Digital Archives of the Parliament Library & Why Law Univs Must Focus on Researching This

Recently, the Parliament of India has made public its archives in digitised format in the form of a separate page called Parliament Digital Library. We have just skimmed the surface of the archives. The most important thing is that it brings together in one place the legislative history of most of Indian statues, including the ones made by the British. For instance, it contains the discussions of the Council of the Governor General of India on laws such as the Indian Contract Act, 1872 (9 April 1872), and other laws enacted during the period. We will try to have detailed posts on certain laws. But this is an important resource and is a must read for all interested in Indian law, especially law academicians and researchers. 

I think it is now the solemn duty of law universities to research on this and write a lot of articles on these subjects. These will provide a better perspective on the purpose of drafting a particular provision in a particular manner. These will gave considerable insight on how statutes were enacted in India during that period.  

For instance, on liquidated damages, James Stephen said in the Council: 

"The only other matter of importance on which we have differed with the Commissioners is the question of liquidated damages. The law of England on the question whether, when a man promises in a certain event to pay a specified sum, he is bound or not to pay it in full, is rather intricate; and, in order to avoid that intricacy, the Commissioner proposed to enact that, in all cases, Such penalties should be treated as liquidated damages. We agreed that the intricacy should be removed, but, for the reasons assigned in our report, thought that it should be removed by the converse operation of turning all liquidated damages into penalties. This we proposed to qualify by an exception, which, 8.S it stands in the Bill, is not very neat, and which I propose to amend· It applies to the case of bail-bonds, recognizances, and the like, and to persons who, under the orders of Government, give bonds for the due performance of public duties."

At another place, a member of the Council noted: "As to the provisions of section 74 of the Bill, on the subject of liquidated damages, HIS HONOUR would say that he believed the Committee had done great service in putting it into a shape which, although in some respects opposed to the English law, appeared to be fair and equitable." 

Thus, the section as it originally stood was based on fairness and equity! But the way in which it was construed during the early period of the Act till 1899, as this post goes to show, was totally contrary to the intent of the drafters and the Council. It is also interesting to note that the Indian Law Commissioners, sitting in England (?), wanted to make all penalties as liquidated damages, until contrary is shown. 

Some of the information contained in the archives, such as those discussed above relating to contract law, are already in public domain in the form of secondary sources. But it is excellent to access the primary sources. Hence the excitement in this post.  

Machi, open the webpage! 

Happy researching!

Consortium & Determination of "International"​ Character of Arbitration in India

Larsen and Toubro Limited Scomi Engineering BHD v. Mumbai Metropolitan Region Development Authority, MANU/SC/1151/2018

Case Details: Arbitration Petition (C) No. 28 of 2017

Date: 03.10.2018

Bench: Rohinton Fali Nariman and Navin Sinha, JJ.

Description

Disputes arose between the parties under the monorail contract and the petitioners filed the application under Section 11 of the 1996 Act. The Contractor was the unincorporated consortium consisting of Larsen and Toubro Ltd. (L&T), was an Indian company, and Scomi Engineering Bhd (Scomi), a Malaysian company. The L&T and Scomi were jointly and severally liable under the contract with the Mumbai Metropolitan Region Development Authority (MMRDA). The consortium had its office in Mumbai.

Questions

• Whether the arbitration was an “international commercial arbitration” and consequently whether the Supreme Court had jurisdiction to entertain the petition?

• Whether an unincorporated consortium was an association of persons for the purposes of Section 2(1)(f) of the 1996 Act (as amended)?

• When would an arbitration be an “international commercial arbitration” where the dispute is invoked by the contractor consortium, in which one of the members is a foreign company?

Some of the disputes that arose under the same contract were previously referred to arbitration. One of the preliminary issues was whether L & T and Scomi could file independent claims against MMRDA. The arbitrator negative the contention and held that they could only do so as a consortium because they bid for the project as a consortium an the contract treated them as such. This interim Award was questioned in the Bombay High Court where the High Court held upheld the interim award and negative the contentions of the petitioners, L&T and Scomi. The petitioners did not appeal against the decision and therefore the same attained finality.

Relevant legal Provisions

Section 2(1)(f), which defined the phrase “international commercial arbitration”, was amended by virtue of the Arbitration and Conciliation (Amendment) Act, 2015 and the amended provision read:

“"international commercial arbitration" means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is—

(i) an individual who is a national of, or habitually resident in, any country other than India; or

(ii) a body corporate which is incorporated in any country other than India; or

(iii) an association or a body of individuals whose central management and control is exercised in any country other than India; or

(iv) the Government of a foreign country;”

Decision

The court rejected the petitioner’s contention that this was an “international commercial arbitration wherein the Supreme Court had the power to appoint the arbitrator and held on facts that the central management of the consortium was in India and therefore the arbitration was not an “international commercial arbitration. The Supreme Court’s decision is summarised below:

• In view of the final decision of the Bombay High Court, L&T and Scomi could only raise disputes as a single entity. Therefore, Section 2(1)(f)(ii) will not be applicable and Section 2(1)(f)(iii) will be applicable.

