"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, March 25, 2010

Partial Setting Aside of Arbitral Awards

Thanks to Herbert Smith’s bulletin on arbitration, I came across a three month old decision of the Bombay High Court on arbitration which is a development worth noting. In RS Jiwani v. Ircon International, a full bench of the High Court of Bombay held that a court could partially set aside an arbitral award without nullifying the award in its entirety. The High Court overruled its previous decision on the point. Herbert Smith bulletin says that the “decision has been welcomed by practitioners in India and outside, in that it avoids the draconian outcome of losing the entire award if only part is defective” and the same “is a welcome demonstration of support for alternative dispute resolution by the Indian courts, and a boost for arbitration in the country.”

The main issue which the court had to decide on was whether court could set aside an award partially under Section 34 of the Act, notwithstanding the fact that the Act allows the court to do so expressly only with respect to Section 34(2)(iv) and not otherwise. The Full Bench held that a court could. On this issue the court overruled its previous decision in Pushpa P. Mulchandani v. Admiral Radhakrishnan Tahilani where the court had held that only under Section 34(2)(iv) could a valid portion of the arbitral award be severed from an invalid portion and in all other cases, where a part of the award is invalid, the entire award would fail. 

It may be noted that one of the prime justifications of the decision in Pushpa was that the Act did not contain a provision similar to Section 15 of the Arbitration Act, 1940 (1940 Act). Section 15 read:

15.Power of Court to modify award:-
The Court may by order modify or correct an award -
(a) where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred ; or
(b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision ; or
(c) where the award contains a clerical mistake or an error arising from an accidental slip or omission

A similar provision enabling the court to partially set aside an award is not found in the 1996 Act, except under Section 34(2)(iv). Hence, it was decided in Pushpa that the court did not have jurisdiction to partially set aside an arbitral award, except when under Section 34(2)(iv).

Pushpa was overruled by the Full Bench of the Bombay High Court on the following grounds:

  • There are seven grounds on the basis of which an arbitral award could be set aside. Out of these severability (of arbitral award) is permitted only under ground.However, it might be possible that even under the said six grounds, there is no need for the court to set aside the award in its entirety. For example, in an award, the tribunal might not have afforded an opportunity of hearing in respect of counter-claims but would have given the same with respect to the claims. Another example is a case where the arbitrator has, while allowing several claims of the Claimant, has also allowed a time-barred claim In such cases, it makes no sense to set aside the whole award.
  • The doctrine of severability is a concept that is recognised universally. It is applied in the realm of contracts (to enforce parts of contracts that are not invalid) and even to statutes. Hence there is no reason why severability should not be applicable to arbitral awards
  • Further, even the Act does not prohibit existence of the power of a court to partially set aside an award.
  • Once award attains finality and vests a legal right on one of the parties, it would be unjust to deny such a party the vested right on the grounds that other portions of the award are invalid.
  • When a party can challenge a part of the award while not challenging another part of the same, there is nothing to prevent a court from partially setting aside an award. 
Cornelis Carel et al, in their book titled "Law and reality: essays on national and international procedural law", note at p. 164 that in Austria, Belguim, France, Germany, Greece, The Netherlands, Spain and Switzerland a court could partially set aside an award.

Gillian Hadfield, Law for a Flat World: Legal Infrastructure and the New Economy

Gillian Hadfield has written an excellent article on the discordance between the nature of legal services  and the demands from the industry. Though Hadfield seeks to establish a broader thesis, his arguments mainly stem from the expectations of corporate clients vis-à-vis the law industry. It makes sense for Hadfield to adopt this approach because one would expect the industry to invest lots of money for receiving legal services. His Her thesis is simple: There has been a substantial shift in the nature of economic activity and the law industry has not kept up with the demands of this new economic order. The primary complaint is that knowledge, language and the culture of the law industry is that of law and not that of business. This “DNA gap” begins right from the law school.
The article is worth checking out.The abstract is as below:

In the last two decades, the economy has undergone fundamental transformation with the twin structural changes of a great increase in the size of global markets and the internet-driven development of a platform for global exchange and work processes. These changes have transformed the economic demand for law: the demand for legal inputs that will support the creation of value in economic relationships. Not merely the quantity but the type of legal inputs required by the new economy is significantly different from those required by the old economy. The economic demand for law in the new economy requires support for the much higher rates at which economic relationships now cross both firm and jurisdictional boundaries, the more rapid depreciation of legal solutions, the increased differentiation of legal problems, the reduced tolerance for legal transaction costs created by high velocity and global competition, and a greater need for integration of business and legal expertise in order to engage in the relatively constant innovative problem-solving that the new economy requires. In this paper I argue that our legal infrastructure - the socially available set of legal materials that economic actors can use to help govern relationships - has not kept up with this transformation in the economic demand for law. Empirical evidence for this claim includes the increasing levels of dissatisfaction in even the most elite corporate legal markets, the unprecedented impact of the Great Recession of 2009 on large law firms, and surveys and interviews conducted with corporate counsel. The primary basis for the claim of a mismatch, however, is theoretical: the attributes of our existing legal infrastructure - a heavy reliance on densely-worded and complex statutes, regulations and contracts; human-capital-intensive craft production methods; undiversified legal business models; almost exclusive reliance on mandatory legal rules imposed by public actors - are poorly suited to the nature of economic activity in the new economy. The reason our legal infrastructure has not adapted, I argue, is attributable to an even deeper level of legal infrastructure: the severe limitations on who may produce legal rules and other legal inputs (such as advice, document templates, norms and practices) imposed by our continued reliance on publicly produced rules and the excessively closed nature of our lawyer- and judge-controlled legal markets.

