismissed the appeal and has confirmed the judgement of the High Court.

Thus, the dispute has finally been adjudicated upon after more than a quarter century from when it arose. And the courts in India have the audacity to blame the finely crafted Arbitration and Conciliation Act, 1996 for 'loopholes', ambiguities' and what not!

Amaravati District Central Co-operative Bank Ltd. v. United India Fire and General Insurance

Decided by: RV Raveendran & KS Radhakrishnan. JJ

On: 15th April 2010

Amaravati entered into a contract with United India in 1976 for insuring against losses due to acts or omissions of Amaravati's employees.Disputes arose between Amaravati and United India regarding the quantum of reimbursable loss to be paid by United India to Amaravati.Amaravati appointed the sole arbitrator for resolution of the dispute. However, United India did not participate in the arbitration proceedings even after due notice of the arbitration. Hence, the arbitrator granted an ex parte award in favour of Amaravati in August 1983. 

In January 1984, United India challenged the arbitrator's award under S 30 of the Arbitration Act, 1940. In June 1990, the civil court dismissed the petition for setting aside. On appeal, the High Court of Bombay allowed the appeal in February 2008.The Supreme Court has dismissed the appeal and has confirmed the judgement of the High Court. 

Thus, the dispute has finally been adjudicated upon after more than a quarter century from when it arose. And the courts in India have the audacity to blame the finely crafted Arbitration and Conciliation Act, 1996 for 'loopholes', ambiguities' and what not! 

BSNL v. Telephone Cables

Court: Supreme Court of India 

Case No: Civil Appeal No. 868/ 2010 (SLP (C) No. 28248/ 2008

Date: 22.01.2010

Bench: RV Raveendran & KS Radhakrishnan, JJ

Facts:

27.03.2001: BSNL invited tenders through a notice inviting tenders

                 Subsequently, after evaluation of bidders, NICCO Corpn. had obtained the highest rating. Telephone Cables Ltd (TCL), however, contended that it had obtained the highest ratings and not NICCO.

11.09.2001: BSNL issued advance purchase orders to NICCO

18.09.2001: TCL filed a writ before the Delhi High Court praying for, inter alia, quashing of the advance purchase orders to NICCO.

29.04.2004: After almost three years, a Division Bench of the Delhi High Court held that the assessment of vendor rating by BSNL was erroneous and since BSNL had already warded contracts with respect to most of the quantity, the High Court ordered that for the quantity for which contract was not awarded, BSNL shall enter into contract with TCL for supply of such balance quantity if TCL obtains the highest rating. Further, even when no prayer was made by TCL for compensation, the High Court went on to hold that in case the petitioner is entitled to further supplies, it would be open to the petitioner to pursue remedies against the respondents for compensation or damages that may be available to it in law.

01.04.2005: BSNL filed a SLP against the decision of the Division Bench, which was dismissed.

26.10.2005: BSNL had already awarded purchase orders to  other contractors for the balance quantity  of the tender and even in these processes, TCL did not get the highest rating to it to be awarded the contract. Hence, TCL issued a notice contending that TCL was denied business opportunity and was therefore entitled to Rs. 10.6 crores as compensation.

10.07.2006: BSNL rejected TCL's demand

27.09.2006: A writ petition was filed before the Delhi High Court for payment of 10.6 crores as compensation  and Rs. 20,000 as costs. However, the said petition was withdrawn and he right to undertake appropriate actions for pursuing civil remedies were reserved. 

30.06.2007: TCL sent a notice invoking arbitration against BSNL demanding about Rs. 10.6 crores as damages.

17.07.2007: BSNL rejected the request for arbitration

01.08.2008: Consequent to an application filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, a single judge of the Delhi High Court allowed the application and appointed a retired judge of the same High Court as the arbitrator. 

BSNL filed an SLP before in the Supreme Court against against this order of the Delhi  High Court.

The Supreme Court noted that:

•  Clause 30 of the Instruction to Bidders (ITB) did not contain a clause for reference of disputes to arbitration. It simply provided that courts at New Delhi would have jurisdiction to entertain claims arising out of the tender
• There was no contract between TCL and BSNL. 
• The invitation to tender barred claims from being made on account of rejection or non-acceptance of a bid.