• Section 2(1)(f)(iii) speaks of “association” or “body” of persons. This is akin to the definition of “person” under Section 2(31) of the Income Tax Act, 1961, which includes an association of persons, whether incorporated or not. As such “association of persons” forms a separate category and is distinct from “body of persons”.

• The Indian company, L&T, is the lead partner in the consortium as per the consortium agreement and the supervisory board constituted as per the consortium agreement empowers L&T to have the lead voice in the appointment of the chairman of the said board. The consortium agreement provides that the lead partner shall lead the arbitration proceedings. The office of the consortium is in Mumbai. All these factors point out that the central management and consortium are in India

Outcome

The court concluded that the arbitration was not an “international commercial arbitration and dismissed the petition

Implications and Critique

The decision is significant because it explains the determination of an international commercial arbitration when one of the parties to the arbitration proceedings is a consortium and where one of the members of the consortium is an Indian party. The decision clarifies that a consortium is really an association of persons and provides guidance on the factors determinative of determining whether the central management and control is in India.

Given that classifying the Indian seated arbitration as “international commercial arbitration” and otherwise has implications on many aspects, including, especially the scope of interference into the arbitral award, the determination of the international character of the arbitration is of utmost importance.

Case comments on the decision have not evoked adverse critique or have cited past decisions. Even the Bombay High Court seems to have cited past decisions on the subject. Perhaps, the High Court need not have as the issue before it was slightly different. But the very same question in respect of a consortium of parties was raised before the Supreme Court in Reliance Industries Limited v. Union of India. The court passed three crucial orders, viz., orders dt. 31.03.2014, 02.04.2014 and 29.04.2014 in the matter. Of these, the last two orders merely modify the operative portion relating to the identity of the arbitrator. The order dt. 31.03.2014, reported in 'MANU/SC/0257/2014, is virtually on the same question where the SS Nijjar, J., acting as the designate of the Chief Justice, reached the opposite result, that the arbitration invoked by the consortium through its operator was an international commercial arbitration for the purposes of Section 2(1)(f). Similarities between the two cases are striking and are listed below:

• Both related to a consortium, named as “contractor” in the contract, and some of the members of the consortium were Indian companies and some were non-Indian.
• In both, the lead member (or the operator) who was empowered to act on behalf of the consortium was the Indian company.
• The benefit of success or failure in the arbitration would have been to all the members of the consortium.

Of course, some would argue that Section 11 decisions pre-2015 amendments were not binding precedents. But then, is it really true? There are umpteen number of decisions have considered Section 11 determinations pre-23.10.2015 to be de facto binding. Even the Supreme Court in this very case (dt. 03.10.2018) stated: “This was for the reason that the judgment of this Court, in TDM Infrastructure Private Ltd. v. UE Development India Private Ltd.” (emphasis supplied). The Delhi High Court. in GMR Energy Limited vs. Doosan Power Systems India Private Limited and Ors. (14.11.2017 - DELHC) : MANU/DE/3689/2017 and the Madhya Pradesh High Court in Sasan Power Limited vs. North American Coal Corporation India Private Limited have held that the observations in TDM Infrastructure (para 36) that the observations of the court were in order to determine the court’s jurisdiction and not for other purpose meant that the decision was not a binding precedent. The High Courts are wrong. The observation in TDM does not mean that the decision should not be cited as precedent; rather, it means that the observations cannot be treated as observations on the merits of the case before the arbitrator or otherwise. This is pretty standard in Section 11 petitions and such observations are pretty common even in the decisions by the High Court designates. The Delhi High Court and the Madhya Pradesh High Court in the aforesaid cases seem to have misconstrued this observation in TDM Infrastructure.

Therefore we have two sets of decisions on whether an Indian seated arbitration invoked by a contractor-consortium consisting of a foreign party against an Indian party would be an international commercial arbitration. L&T mentions the “office of the consortium” as if to signify that distinct from the offices of the individual members of the consortium, the consortium had a separate office. This, coupled with the final decision of the Bombay High Court in L&T could be construed by future courts to be determinative factors in choosing from among the two opposite views of the Supreme Court.

Retrospective Operation of the Specific Relief (Amendment) Act, 2018

As stated in several previous posts in this blog, the Specific Relief (Amendment) Act, 2018 (“2018 Act”) brings several substantive changes in the Specific Relief Act, 1963 (“1963 Act”) thereby drastically altering contract remedies. Given that these amendments were brought into force from 01.10.2018, questions are likely to arise as to the retrospective operation of various provisions.

Bengaluru City Civil Court Decides

One of the first decisions on this issue is from the XII Additional City Civil Court, Bengaluru in OS No. 5395/2011 (Somashekar v. Lt. Col. Appu Ramanand Sharma (Retd.). The suit is for specific performance of an agreement to sell an immovable property and has been pending from 2011. When the matter was at the stage of arguments, the Plaintiff argued that the amendments to the 1963 Act have done away with the discretion of courts to order specific performance and that if the agreement is proved, the court is obligated to order specific performance.