Saturday, March 20, 2010

Recent Judgments

S. 10 (A)’s modified reading
Soumya Ann Thomas v. UoI. WP(C).No. 20076 of 2009(R). High Court of Kerala, Date of Judgment 25-02-10
This case raises interesting issues relating to; personal law, constitutional law, their interrelationship and judicial review of legislation. The HC of Kerala by this decision held a part of Section 10 (A) of the Indian Divorce Act, 1869 as violative of Articles 14 and 21 of the Constitution of India.
The case challenged the vires of Section 10 (A) as far as it stipulates a period of two years of living separate before filing a petition for dissolution of marriage by mutual consent mandatory. The content of this provision, which is a delayed bogie as Hindu, Parsi and Special Marriage Act already had provision for dissolution by mutual consent and it was in 2001 that the provision was added to Indian Divorce Act, is similar to all earlier specified laws but for the lock-in period. In other similarly placed enactments the period is one year.
The radical view on the constitutionality of personal laws
The court suggest reconsideration of Narasu Appa Mali as it “… find no reason, in a secular republic, to cull out "personal law" alone and exempt the same from the sweep of Art.13 and Part III of the Constitution.” Having said this, the court finds no reason to engage with this issue as the court categorises the personal law into two; traditional personal law - pure and simple and statutory law enacted by the Parliament. The court is of the opinion that a statutory law relating to personal law has to satisfy Part III and amenable to Art. 13 of the Constitution. This justification is drawn from Shri Krishna Singh v. Mathura Ahir ((1981) 3 SCC 689), wherein the court “observed that when personal law is altered, "modified or abrogated by statute", the same will have to satisfy the test of Art.13. This position is reiterated in another Kerala High court judgment, Mary Sonia Zachariah v. Union of India (1995 (1) KLT 644 (FB)). The courts sweeps away Narasu Appa Mali in the following words
“We do, in these circumstances, hold that even if the dictum in Narasu Appa (supra) is valid and binding and has been approved by a co-equal Bench of this Court as well as the Supreme Court, the same cannot in any way justify the contention that Sec.10A of the Divorce Act is not amenable to challenge under Art.13 of the Constitution. The said contention must, in these circumstances, fail. We hold that Sec.10A of the Divorce Act shall have to stand the test of Art.13 of the Constitution.”
Progressive it is, nevertheless, lacks legal reasoning to reach such a position. The inequalities generated by personal laws and the discrimination it perpetuates has been a matter of concern for long and the judicial stand in validating the objectionable Narasu Appa position has been under criticism. This court had very well begun raising its objection in this judgment but rather than taking it by the horn, avoided dealing with the issue. The incapacity of the court to overrule a holding position of the SC and the delay and injustice that could cause if the matter is referred might have prompted the judge to adopt the present course of action.
On Equality
The petitioner challenged the two year stipulation in Section 10 (A) as violative of equality clause. The dual test of reasonable classification in this case, for the court, is not satisfied, though the Addl. Solicitor General argued that this is a law specifically for the Christians and such a classification is rational, and that it is the legislative wisdom that prescribed for a two years period of separate living before filing for a dissolution of marriage with mutual consent has a rational nexus to the objective.
The court makes a curious case of classification here to hold that the classification made in the Act in bringing all Christians within its fold and differentiating Christians from members of other religion is hit by Art. 14. From the whole of Christian community the court carves another classification, secular Christians who despite having got their marriage solemnised under Christian tradition and rites wish to avail the secular norms of divorce by mutual consent.
The rationale in court’s own words reads thus in para 31
“They [the class of people] are people who may have got their marriages solemnized in accordance with their respective personal laws; but want such marriages to be dissolved on the ground of mutual consent. That is the dominant principle of classification. To such class of persons benefits have been extended by amendment and incorporation of identical provisions in the statutory law relating to marriage. The beneficiaries do not primarily and dominantly belong to the class of Christians, Hindus or Parsis. They are not classified for the purpose of the amendment on the basis of their religion at all. They belong to the class of persons who notwithstanding the solemnization of their marriage under the personal law and notwithstanding the absence of such provisions in their personal law, want to claim the benefit of such dissolution of marriage by mutual consent as is available to those who have got their marriage solemnized under the secular law i.e., the Special Marriage Act.” (Emphasis supplied)
The court apparently bases its reasoning on the secular character of the nation and Art. 44, which is a lead to uniform civil code. For the court, it is unjustifiable to discriminate people on the basis of their religion when the legislature has extended the benefit to all the people whom the court has categorised as those who solemnised the marriage per personal laws but want such marriage to be dissolved on the ground of mutual consent. This rationale to me is rather fictitious.
Court finds the violation of equality and reasons that “[w]hen the legislature has perceived that the time is ripe to extend the benefit of the concept to a particular community, to further discriminate them on the basis of their religion is certainly anathema to law. It offends the principle of equality. The stipulation of the longer period of mandatory separate residence, the differential, has no rational relationship to the object sought to be achieved. In short, we agree that classifying persons into one group to extend the benefit of the secular concept of divorce by mutual consent to them by progressive amendment of the personal law though in stages and later discriminating among them on the basis of religion by prescription of a longer period of mandatory minimum separate residence clearly offends the mandate of equality under Art.14 of the Constitution.”
Right to life
The court found the stipulation of different periods for different religion as unjustified, unfair, unjust and wrong. Such a stipulation is unreasonable, arbitrary, fanciful and oppressive.
The anchor of this argument is in the earlier finding of classification of all persons belonging to all religions to whom the benefit of mutual divorce is extended. A stipulation which is more onerous to some, than the counter parts in other religion, for the court, offends the mandate of Art. 21. Here again the court left the entire jurisprudence of Art. 21 behind to come to a result oriented review of the legislation.
The judgment
Brushing aside the argument of the ASGI that the court while exercising its power under judicial review shall not question the legislative wisdom the court declared the stipulation of two years as violative of Art. 14 and 21. The rationale given by the court is that when legislative wisdom crystallises into a legislative Act, the same shall be reviewed to see its compliance with Part III of the constitution. The court employed the doctrine of severability in an atypical way to modify the language of the Section that two years shall be read as one year in the following words
“[R]ead down such an unconstitutional provision which is unrelated to the object sought to be achieved The stipulation of two years can be severed and can be read down to one year to bring it to be in conformity with the provisions of other laws to avoid the vice of unconstitutionality.”
P.S. You might be interested to read the judgment of the same bench, couple of weeks later, on the application of Section 125 Cr.P.C for Muslim women and talaq in KUNHIMOHAMMED v. AYISHAKUTTY , RPFC.No. 53 of 2006, Judgment dated 17/03/10

Tuesday, March 16, 2010

SSRN Articles

This article explores the benefits and drawbacks of using model examples of good legal writing in the first-year writing curriculum and proposes a practical, hands-on approach to effectively integrating model examples into the curriculum to meet students’ high demand for them. 

The literature addressing the meaning of a commitment made by holders of patents ‘essential’ to a standard to licence such patents on ‘fair, reasonable, and nondiscriminatory’ (FRAND) terms and conditions is now substantial. While reaching quite different conclusions, a number of authors have addressed this as a question of economic theory: what limitations (if any) on the freedom of the parties negotiating a licence to essential patents will best ensure efficient outcomes?

