Updated (2): Cabinet Approves Arbitration & Conciliation Amendment Ordinance

The electronic media is abuzz with the news that the Cabinet has okayed amendments to the Arbitration and Conciliation Act, 1996 through an ordinance. The PIB Press Release, which is not available now on the PIB site, stated that the following were the proposed changes:

The salient features of the proposed amendments are as under: 

(i) Insertion of a new provision to provide that Arbitrator shall charge composite fees for disposal of case and not on the basis of per sitting or per hearing, as has been the practice. 

(ii) Insertion of a new provision that the Arbitral Tribunal shall make its award within a period of 9 months. If the Court finds that the Arbitrator has delayed the matter for his personal benefit, it may debar the Arbitrator from taking fresh arbitration for 3 years. 

(iii) Amendment of Section 34 relating to grounds for challenge of an arbitral award, to restrict the term 'Public Policy of India" (as a ground for challenging the award) by explaining that only where making of award was induced by fraud or corruption or is in conflict with the fundamental policy of Indian Law or is in conflict with the most basic notions of morality or justice, the award shall be treated as against the Public Policy of India. 

(iv) A new provision to provide that application to challenge the award is to be disposed of by the Court within one year. 

(v) Amendment to Section 36 to the effect that mere filing of an application for challenging the award would not automatically stay execution of the award. Award can only be stayed where the Court passed any specific order on an application filed by the party. 

(vi) A new sub-section of Section 11 to the effect that an application for appointment of an Arbitrator shall be disposed of by the High Court or Supreme Court as expeditiously as possible and an endeavour should be made to dispose of the matter within 60 days. 

(vii) A new sub-section of Section 11 to the effect that while considering any application for appointment of Arbitrator, the High Court or the Supreme Court shall only examine the existence of a prima facie arbitration agreement and not other issues. It is also proposed to insert a new sub-section to the effect that the Court while appointing an Arbitrator shall also fix the fees of the Arbitrator. 

Apart from above, amendments in Sections 2(l)(e), 2(l)(f)(iii), 7(4)(b), 8(1) and (2), 9, 11, 12(1), 14(1), 16A, 17(3), 23, 24, 25, 28(3), 31(7)(b), 34 (2A) 37, 48, 56 and in Section 57 are also proposed for making arbitration process more effective.

Source: Cached Copy of the PIB Press Release (link). The amendment has come as a surprise as it was expected that the amendments would only be introduced in the next session of the Parliament. More on the same in the next post.

Update 1: Certain news reports (here and here) suggest that the PIB has withdrawn the Press Release suggesting that the Government may not be ready with the Ordinance.

More on this once there is clarity.

Update 2: News reports confirm that the Cabinet has actually approved an Ordinance to amend the arbitration laws in India and the same has been sent to the President for assent.

Award of Interest on Pre-Award Interest Payable under Award is Valid: SCI

Recently, a three judge Bench of the Supreme Court of India has held in Hyder Consulting (UK) Ltd. v. State of Orissa that a tribunal under Section 31(7) of the Arbitration and Conciliation Act, 1996 is empowered to award interest on any sum payable under the Award and such "sum" may include pre-award interest as well.

Interestingly, there are three individual opinions on the issue. While AM Sapre, J. concurred with SA Bobde, J., the former rendered a separate opinion. HL Dattu, CJI delivered the minority view.

The decision can be accessed from this link (pdf).



Trade Law and Development: Latest Issue

TL&D has been ranked as the best law journal in India (2013, 2012, 2011) and the tenth best law journal in the field of international trade worldwide (2013, 2012) by the Washington and Lee University Law Library in its annual rankings of law journals. Since its establishment in 2009, the journal's efforts have been recognized by the International Centre for Settlement of Investment Disputes and the World Trade Organization.

The issue and its contents can be accessed online on our website here: 

The Contents of this Issue are as follows:

Editorials A 'Heated' Debate: The WTO's Climate Question Ali Amerjee & Nakul Nayak Three Core Issues Thomas Cottier Articles Trade Proposals for Climate Action  Rafael Leal-Arcas Real or Imagined Controversies? A Climate Law Perspective on the Growing Links between the International Trade and Climate Change Regimes Kati Kulowesi Why Developing Countries Won't Negotiate? The Case of the WTO Environmental Goods Agreement  Mark Wu Clash of Rationalities: Revisiting the Trade and Environment Debate in Light of WTO Disputes over Green Industrial Policy  Sadeq Z. Bigdeli Notes and Comments The Case for 'Sui Generis' Developing Country-led Initiatives on Carbon Footprint Labelling Mahesh Sugathan

PDF 1-8PDF 9-10 Abstract PDF 11-54Abstract PDF 55-92 Abstract PDF 93-176 Abstract PDF 177-209 Abstract PDF 210-228

Settlement of Insurance Claim and the Discharge of Insurance Contract

Recently, a two judge Bench of the Supreme Court of India had the occasion in New India Assurance Co. Ltd. v. Genus Power Infrastructure (04.12.2014) to discuss the law on discharge of an insurance contract.

Facts: 

Genus Power Infrastructure Ltd. (Genus) purchased a Standard Fire and Special Perils Policy (Policy) from New India Assurance Co. Ltd. (NIA) for its manufacturing unit. The total sum assured under the one-year policy was Rs. 91.10 crores. Within seven months from the date of the policy, a fire explosion occurred in the adjoining terminal of the Indian Oil Corporation. This caused severe damage to the manufacturing unit of Genus. Genus notified NIA of the accident and NIA appointed a surveyor and a loss assessor. The loss as per Genus was 28.79 crores while the surveyor assessed Rs. 6.09 crores as the loss. 