In view of the above, the court allowed BSNL's appeal. There is nothing significant about this decision allowing the appeal as the law on this issue is fairly well settled. But what is worth noting is the two page obiter on:

1. the practice of courts making observations regarding reservation of liberty of a litigant to seek further remedy to claim "non-existent rights". The court was right in pointing this aspect. In a case on the constitutional validity of a tax that I came across, the court had clearly granted an  interim stay against recovery of the tax till final disposal. Despite the same, the revenue chose to demand the said tax. When the demand was challenged in view of the stay order, the  High Court granted a stay order but the court went on to hold unnecessarily that the revenue could recover tax in accordance with law. Construing this part of the order of the High Court as authorising the revenue to demand the tax whose constitutional validity was under question, the revenue raised a further demand. We had to approach the court again for re-iterating the stay and preventing the revenue from raising further demands.
2. the imprudent fetters imposed by the courts on the public sector undertakings (PSUs) in allowing them to conduct business. Historical reasons (such as monopoly of PSUs) no more exist to have the severe mechanisms to check arbitrariness of PSUs. Also, new means of checking illegal action of PSUs such as Right to Information Act etc have come. Hence the court correctly held  that a level playing field should be provided to the public sector under takings to compete with the private sector. 

A detailed analysis of the court-imposed fetters on PSUs would be the subject matter of a future post in this blog. 

Consultation Paper on Amendments to the Arbitration & Conciliation Act, 1996

The Consultation Paper on the proposed amendments to the Arbitration and Conciliation Act, 1996 has can be downloaded from this link.

Law Ministry on Amendments to the Arbitration & Conciliation Act, 1996

The previous post in this blog noted that a consultation paper would be released today by the Ministry of Law and Justice on amendments to the Arbitration and Conciliation Act, 1996. A PIB (Press Information Bureau) press release indicated that the amendments would be on the following areas:

1. Section 2 (2) – Scope of application of Part I of the Act
2. Section 11-  Appointment of Arbitrators
3. Section 12- Disclosure by Arbitrator regarding any  interest in the matter
4. Section 28 (3)- Taking into account terms of the agreement and trade usage
5. Section 31 (7) –Rate of interest
6. Section 34- providing meaning of “public policy of India” and for harmonising  it with Sections 13 and 16
7. Section 36- Enforcement of arbitral award
8. Insertion of provisions for implied arbitration agreement in commercial contract of high consideration value. 

We'll post the consultation paper as soon as it is released.

Amendments to the Arbitration & Conciliation Act, 1996?

A PTI news report suggests that the Ministry of Law  and Justice is considering amending the Arbitration & Conciliation Act, 1996 to include provisions on out-of-court settlement. The news report also indicates that the Ministry of Law  and Justice would release a consultation paper on the proposed amendments on 8th April 2010.

Another news report says that certain reforms on arbitration law were to be a part of the Commercial Division of High Courts Bill but such an idea has been dropped by the Ministry. The good news that this report is that sweeping changes are to be made in the way in which arbitration is conducted. One of the important changes that this consultation paper proposes seems to be the institutionalisation of institutional arbitration in India. High time, people. Another target of the said paper seems to be retired judges who charge extraordinarily huge fee. Readers might remember reading about ONGC's complaints about arbitration being an expensive option in this blog.

Right from 2001 (if not earlier), there have been proposals to amend/ reform the arbitration law. Nothing has happened so far. On this proposal, let us hope for the best.

Recent Judgment

Liberal and Beneficial Interpretation of Welfare Legislation Cannot Surpass the Limitations Placed by the Statute


Dalco Engineering Private Ltd. v. Satish Prabhakar Padhye, CIVIL APPEAL NO.1886 OF 2007 and Fancy Rehabilitation Trust v. Union of India, CIVIL APPEAL NO. 1858 OF 2007. Date of Judgment 31-03-10

Two instances relating to actions taken by companies incorporated under the Companies Act were under scrutiny in this judgment, which it was argued that are in violation of the provisions of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995. [PDA]

The termination of service of an employee and termination of contract held by a trust for the welfare of the disabled were under scanner. The major issue was whether a company incorporated under the Companies Act fall within the purview of Sec. 47 of the PDA. Section 47 warrants that “(1) No establishment shall dispense with, or reduce in rank, an employee who acquires a disability during his service”. The expression establishment is defined on Sec. 2 (k) inter alia “…a corporation established by or under a Central, Provincial or State Act …”

The pivot of the case was whether a company incorporated under the Companies Act can be treated as an establishment under a Central Act.

Court distinguished between companies established by an Act and under an Act and held that ‘a company is not established under the Companies Act.’

The interpretation angle

This is an interesting case for a student of interpretation of statutes as three notions of statutory interpretation was argued in this case

1. beneficial interpretation
2. use of marginal note
3. legislative intention

One of the arguments was hinged on the principle of beneficial interpretation of a welfare statute. It was canvassed that the expression “establishment” in Sec. 47 has to be read liberally to include companies registered under the Companies Act taking into consideration the objectives of the Act. While endorsing the fact that social welfare legislation should be treated differently, court drew the interpretational limits. Interpretation, the court said, cannot stretch beyond the limit intended by the legislation however beneficially it may be interpreted. The interpretation shall not militate against the very Act.

By using the marginal note and legislative intentions as borne out from the Act as a whole, the court found that including companies incorporated under the Act as ‘establishment’ will run against the legislative intent.