On the basis of such analyses, authors have variously argued that, in order to satisfy a ‘fair and reasonable’ commitment, a patent holder:
• Must charge no more than the incremental value of his invention over the next best technical alternative;
• Must not negotiate for a royalty-free cross-licence as part of the consideration for a licence;
• Must set his royalty rate based on a mathematical proportion of all patents essential to the practice of a standard;
• Must set his royalty rate in such a way as to prevent cumulative royalties on the standardised product from exceeding a low percentage of the total sale price of that product;
• Must not raise requested royalty rates after the standard has been adopted, or after the relevant market has grown to maturity;
• Is not entitled to seek injunctive relief against a standard implementer should they fail to agree on licence terms.

The types of economic arguments relied on by these authors to justify these restrictive regimes may well be useful in debating public policy and the proper application of national competition law – although one of the present authors and others have elsewhere critiqued the merits of many of these calls for what is essentially government intervention in the private licencing process. But in this paper we step back to ask a different question: What do these arguments and proposed regimes have to do with the contract which is the source of the FRAND obligation? 

For years, legal theory scholars have been obsessed with two dominant normative accounts: law and economics and individual rights. Recently, however, an old normative theory has resurfaced. Virtue theory, grounded in Aristotelian practical philosophy, has begun to receive attention from both historians and legal philosophers. In the past year, a small group of theorists has made a dramatic move: they have attempted to apply virtue theory to problems in contemporary law, in the form of a new “virtue jurisprudence.” Thus far, virtue jurisprudence scholars have limited their work to public law subjects. This article makes a substantial new contribution by extending virtue jurisprudence to a central area of private law: contracts.

Why contract law? This article contends that several difficult challenges in contract jurisprudence remain unresolved because neither law and economics nor rights theorists have been successful in accounting for the actual desires of contracting parties. For example, current theoretical frameworks fail to fully explain contract’s duality as both an economic and social institution. They fail to account for parties’ interest in both wealth maximization and justice. Virtue jurisprudence accounts for these critical dualities better than either law and economics or individual rights. Accordingly, this article suggests that virtue jurisprudence may reframe how both theorists and courts think about “the parties’ intent,” which is a foundational concept in any contract case.

This article takes on several tasks. It explains virtue theory in ways that show its relevance to contract law. It lays out a historical case for the importance of virtue theory to political liberalism and free markets. It explores several sites where current theoretical approaches do not fully capture contracting parties’ intent. Finally, it shows how virtue jurisprudence may offer a superior descriptive, and normative, account of intent-based doctrines in contract law. 

Abstract:      European law gives consumers the right to withdraw from a range of contracts for goods and services; American law, with narrow exceptions, does not. Yet merchants in the United States frequently provide by contract that consumers have the right to return goods. We analyze the right to withdraw in a model that incorporates a tradeoff between allowing consumers to learn about goods that they purchase and protecting sellers from the depreciation of those goods. The right to withdraw - at least, as a default rule - has a plausible economic basis. We identify a nascent version of it in the well-known, controversial case of ProCD v. Zeidenberg.

Saturday, March 13, 2010

The Commercial Division Bill and the 'Other'

On 16th December 2009, an eight page Bill titled ‘the Commercial Division of High Courts Bill, 2009” (“Bill” or “Commercial Division Bill”) was introduced in the Lok Sabha. The Long Title to the Bill seemed impeccant. It read:

A Bill to provide for the constitution of a Commercial Division in the High Courts for adjudicating commercial disputes and for matters connected therewith or incidental thereto.

The industry hailed it as a new dawn in the cumbrous, pricey, delusional dispute resolution scenario that commercial arbitration posed. The business media called it a giant stride (Business Standard, January 25, 2010. Members of the legal sodality heralded the Bill as a tread towards global standards (Dispute Resolution Hotline, Nishith Desai, January 4, 2010). A fortnight later, a stalwart of law, wrote a blistering critique in the Hindu, which made the government run to the critic and seek his opinion.

The author of the op-ed piece in the Hindu, Justice Krishna Iyer, wrote that the Bill sought to dichotomise justice by making an arbitrary, obnoxious, irrational, outrageous discrimination by giving a kingly treatment to the rich investor, making him fly through a two tier, efficient, modern judicial system, while lets the peasant, the widow, the persecuted trade union, the poor litigant rot through a multi-tiered judicial system, dying out even before the final verdict is delivered.

Shorn of the acerb lamentation, the leitmotif of the article seems to be that the government has not ensured such a system to the needy; instead it has pampered the rich with a fantabulous judicial system, thereby failing to fall within the good books of Article 14.

The Commercial Division Bill:
The Commercial Division Bill is a product of the Law Commission’s anguish at the timeserving paradoxical treatment meted out by the American and the English courts and the multinationals on the Indian legal system. This derogatory posture (inter alia, of non-neutral application of the forum non-conveniens doctrine) acted as a catalyst in making the Law Commission recognise that the Indian industry “must be given a clear assurance that commercial suits of high pecuniary value” shall be dealt within the first instance by a commercial division of the High Court which would ensure swift justice. The Commission felt that the swift resolution of commercial disputes by such a court would lead to an “overall benefit that may accrue by way of increased investment in India, both from domestic and foreign investors will be in hundreds of millions of dollars and the expense in constituting these fast-track, high tech courts will be small.”

Though not expressly articulated, the perceived reasons/ advantages of the Bill seemed to be as follows:

a) Mechanism for quick resolution of commercial disputes
b) Establishment of a separate class of judges well versed in commercial law
c) Consequent development of Indian commercial law.


For Justice Krishna Iyer, the Bill creates a “dichotomy” in that the “Commercial” class enjoys a privileged position vis-à-vis the “Non-commercial” class that is made to decay in the court system. This, according to the him, makes it violative of Article 14, which does not allow affording privileged position to a select few. He does not stop here. He goes further to say that the creation of the dichotomy would result in further decay of the Non-commercial class because judges and resources will be directed towards commercial class. He laments:

It is obvious that there is discrimination writ large here between two classes of litigants. This will also reduce the number of judges available to hear ordinary items of litigation, commercial, labour and land disputes that involve a jurisdictional value that is less than Rs. 5 crore. This will necessarily mean a longer time-span for the conduct of proceedings and final disposal by fewer judges who will be left to handle them.

I do not understand why this complaint is raised. The Bill leaves it to the High Courts to decide on the number of “Division Benches” could be constituted. Even if there is a reduction in the number of judges available for deciding on litigation concerning the non-commercial class, what forbids the government from appointing additional judges to compensate for such reduction? I do not see any wrong in appointment of additional judges.

The issue is projected in such a way that the passage of the Bill would lead to hegemony that would belittle even slavery. Per the op-ed, a class of people has been given a special treatment on the basis that they have more money than others. Presentment of the issue into dichotomous, mutually exclusive classes (as rich v. poor) which are binary opposites, one ruining another, is problematic.