The court rejected the contention of the plaintiff on this issue and held that the 2018 Amendment was not retrospective. The court relied on Section 1(2) of the 2018 Amendment, which provided:

"It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision."

On the basis of the above provision, the court concluded that the amendment was given a prospective effect. While the reasoning is not completely in accord with the legal provisions, the court was correct in rejecting the contentions of the Plaintiff on retrospectivity because the cause of action arose prior to the suit in 2011.

While the decision does not have any precedential value, this is perhaps one of the earliest decisions on the issue.

Whether the 2018 Act is Retrospective?

On the question of retrospectivity of the 2018 Act, readers would do well to have a look at this blog post on the subject. This post puts forth the following points:

• The 2018 Act does not contain any savings clause or a transitory provision.
• The 2018 Act is in the nature of substantive law since it provides for substantive changes in the law of remedies.
• Remedial statutes are prospective.
• In view of Section 6 of the General Clauses Act, 1897, the rights and obligations accrued prior to the bringing into force of 2018 Act (01.10.2018) would stand undisturbed by the 2018 Act.
• The 2018 Act would be applicable to all breaches and disputes subsequent to bringing into its force.
• This is irrespective of whether the contract was concluded before the 2018 Act came into force.

Thus, any breach (or cause of action) that arose on or after 01.10.2018 would be governed by the 2018 Act. This is even if the contract was signed before 01.10.2018.

Whether Absence of a Savings Provision or Transitory Clause is a Lacuna?

It is suggested in the aforesaid post that there is no savings provision or transitory clause and a similar absence has caused several problems in the context of the Arbitration and Conciliation (Amendment) Act, 2015. The analogy of the problems regarding retrospectivity, a subject well-discussed in this blog, with that of the 2018 Act is misconceived. While the arbitration amendments were both procedural and non-procedural, the amendments in the 2018 Act are substantive in nature, as the above blog states. Therefore, there is no reason why such a provision should be there. Such savings provisions are not common when an amending statute amends substantive law (as it is known), unless specific reasons warrant otherwise.

New Delhi International Arbitration Centre Bill, 2018 in the Winter Session of Lok Sabha

The Winter Session of the Parliament is beginning from today (11.12.2018). The New Delhi International Arbitration Centre Bill, 2018 is listed in the List of Business in the Lok Sabha for today. The broad aims of the Bill are to:

establishment and incorporation of New Delhi International Arbitration Centre for the purpose of creating an independent and autonomous regime for institutionalised arbitration and for acquisition and transfer of undertakings of the International Centre for Alternative Dispute Resolution and to vest such undertakings in the New Delhi International Arbitration Centre for the better management of arbitration so as to make it a hub for institutional arbitration and to declare the New Delhi International Arbitration Centre to be an institution of national importance and for matters connected therewith or incidental thereto, be taken into consideration. 

• establish and incorporate the New Delhi International Arbitration Centre (NDIAC);
• create NDIAC as an independent and autonomous institution for institutionalised arbitration;
• acquisition and transfer of undertakings of the ICADR- International Centre for ADR and to vest such undertakings in the NDIAC for better management of arbitration so as to make it a hub of institutional arbitration; and
• to declare NDIAC as an institution of national importance.

We had discussed the Bill in a previous post in the form of a presentation. Do have a look at it. With the election results being announced in a few states today and the current political climate, this blogger is not sure if the Parliament is going to discuss Bills today. Most likely the legislative bills would be taken after Wednesday. We'll keep the readers posted on further developments. 

Comments on the (Indian) Arbitration & Conciliation (Amendment) Bill, 2018

The Arbitration & Conciliation (Amendment) Bill, 2018 (“2018 Bill”) has been passed by the Lok Sabha and is now to be taken up before the Rajya Sabha of the Indian parliament this winter session. The Arbitration and Conciliation Act, 1996 is an important legislation because arbitration constitutes a significant part of the ecosystem of dispute resolution mechanisms. Arbitration is the default mode of dispute resolution in commercial contracts. 

Recognising this, the Government has sought to tweak the arbitration law after gaining experience from the amendments made in 2015. The 2018 Bill is pursuant to the recommendations of the Srikrishna Committee constituted by the Government to improve the institutional arbitration mechanism in India. It seeks to establish India as a robust centre for international arbitration and modify some of the recent amendments made to the Arbitration & Conciliation Act, 1996 given the experiences gained in implementing those provisions. 

The amendments contained in the 2018 Bill are far reaching and has the potential to completely alter the way in which arbitration law functions in India. Many commentators have stated that the proposed amendments should not disturb the amendments already made since those amendments have markedly improved Indian arbitration. However, many have also criticized certain provisions of the 2015 amendments, especially those relating to Section 29A fixing time limits for arbitration and increase in court interventions.

This paper critically evaluates certain provisions of the 2018 Bill, suggests changes to the Bill, and provides detailed reasons in support of the changes proposed in this paper.