Practical Academic: August 2019

"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.

Friday, August 30, 2019

Retrospectivity & Bringing into Force: Arbitration Amendment Act, 2019

In the previous post in this blog, we had noted that Section 15 of the Arbitration and Conciliation (Amendment) Act, 2019 (2019 Act) has not been brought into force. A few seem to have read the blog post. One of the queries raised by a reader was whether the phrase "Save as otherwise provided in this Act" was otiose. The short answer is yes. This post deals with reasons why.

But in order to provide a complete picture of the question as to whether Section 15 is currently in force, we reproduce the previous post under the head "Part I" and deal with the above issue regarding the effect of "Save as otherwise provided in this Act" in Section 1(2) of the 2019 Act in Part II. Those readers who have read the previous post can skip Part I of this post and scroll down to Part II below.

Part I

As on date, that is, 29.08.2019, the Arbitration and Conciliation (Amendment) Act, 2019 (2019 Act) has not yet been brought into force although the 2019 Act has been notified in the Official Gazette on 09.08.2019.

Title of the notification states: "The following Act of Parliament received the assent of the President on the 9th August, 2019, and is hereby published for general information..." This notification does not bring into force the 2019 Act but was only published in the Official Gazette for general information.

Section 1(2) of the 2019 Act provides: "(2) Save as otherwise provided in this Act, 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."

This sub-section can be analysed in two parts. The first part provides, among other things, that the Act shall come into force when the Central Government notifies the appointed date in the Official Gazette. The second part implies that this Act shall come into force immediately when it provided so in the 2019 Act.

The prevailing opinion seems to be that the 2019 Act is yet to come into force. See, for instance, this post. However, some are of the view that Section 15 of the 2019 Act, which reads as below, has been brought into force immediately: "Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 shall be omitted and shall be deemed to have been omitted with effect from the 23rd October, 2015."

We are of the view that the entire Act, including Section 15 are yet to be brought into force. Section 15 creates a legal fiction ("shall be deemed") whereby Section 26 is omitted retrospectively, with effect from 23.10.2015. However, it does not talk about when the provision would be brought into force. Both are entirely different. Section 1(2) speaks of bringing into force and Section 15 talks about retrospectivity. Given, Section 1(2), even Section 15 will begin to apply, prospectively or retrospectively, only after Section 15 is notified, either separately or along with some or all the provisions of the 2019 Act.

Whenever the statute provides that a provision will be brought into force immediately, the statute is unequivocal. For instance, Section 1(3) the Companies Act, 2013 states: "(3) This section shall come into force at once and the remaining provisions of this Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint..." It is apparent from the emphasised portion that the Companies Act, 2013 clearly shows when Section 1 is brought into force: "come into force at once". Other examples are given below:

Section 1(2) of the Institute of Trans-Disciplinary Health Sciences and Technology (Amendment) Act, 2017 (Karnataka): "It shall come into force at once."
Section 1(2) of the the Constitution (Application to Jammu and Kashmir) Order, 2019. "(2) It shall come into force at once."
Section 1(3) of the Additional Emoluments Compulsory Deposit Act, 1974: "(3) It shall be deemed to have come into force on the 6th day of July, 1974, except section 14 which shall come into force at once."

No such phraseology is found in Section 15. It is pertinent to note that about six laws that recently received presidential assent such as the Motor Vehicles (Amendment) Act, 2019, the Consumer Protection Act, 2019, etc. were published for general information, along with the 2019 Act, on 09.08.2019. Therefore, there is nothing special in the notification except to the extent provided in the notification's title: it was "published for general information".

For all these reasons, Section 15 of the 2019 Act has not been brought into force as on 29.08.2019.

Part II

What then is the need for the phrase "Save as otherwise provided in this Act" in Section 1(2)? Our view is that the provision seems to be a comprehensive but standard phrase used as regards bringing into force of a provision and serves no specific purpose under the 2019 Act. Such a usage is not altogether new. There have been several statutes where the above phrase was used but the entire statute was brought into force through a notification on a subsequent date. A few examples are given below:

Section 1(2) of the National Bank for Agriculture and Rural Development (Amendment) Act, 2000 stated: "(2) Save as otherwise provided in this Act, it shall come into force on such date as the Central Government may, by notification in Official Gazette, appoint." This statute was brought into force on 1 February 2001. The statute does not contain any provision by which one could infer that the provision came into force at once.
Section 1(3) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 provides: "(3) Save as otherwise provided in this Act, it shall come into force on the 1st day of April, 2016." Like the 2019 Act, it did not contain any provision by which one could infer that the provision came into force at once.
The Code of Criminal Procedure (Amendment) Act, 2005 is another example. Section 1(2) originally provided: "(2) Save as otherwise provided in this Act, it shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint." Again, it did not contain any provision by which one could infer that the provision came into force at once. In fact, the Act was not even brought into force. It was done only after the Code of Criminal Procedure (Amendment) Amending Act, 2006. On this, the Bombay High Court held in Chandra Kanjappa v Maharashtra: "By the Code of Criminal Procedure (Amendment) Act of
2005, (Act No.25 of 2005), extensive amendments to the Code of Criminal Procedure, 1973, (Code) were introduced. By Section 42 of the said Act, the First Schedule to the Code was amended. By Clause (f)(iii) thereof, the offence punishable under Section 324 of IPC was made "non-bailable." However, the said Act did not come in force, at once." (emphasis supplied).

There are many more examples such as the Compensatory Afforestation Act, 2016. In all these cases, the commencement clause used the phrase "Save as otherwise provided in this Act" but the statute was brought into force much later.

Consequently, no special meaning could be attributed to the phrase "Save as otherwise provided in this Act" in the absence of a clear legislative mandate that Section 15 was brought into force on enactment of the 2019 Act. Provisions as regards retrospectivity are totally different from those dealing with commencement, as Part I of this post clearly illustrates. To conclude, as on date (30.08.2019), none of the provisions of the 2019 Act has been brought into force.

Thursday, August 29, 2019

Section 15 of the Arbitration Amendment Act 2019 is in Force?

Section 1(2) of the Institute of Trans-Disciplinary Health Sciences and Technology (Amendment) Act, 2017 (Karnataka): "It shall come into force at once."
Section 1(2) of the the Constitution (Application to Jammu and Kashmir) Order, 2019. "(2) It shall come into force at once."
Section 1(3) of the Additional Emoluments Compulsory Deposit Act, 1974: "(3) It shall be deemed to have come into force on the 6th day of July, 1974, except section 14 which shall come into force at once."

For all these reasons, Section 15 of the 2019 Act has not been brought into force as on 29.08.2019.

Wednesday, August 21, 2019

With an Arbitration Clause, Do you Still Need to Designate Jurisdiction?

Normally, parties to an agreement negotiate on an arbitration clause wherein they agree upon a place of arbitration. For instance, two Indian parties may agree:

"13. Any dispute arising out of or in connection with this Agreement shall be referred to arbitration by a sole arbitrator to be jointly appointed by the Parties. The place of arbitration shall be New Delhi.."

The question is whether parties should also agree on the courts that would have jurisdiction over matters in relation to this Agreement. The law as it stands today is that in addition to the courts that would ordinarily have had jurisdiction had there been no arbitration clause (typically the court from which a part or the whole cause of action arose or the court within whose jurisdiction the respondent resides or carries on business, etc.), the courts of the seat of arbitration would also have jurisdiction. In this regard, see, BALCO:

"96... For example, if the arbitration is held in Delhi, where neither of the parties are from Delhi, (Delhi having been chosen as a neutral place as between a party from Mumbai and the other from Kolkata) and the tribunal sitting in Delhi passes an interim order under Section 17 of the Arbitration Act, 1996, the appeal against such an interim order under Section 37 must lie to the Courts of Delhi being the Courts having supervisory jurisdiction over the arbitration proceedings and the tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi. In such circumstances, both the Courts would have jurisdiction, i.e., the Court within whose jurisdiction the subject matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution, i.e., arbitration is located."

That the SC in BALCO sought to introduce concepts of international arbitration into domestic arbitration when there was no need to and contrary to the definition of "court" in Section 2(1)(e) of the Arbitration and Conciliation Act, 1996 ("1996 Act") is fairly well-established. See, for instance, V. Niranjan & Shantanu Narvane, ‘Bhatia International Rightly Overruled: The Consequences of Three Errors in BALCO’ (2012) 9 SCC J-26, where the authors argue, rightly, that one of the important consequence of this "error" in BALCO is that BALCO created an exception to the fairly established principle that jurisdiction on a court cannot be conferred by consent, unless the law otherwise confers jurisdiction.