Justice Krishna Iyer thereby states that the Bill is against the constitution and therefore implies that the same should not be passed as an Act. The argument is flawed for a few reasons elaborated below. Consider a simplistic example: a family consisting of four people- a married couple, their daughter and son. The parents give favourable treatment to the son and deny the daughter identical treatment and instead treat her badly. The girl complains to an independent adjudicator (a family elder or a court) against the discriminatory treatment. Would the adjudicator order the parents to ensure equal treatment or would the parents be ordered to treat both of them badly? The op-ed argues for the latter, which does not seem to be the right approach.

While I applaud and admire the sensitivity of Justice Krishna Iyer in pointing out that the Government has excluded Non-Commercial classes from legal reforms, I do not understand why he seeks to argue for killing the Bill. Ideally one would have expected suggestions from him to ensure a pain-free dispute resolution process for Non-commercial class.

The ‘Rich’, the ‘Others’ and the ‘Other’

Justice Krishna Iyer’s categorisation that the ‘rich’ benefit by the Bill is defective for a few reasons. It is a massive simplification of intricate state of affairs that the Bill seeks to touch, intended or otherwise. That is where the critique is problematic. While attempting to defend the cause of few ‘others’, the he altogether ignores another ‘other’, a class which is the target of the Bill- commercial entities (Firms). The op-ed casts a stigma on commercial entities by calling them ‘rich’. However, Justice Krishna Iyer fails to point out the fact that Firms consist of ordinary people- people who work day and night, people who, often at the cost of their health and personal life, engage in a productive activity. Classifying them as ‘rich’ seeks to belittle their efforts. Make no mistake, I am not advocating leniency towards perpetrators of Bhopal or Enron here. My point is that branding of Firms as simply ‘rich’ entirely ignores their other dimensions.

Further, the way the legal system treats Firms is a shocking instance of repression and inefficiency. Millions of hard earned Rupees has been unnecessarily and undeservingly sucked up by the law industry, amply helped by judges and legislators who have given the Indian industry a commercial law system that is a pretense of the rich English commercial law. I work in the legal department of a Firm. In a case, we had to file a caveat before the Supreme Court. We drafted the caveat and sent it to our lawyers (a popular bunch of lawyers) in Delhi to file it before the Supreme Court. Can you imagine how much the fee was? Rs 12,000! Drafting the one page, two lined caveat? Go figure!

This is just a small example. I had already mentioned about costs that a company has to pay for arbitrating disputes in a previous post. To put the matter in context, I repeat relevant portions of the said post:

"In a typical ad hoc arbitration involving retired supreme court/ high court judges, the costs involved per day or a part thereof are as below:

1) a per sitting fee (one sitting is roughly equivalent to three hours) ranges between Rs. one lakh to two lakhs per arbitrator (that makes it 3-6 lakhs for three), plus
2) a one time reading fee of one to three lakhs, plus
3) fee paid to the senior advocate (which ranges anywhere between one lakh to four lakhs per appearance/ hearing/ hour- this might be a conservative estimate in arbitrations involving very large claims) plus
4) fee ranging between ten thousand to fifty thousand for the junior counsel (per hour) plus,
5) six-twelve thousand (again, per hour) if you are hiring a law firm to conduct all the drafting and briefing work, plus
6) a few thousands for the representative of the party litigating plus
7) the stay in a five star hotel for the three arbitrators (if the arbitrator is not from the city where arbitration takes place plus
8) 10,000-50,000 per day for the venue of arbitration
9) 1,000-2,000 for the typist/ administrative costs

The above is just a conservative estimate of costs that a company might incur in a day or a part of a day."

(Also see here where it is reported that some lawyers charge between Rs. 3- 5 lakhs for a five minute appearance in admission matters before the Supreme Court)

Exorbitant fees and below-par service is what the most lawyers in India have to offer to the industry under the pretense of legal services. I have heard several lawyers remark that the quality of service offered by most Indian law firms is nothing as compared to many foreign law firms. Indian law firms have successfully warded off foreign law firms for the time being.

We hardly find quality judges conversant with commercial law. The decisions of N. Radhakrishnan v. Maestro Engineers or DDA v. RS Sharma are recent examples that reflect the quality (or the absence of it) in dealing with commercial law aspects. A perusal of the judgments (even in the High Courts and the Supreme Courts) concerning commercial law would show a great deal of arm-chair, impromptu reasoning. For that matter, even retired judges of Supreme Court, when they act as arbitrators, fail to do their homework in familiarizing themselves with technical aspects/ commercial aspects of businesses. In an arbitration which I came across, three retired Supreme Court judges were arbitrators in relation to a contract. At the fag end of the arbitration (seven years after the filing of notice of claims) the arbitrators asked the parties the meaning of a term in the said contract which was previously explained to the tribunal several times by counsels from both sides. It took more than three years, after the completion of all hearings, for the arbitrators to give the award! But this is not to belittle the fact that many judges have tried to do justice to commercial law issues.

The state of the commercial dispute resolution system of arbitration in India is in shambles and ironically, Firms have, for several years, sought alternatives to this species of ADR. The rant of ONGC’s counsel about arbitration in Dolphin is a typical example of the Hobson’s choice that the Firms have. If they approach courts to resolve disputes, the courts would take years and the quality of judgement would be such that parties would have to go tier-after-tier till the apex court. Instead of courts, if Firms approach arbitrators, the story is worse. Therefore, Justice Saab, it is not only the poor litigant or the widow or the trade union but also the Firm who is the ‘crushed’.

Friday, March 12, 2010

Recent Judgments

Syed Bashir-ud-din Qadri v. Nazir Ahmed Shah,

CIVIL APPEAL NOS.2281-2282 OF 2010, Date of Judgment 10-03-10

The case originated from J&K where the appellant with disability due to cerebral palsy was appointed as teacher and was found to be capable of discharging the duties by the Head Master and a committee appointed for evaluating the performance.

Later on, another contender for the post filed a petition before the J&K HC and caused to appoint a medical commission. As if to show the height of insensitivity, in an unprecedented move, the HC called the appellant personally to court and put questions directly to him. Ultimately ordered disengagement of the appellant from teaching duties and directed the State Govt. to find an appropriate post for him. Aggrieved by that order, the present appeal is filed before SC and got a favourable judgment from bench consisting of Justices Altmas Kabeer and Cyriac Joseph.

The judgment contains; discussion about the principle of reasonable accommodation, direction to judiciary as to what orientation it ought to have while reading PWD Act, and a censuring of the HC for mechanically reading the provision.

