"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.

Thursday, September 1, 2011

Choice of Law & Applicability of Part I in India: Anita Garg v Glencore Grain


Anita Garg v Glencore Grain Rotterdam BV (11 August 2011, Del HC) is one of the most significant Indian judgements in the recent times dealing with choice of law issues issues in international commercial arbitration. The Bench consisting of Vikramjit Sen & Siddharth Mridul, JJ have analysed several concepts in international commercial arbitration such as the lex arbitri, substantive law of contract etc, apart from attempting to make sense of the rulings that dealt with the applicability of Part I of the Act to arbitrations whose seat was outside India.
 
For this reason, the judgement merits detailed consideration in this blog. We would also take this opportunity to discuss the law on choice of law in international commercial arbitration from the Indian perspective. In the first few posts, we descriptively analyse the judgement.
  

Prior History:
The judgement in this case was consequent to an appeal filed against a judgement of the Single Bench of the Delhi High Court. The Single Judge dismissed Anita Garg's petition under Section 34 challenging the arbitral awards on the ground of the principle of public policy of res judicata (check out the comment of the Single Judge's decision in the Indian Corp Law blog). After the arbitration was initiated, the Appellant’s firm had filed a suit in the civil court challenging the legality and validity of the contracts containing the arbitration clause. Meanwhile the arbitral award was passed. The said civil suit was heard along with the suit filed by the present Respondent Glencore Grain Rotterdam BV to enforce the arbitral award. The latter suit was treated as an application filed under Sections 47 and 48 of the Act for enforcement of the final award. After hearing both suits jointly, the court held the award to be enforceable and dismissed the Firm’s suit. There were several other suits/ objections filed by the Appellant (litigating under her name or in the name of the partnership firm of which she was a partner) to forestall the realization by the Respondent of the benefits of the impugned arbitral awards.

Arbitration Clause and Choice of Law

The clauses pertaining to arbitration and choice of law in the agreement read:

Any dispute arising on this Contract shall be referred for settlement to the Arbitration by two Members of this Association's Panel of Arbitrators or their Umpire, being also a Member of this Panel. Each party to appoint one Arbitrator and having the right to reject one nominee. In the event of any party omitting to nominate an Arbitrator within ten days of receipt of notice of appointment of an Arbitrator by the other party, or of the Arbitrators failing to agree on the appointment of an Umpire, the Committee of the London Rice Brokers Association, in either case, shall have power to appoint one forthwith, who shall act on behalf of and as if nominated by the party or parties in default. Claims for arbitration other than Arbitration on quality shall be made and the Claimant's Arbitrator shall be nominated not later than 90 days after the expiry of the contract period of shipment or not later than 90 days from the date of final discharge of the ship at port of destination whichever period may last expire. The parties to the Arbitration shall have the right of appealing against any Award (except on questions of law) within thirty days from the date of Award to the London Rice Brokers Association, whose decision shall be final. Any payments arising out of the Award are to be made within 30 days of the date hereof.

14. Domicile- The Contract shall be deemed to have been made in England and the construction, validity and performance thereof shall be governed in all respects by English Law. Any dispute arising out of or in connection therewith shall be submitted to arbitration in accordance with the Rules of the London Rice Brokers' Association. The serving of proceedings upon any party by sending same to their last known address together with leaving a copy of such proceedings at the office of the London Rice Brokers' Association shall be deemed good service, rule of law or equity to the contrary notwithstanding.”

Arguments:
The judgement of the Division Bench is not well structured. The broad contentions in the appeal as can be culled out from the judgement are below:

  1. The Single Judge committed an error in dismissing the petition under Section 34 on the ground that the matter was already decided (res judicata) in the application under Section 48 (originally the civil suit filed by the Respondent) because the exercise of jurisdiction under Section 48 is different from Section 34 as the scope of the former is narrower than the latter.
  2. The award was served on the firm and not personally on the partners thereby falling foul of the requirement to serve the award personally to the parties concerned. This legal position was recognized in BSNL v Haryana Telecom 2010 (172) DLT 280.
  3. Since the arbitral tribunal consisted of two arbitrators, the award was illegal and non est.
The respondent’s contentions are below:

1.      The Appeal is not maintainable as substantive law of contract was English Law. This legal position was affirmed in the recent decision of the Supreme Court in Videocon v. Union of India.
2.      The principle of res judicata barred the Appellant from raising objections under Section 34 when objections against the award had already been rejected in the application under Section 48.
3.      The arbitral award is not invalid merely because it provided for award by two arbitrators. The arbitration clause provided that in case the arbitrators disagreed, an umpire could be appointed to resolve the deadlock between the arbitrators. Further, this provision was not contrary to English Law.