Genus signed a detailed letter of subrogation duly stamped accepting Rs. 5.96 crores in full and final settlement of its claim under the Policy. After three weeks from the letter of subrogation, Genus issued a notice to NIA stating that the discharge voucher was signed under extreme duress, coercion and undue influence by NIA who took undue advantage of the financial difficulties of Genus in trying to get the amount of 5.96 crores settled under the Policy and sought nomination of arbitrator. NIA replied that there was no arbitrable dispute in view of the letter of subrogation where Genus had accepted Rs. 5.96 crores and the full and final settlement of the claim.

Genus filed a petition under S. 11 of the Arbitration and Conciliation Act, 1996 for appointment of the arbitrator. The Delhi High Court determined that there was a valid arbitration agreement and appointed an arbitrator. This order was challenged by NIA through a Special Leave Petition to the Supreme Court.

Contentions:

Following were the contentions of NIA in the SLP: 

• The letter of subrogation was a detailed agreement signed after negotiations between the parties in the presence of two witness and should be therefore given effect. 
• The amount was as recommended by the surveyor reduced by the mandatory reinstatement premium payable under the policy. 
• When the company’s annual turnover was Rs. 500 crores, it is improbable that such a company would be financially coerced in giving the discharge receipt. 

Contentions on behalf of Genus were following:

NIA knew fully well that its manufacturing unit had been destroyed and therefore NIA used its dominant position to force Genus to sign the discharge voucher. 

Question: According to the Supreme Court, the following question arose for determination: 

“[W]hether the discharge in the present case upon acceptance of compensation and signing of subrogation was not voluntary and whether the claimant was subject to compulsion or coercion and as such could validly invoke the jurisdiction under Section 11 of the Act.”

Decision:

Following is the summary of the court’s decision 

• A bald plea or fraud/ coercion, duress or undue influence is not sufficient and a party which pleads that the above-stated acts have occurred should establish the same. 
• Factually, there was no protest or demur raised around the time or soon after the letter of subrogation was signed. 
• The notice by Genus was given only three weeks after the letter of subrogation. 
• The financial position of Genus was not so precarious that it was left with no remedy but to accept the said letter. 
• Since there was full and final satisfaction of the claim, noting in the policy survived and therefore, there was no arbitrable dispute for the court to exercise its power under Section 11 of the 1996 Act.

Comment

General insurance companies such as the NIA generally follow the procedure of determining the claim and informing the insured following which they give a pre-determined format of a letter of subrogation which provides, among other things, that the claim paid was in full and final settlement of the claim under the policy. Only after the signed letter of subrogation is given does the insurer makes payment of the claim. If the insured who had suffered loss (at times enormous loss) protests with the Insurance Company of the claim, even that amount would be locked up for a long time in disputes. So, the question is, as a matter of policy, should the letter of subrogation providing for full and final settlement of the claim be taken seriously? The second question is whether in such cases the insured should be asked to prove undue influence / coercion when the industry practice is well-known? 

First, given that by the very nature of the position of the parties, the insurer is in a dominant position. Two, how is the acknowledgement of full and final settlement of the claim different from an agreement that the insured will not file any suit/ invoke arbitration if the amount determined by the insurer is paid? The latter is a void agreement as it restrains legal proceedings while the former does not restrain access to legal fora but makes such access meaningless. 

What should be material is whether the protest subsequent to the letter of subrogation is genuine or merely an afterthought. From this perspective, the date of receipt of the money by the insured could be a very relevant in deciding whether the protest was in time or not. 

In this case, the court was perhaps strict in stating that the protest was belated (three weeks after the letter of subrogation). In any case, the insured should, in future, immediately (within a day or two) make a protest (through email or registered post with acknowledgement due) of the amount of loss failing which the insured may lose the opportunity to question the correctness of the surveyor’s or the insurer’s determination of loss.

Indian Journal of Arbitration Law: Call for Papers

The Call for Papers of the Indian Journal of Arbitration Law is below:

Call for Papers

The Indian Journal of Arbitration Law is a biannual, student reviewed Journal by the Centre for Advanced Research and Training in Arbitration Law of National Law University, Jodhpur.

National Law University, Jodhpur, one of the premier law schools in India, is taking successful initiatives for the promotion of areas related to the specialized fields of law. To strengthen the promotion of knowledge, research and legal interaction in the subject of arbitration law, it has established the Centre for Advanced Research and Training in Arbitration Law. The Indian Journal of Arbitration Law is one such initiative of this centre towards the development of this expert legal arena.

The Journal strives to inculcate the prevalent theories in the field of arbitration with their practical relevance. The editorial board seeks to achieve this feat by including contributions from individuals with varied expertise of practicing arbitration and by focusing on developing trends. In this regard, the board would give due emphasis to the rich thought processes of students of law, who bring to the forefront the innovative academic research currently underway in most law schools all over the world. Inclusion of changing regional trends will play a vital part in understanding the scope and extant of this discipline and would therefore find due importance in the Journal.

The Indian Journal of Arbitration Law is pleased to announce its upcoming issue (Volume 4: Issue 1), which is to be published in April, next year.

Theme: UNCITRAL Model Law’s 30^th Anniversary. We also welcome notes on the 246^th Law Commission Report.

The Board of Editors cordially invites original, unpublished submissions for publication in the following categories:

- Articles

- Notes

- Comments

- Book Reviews

Manuscripts may be submitted via email to editor.cartal@gmail.com latest by 5^th February, 2015.

For further details regarding Editorial policy and submission guidelines please visit the website here.