"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, June 14, 2011

Transfer of Seat: Videocon Industries v Union of India


We had analysed the recent case of Videocon Industries v. Union of India in two posts. The said posts can be accessed from here and here. An issue pertaining to the transfer of seat was to be commented on.This post deals with the said issue.

To recap, the arbitration clause in the Production Sharing Contract (PSC) between Union of India and a consortium (of which Videocon was the lead) provided for Kuala Lumpur, Malaysia as the seat of arbitration. Due to the outbreak of SARS disease, the arbitration proceedings were held in Amsterdam and London. In October 2003, the Tribunal passed a consent order which read: “By consent of parties, seat of the arbitration is shifted to London.” The issue was whether this meant a transfer of the seat of arbitration itself or merely a consensus between the parties to the arbitration to hold the proceedings in London but to retain Kuala Lumpur as the seat. Videocon argued that there was a transfer of seat and Union of India argued that there was no transfer of seat. We had summarized the decision of the Supreme Court on this issue in one of those two posts mentioned above. We reproduce the same here:

The Supreme Court's reasoning and decision on this question is summarized below:
  • The PSC was entered into between five parties with Kuala Lumpur being the seat of arbitration. If the parties were to amend the PSC, they could do so only by amending the PSC as per Article 35.2 through a written instrument. Therefore, there was no transfer of seat but of shifting of venues to different places for convenience.
[The provision of the contract pertaining to amendment read: “This Contract shall not be amended, modified, varied or supplemented in any respect except by an instrument in writing signed by all the Parties, which shall state the date upon which the amendment or modification shall become effective.”]
  • There is no provision in the Arbitration and Conciliation Act by which seat could be changed by the arbitral tribunal. 
  • The distinction between the seat and holding hearings in venues other than the seat has, however, been recognized in international arbitration. Even in Dozco India Ltd. V. Doosan Infracore, the Supreme Court recognized the difference between juridical seat of arbitration and hearings taking place in a jurisdiction outside the seat. [Section 53 English Arbitration Act, 1996]
  • Therefore, there was no agreement to transfer the seat of arbitration to London. The agreement was merely an agreement to hold proceedings outside the seat.
In this post, we analyse whether the decision of the Supreme Court was correct.

It must be admitted that the argument of Mr. Gopal Subramaniam, the Solicitor General, appears forceful. Even so, this blawgger is of the opinion that the order of the arbitral tribunal was for a transfer of the seat of arbitration and not merely an agreement to hold the arbitral proceedings outside Kula Lumpur. The reasons are as follows:

1) There was no necessity for such an agreement because the tribunal had been holding the arbitral proceedings in Amsterdam and London even before the agreement was reached.

(2) The agreement uses the term “seat of arbitration”. The seat of arbitration specifically connotes the jurisdiction which would grant the “legal touch” to the arbitration proceedings. These were parties that had sophisticated legal counsel (for obvious reasons- the consensus was reached during the arbitration proceedings and was recorded by the tribunal). Therefore, the usage of the term “seat of arbitration” could not have been for any purpose other than to transfer the jurisdiction which grants the legal touch to the arbitration.”

(3) Article 35.2 of the PSC provides for three mandatory steps as regards amendment of the PSC:
a. An amendment must be through a written instrument
b. The amendment must be signed by all the parties, and
c. The amendment must provide for the date from which amendment would become effective.

This was admittedly not done. But the question is, notwithstanding Article 35.2, whether a consensus was reached between the parties to have the seat changed to London and whether the same is binding. According to this blawgger, the agreed manner of performance in the contract can be altered even extra-contractually by an undertaking given in a court of law. The Supreme Court was not right stating that any consensus to transfer the juridical seat to London required an amendment of the contract as per Article 35.2. Even though the effect of the consensus was alteration in the manner of dispute resolution, it was in effect a concession made before a tribunal which is virtually a court of law. If the interpretation afforded by the court is accepted, the problem would be that any concession made by counsel of a government party in a contractual issue would have to comply with the requirements of Article 299 of the Indian Constitution, which is actually not the case.

Nature of Concessions made in a Court of Law:

In Jamilabai Abdul Kadar v Shankarlal Gulabchand andOrs. (30.04.1975), a three judge Bench consisting of A.C. Gupta, R.S. Sarkaria and V.R. Krishna Iyer, JJ. had to consider whether a compromise signed by the pleader of one of the parties was binding on that party. Holding in the affirmative, the court stated that the pleader had an implied authority to enter into a compromise on behalf of his client even when the client has not expressly authorized the pleader to do so. Despite such authority, the court advised as a matter of prudence that the advocate should take the client’s concurrence.