What is more problematic is the problem of reconciliation of two opposing principles. One of the justifications of the court in BALCO was the purportedly well-established principle in international arbitration that designation of a seat operated as an exclusive jurisdiction clause. Based on this, the court held that if a party to an Indian arbitration with no foreign element ("Purely Domestic Arbitration"). At the same time, it was fairly well-established that where two or more courts had concurrent jurisdiction over the matter, parties to a contract could agree to confer exclusive jurisdiction only on one of those courts but not on another.

Now the problem with the above formulation was that both these two principles could not be conceptually reconciled where the choice of seat was different from the choice of jurisdiction. For instance, in the above quoted example, if choice of seat was Delhi and if the parties had agreed on the exclusive jurisdiction of the courts at Mumbai, would the choice of seat and the consequent "choice" of Delhi courts as courts of exclusive jurisdiction override parties' agreement to have Mumbai as the choice of court?

This crucial hole in this doctrine is stark if one peruses the observations of the Supreme Court in Indus Mobile:

"Under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to "seat" is a concept by which a neutral venue can be chosen by the parties to an arbitration clause. The neutral venue may not in the classical sense have jurisdiction -- that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Sections 16 to 21 of Code of Civil Procedure be attracted. In arbitration law however, as has been held above, the moment "seat" is determined, the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties."

Two problems arise owing to this observation: (1) if the seat is designated, will parties' choice of a court other than the seat's court be invalid? If the emphasised observation is taken to its logical end, this is what will entail. (2) the observation really renders S. 2(1)(e) otiose, which could definitely not have been the legislative intent.

There is another dimension to the issue. In Brahmani River (25.07.2019: SC), the Division Bench of the Supreme Court observed: "Where the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter and parties intended to exclude all other courts." If that is so, then whenever the parties agree on the place/ seat of arbitration, say Delhi, and agree that courts at another place, say, Mumbai, will have exclusive jurisdiction, then parties should be deemed to have excluded the courts at the place of arbitration and should be deemed to have chosen Mumbai as the relevant court. In such a case, the principle that choice of seat is an exclusive jurisdiction clause will not survive.

The statement in C v D [2007] EWCA Civ 1282 and Shashoua v. Sharma that the choice of seat is akin or analogous to an exclusive jurisdiction clause has been taken to mean that choice of seat is equivalent to an exclusive jurisdiction clause in BALCO and Indus Mobile. More on Indus Mobile, criticisms of Indus Mobile and other aspects in another post. The judicial creation of jurisdiction to courts at seat in domestic arbitration is a reality which we have to accept. That it may be wrong is for a future court to decide. This question needs to be answered from the perspective of party autonomy.

However, the judicial creation of jurisdiction leads to doctrinal inconsistency. Consequently, courts in future will have to answer this properly and provide its reasoning by filling the logical gap. The only way in which the opposing principles can be reconciled would be to re-write these principles in terms of default rules (or as presumptions, if one were to see these in terms of evidence), which is quite a standard formulations in many jurisdictions as regards choice of law issues:

The choice of seat will operate as a exclusive choice of the courts at seat.
Parties could contract around this default rule by agreeing on one of the courts which would have had concurrent jurisdiction had there been no arbitration clause.
Where there is a choice of seat and a designation of exclusive jurisdiction of a court different from the seat, such a designation would be a clear indicator of parties' intent to contract around the default rule at Sl. No. 1.
Contracting around the default rule is constricted by the principle that no one can confer jurisdiction on a court by agreement when such court would not otherwise have jurisdiction. In other words, if a party wants to contract around the presumption in Sl. No. 1, such a contracting around would be valid only if the court chosen is one which will come within the purview of Section 2(1)(e). For instance, if Party A (from Lucknow) and Party B (from Mumbai) enter into agreement at Mumbai for execution of contract at Mumbai and payment at Mumbai and agreement provides for seat of arbitration at Chennai and exclusive jurisdiction of courts at New Delhi, the party choice of exclusive jurisdiction of courts at New Delhi cannot be deemed to have contracted around the default rule (that choice of seat at Chennai operates as the exclusive choice of courts at Chennai) since under the Code of Civil Procedure, 1908, courts at New Delhi would not have any jurisdiction.

Now, to answer the question posed in the title of this post: why should parties waste precious negotiation time on jurisdiction clause when it is sufficient if they agree on the choice of seat? They should, if they wish to contract around the aforesaid default rule and make an exclusive choice of courts other than those of the seat. If the parties do not wish to do so, they need not waste time on the jurisdiction clause because choice of seat also means the exclusive choice of courts at the seat.

Practical Academic