Thursday, March 11, 2010

The Super Seven: Some Responses to the National Commission for Higher Education and Research Bill, 2010

There has already been a spate of responses to the proposed NCHER Bill (See, the earlier post for details). This is an attempt to analyse the Bill from the standpoint of promise and the potential of delivering the promise within the structure provided by the Bill.

The Promises
The Bill holds out certain promises in unmistakable terms. The Bill seeks to promote higher education and research, including university technical and professional education other than agricultural and medical education. It intends to provide for the determination, co-ordination and maintenance of standards for higher education and research in the earlier mentioned fields.

Supporting autonomy of higher educational institutions for innovation and free pursuit of knowledge; facilitating access, inclusion and opportunities to all; helping comprehensive growth of higher education and research through reforms; creation of an advisory mechanism of eminent peers in academia; are the other objectives of the Bill

The Justification for the Bill
The Bill is preceded by two documents that are the outcome of extensive deliberation, namely; the Report of the National Knowledge Commission, (page 42 to 57) which suggested an independent regulatory framework (Independent Regulatory Authority for Higher Education) and Yashpal Committee Report, which recommended a national commission of same name. Both have its own logic and justification for changing from the existing regulatory pattern of higher education.

The Bill seems to draw its legitimacy more from the Yashpal Report. I would argue that Bill in its present form cannot be compared to what Yashpal thought as the “why and how” of the commission which the report has suggested. Two underlying themes of the Yashpal report are Diversity and Autonomy, which precisely is what the Bill fails to deliver, though ostensibly promised.

The responses about the Bill in the public domain have pointed out the centralising tendency writ large in the Bill. The regulatory aspects of authorisation, accreditation and affiliation are with the Commission, which makes it no different from the existing UGC structure. The disturbing fact is that this extends to standardisation of curriculum as well. Section 24 (2) (b) and Section 54 (f) speaks about the power of the Commission to make regulation and to ‘develop from time to time, of a national curriculum framework with specific reference to new or emerging or inter-disciplinary fields of knowledge and to provide a vision and guide universities in recognizing and revising course curricula”.
This, I would argue, foster regimentation and standardisation than provide for diversity and autonomy. Read it along with the fact that it is the commission that is to authorise the commencement of a course.

An observation made by Yashpal report would be relevant here “if the syllabi were to be designed with a view to inducting the student into a community of participant citizens, a new kind of institutional culture and ethos can be created in our general and professional colleges. For this to happen, all syllabi should require the teachers and students to apply what they have learnt in their courses, on studying a local situation, issue or problem. There should be sufficient room for the use of local data and resources to make the knowledge covered in the syllabus come alive as experience.”

Another front of attack on the Bill is about the disservice it is doing to the already asymmetrical relationship of centre and state in the matter of education. The Bill does not offer any opportunity of state’s presence in its functions except that the co-opted members of the collegium are representatives of the states. On the other hand the Bill wipes away the existing Higher Education Councils of the State.

The most important discontent with the existing system is related to the governance structure which is subverted from within. The culprit, as suggested by Knowledge Commission and Yashpal Committee, is intrusions by the Government, to put it differently, the political process.

The Bill fails to cork this problem as well. The appointment of the Commission, seven in strength, is done by the President on the recommendation of a selection committee comprising of the PM, the Leader of the Opposition, the Speaker of the Lok Sabha, Minister in charge of Higher Education in GoI, Minister in charge of Medical Education in GoI (one is left to wonder why this Minister, when medical education is anyway not within the purview of the Commission and why not Minister for Law and Justice, when legal education is within the scope of the Act). The Selection Committee is to make recommendation from a panel of names submitted by the collegium (see, Section 5). The issue with collegium as mentioned earlier is that the co-opted members are chosen by core fellows of collegium from a panel of five persons (persons of comparable eminence and integrity in academia in higher education) recommended by the Government of each State or Union Territory (see, Section 17). One should choose to be oblivious of the potential undercurrents of such appointments to believe that eligible persons and only eligible persons will find their place in collegium.

The Chicken and Egg Problem: The Commission is to notify a person as a co-opted member of the collegium once the core members elect them and it is the collegium that has to submit a panel of names to be appointed as members of the Commission. I am sure this is just a logistical glitch and will be solved.

The appointment of Vice Chancellors and Head of the Institutions: The next level of the interference from political bosses usually is in the appointment of Vice Chancellors and Head of the Institutions. The Bill addresses this problem by the creation of a national registry and mandating that at least for Institutions of National Importance, the appointment has to be done from a National Registry of names (see, Section 26(4)). The question then is as to the preparation of the national registry. The duty is with the collegium and they shall update it with selected names from those sent to them by the Commission, which essentially is forwarding of names sent to it by the Central Government, State Governments, Universities and higher educational institutions. This measure will not ensure that political influence is kept away. On the other hand it is a concoction for interference.

The Super Seven
It would be quiet intimidating for any member of the Commission to read Chapter IV of the Bill as it lists out the functions expected to be performed by them. The bulleting exhausts English alphabets and goes for combination.

To top it, the Commission is expected to perform as funder, regulator (in all its aspects) and exercise tribunal like powers. The seven need to cater to the needs of the entire nation that elevates them to the realm of super powered heroes.

Monday, March 8, 2010

India & the UNCITRAL Model Law on International Commercial Arbitration

A couple of days back I saw a brief post in the blog Law and Legal Developments providing links to the latest issue of the journal ‘Trade, Law and Development’. The latest issue contains an article by Mr. Fali Nariman on International Arbitration in the Twenty-First Century: Concepts, Instruments and Techniques. Mr. Nariman informs us that India had a role to play in the drafting of the New York Convention. All along I was thinking that India has, at the most, been a country which was anti-international arbitration (for better or worse, though).

India also played a role in the drafting the UNCITRAL Model Law on International Commercial Arbitration.  In this brief post, I will share with the readers certain comments from India on provisions relating to setting aside arbitral awards while the UNCITRAL Model Law on International Commercial Arbitration was being drafted (for those who want to know more about the said Model Law, see here). I quote from the UNCITRAL report directly. In the end, I shall give the link to the document from which the quotes were taken. 

  • "In the view of India, article 34 appears to be unduly favourable to the losing party by providing too many grounds for attacking the award and a long period of time for applying to set aside the award."
  • "In the view of India, the term "public policy" in paragraph (2) (b) (ii) is rather vague."
The intent of the Indian Government on the said issue at that time was very clear: The Model Law should have the following features

  1. the grounds of setting aside should be narrow and restricted.
  2. the time period for setting aside should be less, & 
  3. the ground of public policy should not be there because it is vague and could be subject to wider interpretation.
(Source: Analytical compilation of comments by Governments and international organizations on the draft text of a model law on international commercial arbitration: report of the Secretary-General
(A/CN.9/263 and Add. 1-3)"). The said documents A/CN.9/263 & A/CN.9/263 Add 1-3 are found here.)