Subsequent to this decision Rule 3 of Order XXIII was amended. The Rule reads as below (the underlined portions are some of the insertions made in 1976, that is, one year after Jamilbai)
Where it is proved to the satisfaction of the Court that a suit has been adjusted wholly or in part by any lawful agreement or compromise in writing and signed by the parties, or where the defendant satisfies the plaintiff in respect of the whole or any part of the subject-matter of the suit, the Court shall order such agreement, compromise or satisfaction to be recorded, and shall pass a decree in accordance therewith so far as it relates to the parties to the suit, whether or not the subject-matter of the agreement, compromise or satisfaction is the same as the subject-matter of the suit:
Provided that where it is alleged by one party and denied by the other that an adjustment or satisfaction has been arrived at, the Court shall decide the question; but no adjournment shall be granted for the purpose of deciding the question, unless the Court, for reasons to be recorded, thinks fit to grant such adjournment.
Explanation.--An agreement or compromise which is void or voidable under the Indian Contract Act, 1872 (9 of 1872), shall not be deemed to be lawful within the meaning of this rule.”
 The above provision as amended seems to suggest that a court compromise (a compromise between the parties which submitted to the court for passing a decree on the basis of the same) cannot be reached without the signature of the party. However, in Byram Pestonji Gariwala v. Union Bank of India andothers (20.09.1991), a two judge Bench of the Supreme Court (T.K. Thommen and R.M. Sahai, JJ.) held that notwithstanding the amendments made in 1976, a compromise in writing and signed by counsel of the parties was binding on the parties. The court relied on the Statement of Objects and Reasons for the amendment (which provided that the amendment was, among other things, intended to clarify that a compromise has to be in writing signed by the parties to avoid delay which might arise from the uncertainties of oral agreements). On whether the 1976 amendment altered the law on the implied authority of the advocates to enter into compromise on behalf of the client, the court held:
After the amendment of 1976, a consent decree, as seen above, is executable in terms thereof even if it comprehends matters falling outside the subject-matter of the suit, but concerning the parties. The argument of the appellant's counsel is that the legislature has intended that the agreement or compromise should be signed by the parties in person, because the responsibility for compromising the suit, including matters falling outside its subject-matter, should be borne by none but the parties themselves. If this contention is valid, the question arises why the legislature has, presumably being well aware of the consistently followed practice of the British and Indian Courts, suddenly interfered with the time-honoured role of lawyers in the conduct of cases without specifically so stating, but by implication? Can the legislature be presumed to have fundamentally altered the position of counsel or a recognised agent, as traditionally understood in the system of law and practice followed in India and other 'common law countries' without expressly and directly so stating?
Therefore the court held that the advocate had the implied authority to enter into a written compromise on behalf of his client. Subsequent decisions also recognized this [See, for instance, Pushpa Devi v. Rajinder Singh]. In Commissioner of Endowments v Vittal Rao MANU/SC/1003/2004, a compromise was made during the course of writ proceedings. The court recognized the same despite non-compliance with Order XXIII Rule 3 on the ground that writ proceedings stand on a different footing when compared to proceedings pertaining to suits or appeals.

The point about all this discussion in the current context is to establish that even a concession or compromise by the advocate of a party binds the client. Indian jurisprudence recognizes circumstances when compromises and concessions could be made without amending the contract. If that is so, it is difficult to conceive that in contracts involving governments, counsels would have no implied authority to make concessions and compromises or that compromises and concessions should be strictly in accordance with Article 299 of the Indian Constitution. The rationale for the existence of implied authority of advocates as held in Byram Pestonji applies with equal force to this situation:
To insist upon the party himself personally signing the agreement or compromise would often cause undue delay, loss and inconvenience, especially in the case of non-resident persons. It has always been universally understood that a party can always act by his duly authorised representative. If a power-of-attorney holder can enter into an agreement or compromise on behalf of his principal, so can counsel, possessed of the requisite authorisation by vakalatnama, act on behalf of his client. Not to recognise such capacity is not only to cause much inconvenience and loss to the parties personally, but also to delay the progress of proceedings in court.” (emphasis supplied)
Our stand in this post is that the concession made before the tribunal to transfer the seat was not an amendment to the agreement. The court erred in not considering the concession as a species different from a contractual amendment. A judgement based on concession by parties would obviously override any previous agreement made by the parties as if that is not so, it would obviate the purpose of making the concession or the compromise in a court of law. 

[Thanks to Mr. Sumit Rai for commenting on a draft of this post.] 

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