"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Tuesday, February 8, 2011

Arbitrators (Ex-Judges) Make Merry While the Parties Bleed

It is well known that arbitration has moved from being an exception to the rule as far as commercial dispute resolution is concerned. Nevertheless, in India, inexpensive arbitration is an extinct species. We have, in the past, analysed the case of Dolphin Drilling Co. v. ONGC, where the chief complaint of ONGC against reference of the dispute to arbitration was that arbitration was too costly. In that post, we had given an indication of how much costs the parties have to pay per day for the arbitration. Typically, retired Supreme Court judges charge somewhere between Rs. 1 lakh to 2 lakhs for a sitting(consisting of two arbitration hearings- with one hearing amounting to about two hours). Now a question could be raised as to whether they deserve* such fee. The answer is mostly no but sometimes yes. It is mostly no because it is extremely difficult to make these retired judges understand the technical aspects in technically complicated business disputes (most business disputes are technically complex). A senior associate of a reputed Indian law firm called an arbitration hearing as a paid holiday for the arbitrators. These retired judges needlessly insist on having arbitration hearings in top notch five star hotels instead of having these in simpler and inexpensive venues.

It is in this context that we wish to examine news reports on an arbitration between the Chandigarh Housing Board and Parsvnath Builders.

Source: http://www.parsvnathprideasia.com/about_prideasia.asp
CHB and Parsvnath had inked a development agreement in October 2006. As per the agreement, Parsvnath was supposed to deposit around 520 crores (different reports in the media suggest different amounts- some suggest it was 517 and some suggest it was 521) as the first installment. Parsvnath had deposited around Rs. 520 crores with the CHB. However, Parsvnath had allegedly refused to deposit the second installment of money amount to around Rs. 317 crores. The reason for non-remittance of the amount, as per reports, was that CHB did not provide unencumbered lands and approval of building plans. Since Parsvnath did not commence the project, CHB issued default notices for termination of the agreement. The matter was referred to arbitration.

In the arbitration proceedings, CHB had claimed a compensation of Rs. 2800 crores while Parsvnath has claimed Rs. 1300 crores against CHB. As per the agreement, three arbitrators were supposed to be appointed in relation to disputes between the parties. CHB had appointed Justice DP Wadhwa as its arbitrator and Parsvnath appointed Justice Amar Dutt. Both the arbitrators had appointed Justice SC Aggarwal as the presiding arbitrator.

Each of the arbitrators had allegedly charged Rs. one lakh per hearing, excluding costs towards cost of hotels, air tickets and other administrative expenses. A total of around Rs. One Crore was spent on the arbitrators for seventeen hearings in the matter.

According to this news report, several proceedings were held in a five star hotel in New Delhi. The said news report quotes some protagonists on the issue pertaining to exorbitant fee charged by the arbitrators. The said quotes are quoted below:
CHB chairman Mohanjit Singh: How can we match Parsvnath’s standards? The day is not far when CHB’s assets will have to be auctioned. Our employees will be on the streets. The investors’ fate is hanging in balance. CHB has incurred nearly Rs 1 crore on arbitration proceedings till date.
Justice (retd) Amardutt: I am just a member of the Tribunal. The fee was decided in the first sitting. If CHB has any grouse regarding the fee, they can approach the Tribunal.
Justice (retd) S C Aggarwal: Remedies are there. They can move Tribunal if they have any grouse. I am only one member of the Tribunal. If they want reconciliation, they should approach the Tribunal. Why should I be getting any calls from the media?
Justice (retd) D P Wadhwa: If any party is having any grouse, they can write to us. There is no need for them to go to the media
This news report suggests that the arbitrators charged the sitting fee equivalent to Rs. 1.5 lakhs (for each of the three arbitrators) for merely seeking adjournment to a future date. It may be noted that this vile practice of the arbitrators to charge the sitting fee for the hearing in case of adjournments is not something that was done in this case alone. This shylockian practice is followed by many of the retired judges of the High Courts and the Supreme Court. The moot question is whether they deserve this fee at all. With all due respect to the honest and hardworking judges of High Courts and the Supreme Court, this blawgger feels that many do not. Corporate India (generally) appoints ex-judges of the High Courts and the Supreme Court as arbitrators. This is prevalent despite there being several industry experts are better placed to decide, especially in respect of techno-commercial issues. This practice of corporate India is in existence only because the expectation that the Ex-judges of the High Courts and the Supreme Court would be honest. However, the truth is too far from reality. In many instances, the arbitrator appointed by one of the parties (in case of a three member tribunal) has overtly supported the party which appointed it.

Generally, parties are afraid to take measures to cut costs expended for arbitration hearings (such as asking the tribunal to conduct arbitration proceedings in less expensive venues rather than in five star hotels) for the fear that they would antagonise the arbitrators. Advocates/ Solicitors do not recommend parties to take such measures for the same reason. Pushed to desperation, CHB had no other go but to write to the arbitrators in October 2010 asking them to reduce their per sitting fee from Rs. 1 lakh to Rs. 25,000. The latest news report suggests that after the October 2010 letter, the arbitrators have not yet fixed further date of hearing in the matter. We do hope that the arbitrators do accede to the request of CHB.

* Edited After Posting

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