Thursday, March 4, 2010

Arbitration and Anti-suit Injunctions in the EU

One of the recent landmarks in international commercial arbitration is the decision of the ECJ in Allianz SpA v. West Tankers wherein the ECJ had held that issuing anti-suit injunctions was against the EC Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters. The decision has invited  a great deal of commentary. One of such is a note  in the Cornell Law Review by Daniel Rainer titled "The Impact of West Tankers on Parties' Choice Of a Sea of Arbitration". The note can be found here.

I recommend readers to read the note. It is well researched and the main arguments are extremely convincing. The note also analyses the law on anti-suit injunctions in UK and USA.But for those who do not want to, I will try to briefly analyse the note.

The fundamental idea that Mr. Rainer tries to convey is this:
Anti-suit injunctions are effective tools in encouraging settlement of commercial disputes by arbitration. Anti-suit injunctions effectively make parties settle commercial disputes by arbitration instead of going to courts. The ECJ decision in West Tankers has considerably reduced the power (jurisdiction) of an EU court to issue anti-suit injunction. As a consequence, parties who generally chose an EU destination (like, say, France or London) as the forum for arbitration would now go for non-EU fora for the fear that anti-suit injunctions may no longer be available and that they might have to litigate the same disputes in multiple fora (which would, for obvious reasons, be costly). The author therefore advises, after analysing the US law (which is pro-anti-suit injunctions) that parties ought to choose US as their seat for arbitration so that the option of anti-suit injunctions would be available to the parties.

It must be noted, as Mr. Rainer rightly points out, that the ECJ decision would not affect the  power of the English courts to issue anti-suit injunctions enjoining parties from approaching a non-EU country court (See Shashoua v. Sharma). Anti-suit injunctions can be issued by the English courts enjoining parties from initiating/pursuing suits in non-EU courts. Hence, if an Indian party and, say, an English party enter into a contract and choose London as the forum of arbitration, and if there is a dispute between them, the English party can approach the English courts for obtaining an anti-suit injunction if the Indian party seeks to initiate proceedings with respect to the dispute in India.

Tuesday, March 2, 2010

Trimex v. Vedanta

This post analyses the law on contract formation in India through the recent case of Trimex International Fze Limited v. Vedanta Aluminium Limited (MANU/SC/0057/2010: 2010 (1) SCALE 574).

Trimex International FZE Limited (“Trimex”), the petitioner, applied to the Supreme Court of India (“SC” or “Court”) under Section 11(6) of the Indian Arbitration and Conciliation Act, 1996 (Act) for the constitution of an arbitral tribunal. Section 11(6) reads:

"Where, under an appointment procedure agreed upon by the parties
(a) A party fails to act as required under that procedure; or
(b) The parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) A person, including an institution, fails to perform any function entrusted to him or it under that procedure,
A party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment."

Vedanta Aluminium Ltd., the respondent (“Vedanta”) objected to the application, arguing that there was no contract between the parties and therefore there was no agreement between the parties to refer disputes to arbitration. [See, SBP & Co. v. Patel Engineering Limited MANU/SC/1787/2005: AIR 2006 SC 450: 2005(3) Arb.LR 285 (SC), where the Supreme Court held in case the respondent objected to an application made under Section 11 for the appointment of the arbitral tribunal, the court had to decide on the existence of the arbitration clause and then alone refer the dispute to arbitration or appoint an arbitrator]. A single bench of the SC, consisting of Justice P. Sathasivam, had to decide whether there was a contract and consequently, an arbitration agreement, between the parties.

Trimex is a company registered under the laws of Dubai and is engaged in the business of minerals trading. Vedanta is an Indian company whose business involves aluminium as a major raw material. A detailed chronology of facts is provided below.