Judgement: 

 Following is a summary of the Judgement of the High Court:

 On Maintainability of Appeal in view of Videocon v. Union of India
Applicability of Part I of the Act: [In this post, we descriptively analyse the judgement of the High Court pertaining to the applicability of Part I of the Act to international commercial arbitration.]

1.      In BhatiaInternational v Bulk Trading SA (2002), the Supreme Court rejected the contention of one of the parties that since the seat was Paris, France, a party could only approach the courts in France and not the Indian courts for interim measures for interim relief. Rejecting the contention, the Supreme Court held that the Act applied to both domestic arbitration and international commercial arbitration, unless Part I was expressly or impliedly excluded by the parties. Further, according to Bhatia, “an award is enforceable in India by invoking the provisions of the A&C Act or, significantly, even the CPC. The contract in that case did not so specify.”

2.     In VentureGlobal Engineering v Satyam Computer Services (2008), Part I was held to be applicable in view of the fact that it was not excluded by the agreement. Further, even the agreement provided that the parties were to act in accordance with the Indian Companies Act and other applicable laws in force in India. Therefore, the Supreme Court concluded that Part I was applicable to the arbitration. In Venture, “the Apex Court had recognized the distinction between substantive law or the law of contract, and the curial law governing the arbitration which is determined by the ‘seat of arbitration’, which was Paris.

3.      In Videocon Industries v Union of India (2011), where the Supreme Court analysed the above decisions, the concerned agreement provided that the arbitration agreement was to be governed by the laws of England. According to Section 3 of the English Arbitration Act, 1996, seat of arbitration meant the juridical seat of arbitration. In view of Section 2 of that Act, where the seat of arbitration was England (including Wales & Northern Ireland), matters pertaining to the conduct of arbitration was to be regulated by the English Arbitration Act, 1996. Here, the arbitration clause provided for the applicability of Indian law as regards substantive or contractual disputes and for English Law to govern the conduct of arbitration.

4.      In NTPC v Singer (1992), the arbitration clause provided that the law applicable to the contract was the Indian law and that the courts in Delhi would have the exclusive jurisdiction for matters that arose under the Contract. There the Supreme Court had held the following:
a.       Parties had the option to choose the law governing the international commercial arbitration agreement.
b.      The parties may choose the substantive law governing the arbitration agreement as well as the procedural law governing arbitration. The choice may either be express or implied.
c.       Where the choice of the law governing the contract as a whole, or of the law governing the arbitration agreement is absent, the presumption is that the law governing the contract and the arbitration agreement would be the law of the seat of arbitration, unless a contrary there was a intention.
d.      Where the main agreement provides for choice of the law governing the contract, such law shall be, unless contrarily provided, the law governing the arbitration agreement as well, the reason being that the arbitration clause is a part of the main agreement.
e.       The substantive rights arising out of the main agreement as well as the arbitration agreement would be governed by the laws of India.
f.    Although mandatory provisions pertaining to English Law would be applicable, the jurisdiction of the English courts (and the applicability of English Law in procedural matters) would be concurrent to the jurisdiction of the Indian Courts and Indian law would operate in all matters pertaining to the arbitration to the extent that the main agreement as well as the arbitration clause were governed by Indian law.

5.      The Act is an amalgam of the domestic arbitration jurisprudence, the New York Convention, the Geneva Protocol & Geneva Convention, and the UNCITRAL Model Law on International Commercial Arbitration. None of the instruments mentioned above deal with domestic arbitration. This has resulted in the absence of clarity on domestic arbitration.

6.      As clarified in Jagannath v Union of India, the Union of India is competent to make laws for the purposes of enforcing international treaty obligations. But laws are to be enacted by the Parliament to make the treaty obligations binding. Courts have, in several instances, through Article 51 of the Indian Constitution, given weightage to international treaties. When domestic law comes into force in respect of treaties and international agreements, courts cannot rely on the treaties. In this case, “it may no longer be possible to advert to or be guided by the UNCITRAL Model Law or the New York Convention or the Geneva Convention.

7.      It appears to us that Parliament was not fully alive to the need to clearly provide for domestic as well as international commercial arbitration. Hence, manifold and myriad.” In the absence of separate legislations on international commercial arbitration and domestic arbitration, the Act has been pressed for regulating both regimes. “Part-I, therefore, with no possible alternative, must cover all hues of hues of (sic hues of) international commercial arbitration. On this simple premise, one need not look into various Sections to come to the same conclusion.”
We'll look at the High Court's decision on the implications of the above on choice of law by parties.

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