05.09.2007      Trimex made an offer for 45000 MTs of Bauxite (of Australian origin). Upon the offer, Vedanta issued a purchase order accepting the said Offer.
09.10.2007      Discussions between Trimex and Vedanta seemed to have taken place for delivery of two lakh metric tonnes of Bauxite. In furtherance of the discussions, Trimex wrote to Vedanta stating that they would have to agree on the technical specifications of the Bauxite cargo and once reached an agreement on the same, they would reach an agreement on the freight. 
10.10.2007      Vedanta apparently (by email) asked Trimex to improve upon their proposal, which was refused (by email) by Trimex on the same day. Vedanta relented, but asked Trimex to give two proposals- one for two lakh metric tonnes and the other for a merely two shipments of bauxite. Trimex was asked by Vedanta to give separate proposals on CIF basis and on FOB basis.
15.10.2007      Trimex made a proposal (“Proposal”) to supply Bauxite (through email). Trimex further stated that it would remain open until 12 PM on 16.10.2007, in view of the continuous increase in freights. The Proposal also provided for certain conditions of sale, including those relating to price conditions, liability, payment of interest, governing law and dispute resolution. The Term regarding dispute resolution read: “arbitration in Mumbai courts” (Though this clause seems to suggest reference of disputes to arbitration, such a clause carries a great deal of risk because a court may refuse reference to arbitration if it is contended by the other party that parties intended the disputes to be referred to courts and not arbitration.. Parties need to be a bit more careful when they propose a dispute resolution clause) Vedanta made certain comments on the Proposal and requested Trimex to provide the rates on FOB basis. On the same date, Trimex responded rejecting the acceptability of Vedanta’s comments and refused to provide quotes on FOB basis.
16.10.2007      Vedanta responded, requesting Trimex, inter alia, to provide rates CIF Kakinada and the break up of price quoted. Trimex stated that they had extended the time for acceptance by one hour and asked Vedanta if they were willing to accept their offer. After further correspondences, Vedanta agreed to the Proposal of Trimex but also stated that they would like to have an option to terminate the contract after two shipments of bauxite. However, despite the time having expired, Vedanta wrote to Trimex accepting Trimex’s proposal for all the five shipments.
17.10.2007      Trimex, relying on the agreement with Vedanta, approached a Bauxite supplier in Australia who agrees to provide the shipments and entered into a Charter Party with a ship owner at Oslo, Norway. On the same date, Vedanta informed Trimex that their agent was not taking enough initiative to handle the first shipment of the cargo.
20.10.2007      Trimex provided the schedule of shipments, as agreed with the Ship owners, to Vedanta and stated that they would have to execute an agreement with Vedanta and agree on the modalities of a Letter of Credit. Further Trimex also requested Vedanta to provide a draft agreement 
26.10.2007      Meeting held between Trimex and Vedanta where, as per the Minutes of the Meeting, Vedanta recognised the acceptance of Trimex’s Offer. The Minutes provided, inter alia, “[a]s per Trimex offer No. TID/F/223/2007 dated 15th October 2007 and accepted by VAL [Vedanta], the price is on CIF-FO basis. As per Trimex under such a situation the berthing responsibility should be with VAL” Further, the Minutes provided that parties would finalize the contract.
30.10.2007      The terms of the contract were provided by Trimex to Vedanta
02.11.2007      Trimex sent the terms of the Charter Party as received from the owners of the ship to Vedanta. Further, Trimex requested Vedanta to finalise the contract and the Letter of Credit.
08.11.2007      Formal agreement was sent by Vedanta to Trimex which contained, inter alia, the following arbitration clause.
29. Arbitration
The Parties hereto shall endeavour to settle all disputes and differences relating to and/or arising out of the Contract amicably.
In the event of the Parties failing to resolve any dispute amicably the same shall be referred to Arbitration in accordance with the Arbitration and Conciliation Act 1996, as is prevalent in India. Each Party shall be entitled to nominate an Arbitrator and the two Arbitrators so nominated shall jointly nominate a third presiding Arbitrator. The Arbitrators shall give a reasoned award.
The place of arbitration shall be Mumbai, Maharashtra in accordance with Indian Law and the language of the arbitration shall be English.
The Parties further agree that any arbitration award shall be final and binding upon both the Parties."
The Parties hereto agree that the Seller shall be obliged to carry out its obligations under the Contract even in the event a dispute is referred to Arbitration.”
On the same day, Trimex gives certain clarifications on the “draft contract”. However, Trimex had no comments on the above arbitration clause
09.11.2007      Formal Bauxite Sales Agreement with Rio Tinto, Australia for the supply of 225000 tonnes of Bauxite
12.11.2007      According to Vedanta, Vedanta asks Trimex to hold the next consignment of Bauxite till further notice. Trimex replied stating that Vedanta would have to indemnify Trimex for any claims from the ship owner for any delay/ cancellation of the shipments.
13.11.2007      Trimex said that it was impossible to hold the consignment and asked Vedanta to purchase the same.
Meanwhile, the ship owners nominated the ship for loading the material on 28.11.2007
16.11.2007      Trimex terminated the contract and reserved its right to claim damages against Vedanta
18.11.2007      Trimex gave a formal notice to ship owners informing them about the termination of the Charter Party
19.11.2007      The ship owner made a claim for US $ 1 million
30.11.2007      Trimex asked Vedanta to pay US $ 1 million as compensation for loss because of the estimated loss for the shipments and US $ 0.8 million as compensation for loss of profit and other costs due to the termination of the contract. Vedanta rejected the claim for the compensation.
27.02.2008 and 31.03.2008     Trimex and the ship owner agreed on a mutual settlement. According to the settlement, Trimex agreed to pay US $ 600,000 in two instalments. The said instalments were paid on 27.02.2008 and 31.03.2008

01.09.2008      Trimex called upon Vedanta to pay compensation to it and treat the notice as a notice invoking arbitration under Cl. 29 of the Formal Agreement if Vedanta failed to pay the same. Trimex nominated Justice Shiv Shankar Bhatt, a retired Judge of the Karnataka High Court as the arbitrator from its side and requested Vedanta to nominate its own arbitrator.
14.11.2008      Vedanta rejected the notice invoking arbitration on the ground that there was no concluded contract between the parties.

Hence, Trimex approached the Supreme Court under Section 11(6) of the Act for the appointment of arbitrator.

When an application is made to a court under Section 8 or 11 of the Act, and the same is contested, the threshold question that the court has to decide is whether there was an agreement to refer any dispute to arbitration or not arbitration.

In such cases, the respondent usually raises an objection the application contending that there was no arbitration agreement between the parties. In the instant case, Vedanta raised such an objection. It contended that there was no contract between the parties because:

  • the email dated 15.10.2007 and acceptance thereof could not be construed as a contract because the terms of the agreement were vague and ambiguous. Further, the parties had not even agreed upon various essential terms such as price, delivery point, insurance, time schedule, transfer of title, demurrage etc.

  • it was always the intention of the parties that a formal contract would be signed between the parties.

Decision:The Contract was concluded on 17.10.2007 when, in terms of Section 4 of the Indian Contract Act, 1872, the acceptance was communicated to Trimex. Section 4 of the Indian Contract Act, 1872 reads:

Section 4 of the Indian Contract Act, 1872 states:

“Communication when complete.-The, communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
The communication of an acceptance is complete,-
as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor;
as against the acceptor, when it comes to the, knowledge, of the proposer.”

Against contention of ambiguity, the court held that there was an agreement on essential terms. The court held that commercial parties often enter into an agreement on material terms and enter into a formal agreement later. Simply because parties intended to enter into a formal agreement does not prevent the contract reached from being enforced. The court relied on decisions of the Court of Appeal and the Privy Council and held that the Indian Law was no different from English Law on the said point.

In view of the fact that there was an arbitration agreement between the parties, the Court appointed, pursuant to Clause 6 of the Proposal, Justice B.N. Srikrishna as arbitrator and fixed Mumbai as the venue of arbitration.

Broadly, there are two aspects to this case: one, whether there was a concluded contract between Trimex and Vedanta; two, whether there was an arbitration agreement between the parties.

Existence of a Contract: To recount the facts briefly, on 15.10.2007 Trimex made a proposal for supply of bauxite on certain terms such as price conditions, liability, payment of interest, governing law and dispute resolution. Vedanta needed more information on price. Hence, it requested Trimex to give more information on the price. After making some comments on the terms, which were not accepted by Trimex, Vedanta agreed to the Trimex’s proposal on 16.10.2007. At this stage, the parties seemed to have reached a consensus. Now, the question here would be whether this consensus would constitute a contract. According to Trimex, it did; but from Vedanta’s point of view, it did not, because the terms of the proposal were vague and ambiguous. The court decided that there was no vagueness or ambiguity in the terms.

The contention in this case that there was no contract because the terms of the Proposal were vague is not correct for two fundamental reasons. One, the contract law does not mandate the parties to agree any specific term. It only necessitates that the agreement between the parties must not be uncertain. Section 29 provides:

“Agreements void for uncertainty: Agreements, the meaning of which is not certain, or capable of being made certain, are void.
(a) A agrees to sell to B " a hundred tons of oil ". There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty.
(b) A agrees to sell to B one hundred tons of oil of a specified' description, known as an article of commerce. There is no uncertainty here to make the agreement void.
(c) A, who is a dealer in cocoanut-oil only, agrees to sell to B "one hundred. tons of oil". The nature of A's trade affords an indication of the meaning of the words, and A has entered into a contract for the sale of one hundred tons of cocoanut-oil.
(d) A agrees to sell to B " all the grain in my granary at Ramnagar ". There is no uncertainty here to make the agreement void.
(e) A agrees to sell B " one thousand maunds of rice at a price to be fixed by C ". As the price is capable of being made certain, there is no uncertainty here to make the agreement void.
(f) A agrees to sell to B " my white horse for rupees five hundred or rupees one thousand". 'There is nothing to show which of the two prices was to be given. The agreement is void.”

In fact, the Indian Contract Act seems to indicate that the subject matter of the contract must be capable of being identified and the price must be “capable of being made certain”. (See the illustrations to Section 29 above) The parties may agree not to agree on certain aspects and leave it either for the law to decide the same or for negotiation between them if and when situation necessitates so. In this regard, contract law performs the important function of reducing the transaction costs of the parties by supplying default rules, which the parties have an option to contract around. [Ian Ayres and Robert Gertner brought an important insight into the law, in general, and contract law, in particular- the dichotomy of default rules and mandatory rules. According to them, contract law provides for certain rules which could be contracted-around by parties willing to do so. Mandatory rules are those rules which cannot be contracted-around. See, Ian Ayres and Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale L.J. 87 (1989)].

One of the critical functions of the default rules is to supply default rules to govern the rights and liabilities of the parties who do not wish to incur costs in contracting-around the default rules and providing for elaborate contracts. (This transaction cost reduction function of laws is, in many cases, inadequate for the parties because of several reasons. For example, the nature of a business might necessitate contract performance to be in a particular manner, or the risks in a particular business might warrant additional protection to a party. Standard Contracts play a major role in addressing these inadequacies of default rules). In the instant case, there was an agreement between Trimex and Vedanta as to the quantity to be supplied and the price. That alone was sufficient for the court to enforce the contract. Hence, the court decided, and rightly so, that there was a contract between Trimex and Vedanta when the email accepting the proposal of Trimex was complete, and a contract was formed when the said email was opened by the personnel of Trimex.

Two, businesses, in practice, hardly wait for lawyers to haggle on the “notwithstandings” and the “whearases”. After a bidder (in case of contracts entered into after inviting bids) submits the bid and the successful bidder is chosen, the fact is communicated to the bidder through a Letter of Intent or a Letter of Acceptance containing commercial and other significant terms of the transaction. Such Letter of Intent or Acceptance is usually taken as the document governing the rights and liabilities of the parties till a formal contract is entered into by the parties. However, it may so happen that it becomes necessary for the parties to come to a consensus. In such cases, even issuing a Letter of Intent or Letter or Acceptance becomes a drawn-out exercise. In such cases, parties simply agree on a few terms that they consider important. An agreement, thus reached, does not in any way fall short of a formal contract in terms of enforceability. Contract law does not, and courts should not shun from such contracts simply because they are not elaborate- the common example being purchase of a ticket in the bus. Except for the passenger providing the destination and the bus ticket providing for the price, there hardly exists any term of contract exchanged between the parties. Yet, such a transaction is recognised as a contract.

It was well within the knowledge of Vedanta that Trimex had to enter into a contract with the ship owner for the delivery of Bauxite to Vedanta. Trimex had urged Vedanta to confirm the latter’s acceptance so that it could enter into a contract with the ship owner. Hence, the intention of the parties to bind each other for their respective promises before Trimex entered into a contract with the ship owner was clear. Relying on the consensus between Trimex and Vedanta, the former entered into with the ship owner. The fact of existence of the contract between Trimex and the ship owner was communicated to Vedanta. Hence, the court was right in rejecting the contention of Vedanta that there was no contract in existence.

It is surprising to note that the court did not cite even a single decision of the Supreme Court on certain issues that arose in the instant case. On the issue as to as to whether there was a contract in existence in furtherance of exchange of correspondences between the parties, the Supreme Court had, in Rickmers Verwaltung GNBH v. Indian Oil Corporation Limited (AIR 1999 SC 504: (1999) 1 SCC 1: MANU/SC/0726/199), clearly contemplated that possibility of exchange of correspondence amounting to contract between parties (Perhaps, the proposition was so well established that the court did not deem it important to cite a case on the said point). On the issue as to whether a bargain between the parties who intend to enter into a formal agreement subsequently is binding or not. a three judge Bench of the Supreme Court had, in Kollipara Sriramulu v. T. Aswathanarayana and Ors. (AIR 1968 SC 1028: MANU/SC/0019/1968), held:

“[A] mere reference to a future formal contract will not prevent a binding bargain between the parties. The fact that the parties refer to the preparation of an agreement by which the terms agreed upon are to be put in a more formal shape does not prevent the existence of a binding contract. There are, however, cases where the reference to a future contract is made in such terms as to show that the parties did not intend to be bound until a formal contract is signed. The question depends upon the intention of the parties and the special circumstances of each particular case.”

Instead the court, at first, cited few decisions of the English courts and, after suggesting that the “Indian law has not evolved a contrary position”, then held cited a Privy Council decision on the above propositions. Usually, it would be expected of the court to cite the most relevant decision in the Indian law on the point (Citing all the decisions of the Supreme Court on the said issues may not be prudent practice. But the court could have cited at least one or a few of the Supreme Court decisions that had either established the said principles or had been extensively dealt with the said issue) and then cite judgements of courts of other jurisdictions.

Arbitration Agreement: On 01.09.2008, a claim-cum-notice invoking arbitration under Clause 29 of the Formal Agreement was served upon Vedanta, wherein Trimex appointed a retired Judge of the Karnataka High Court as one of the arbitrators and asked Vedanta to appoint an arbitrator so that the two arbitrators so nominated could, in terms of the said Clause 29, appoint the third arbitrator. Trimex had contended before the court that there was an arbitration agreement between the parties because Vedanta had no comments to offer on the arbitration clause in the Formal Agreement. It is true that the terms of the Formal Agreement were never agreed upon. While negotiations were taking place between the parties on the Formal Agreement, Vedanta had no comment to offer on the arbitration clause. Yet, there was no arbitration agreement between the parties in terms of Clause 29 of the Formal Agreement because the Agreement was still under negotiations. The rationale for the same ought to be understood in the context of how negotiations take place between commercial entities. During negotiations, parties might want to revisit and renegotiate certain clauses despite having reached a prior consensus on the same. Causes for such renegotiation may be manifold. For instance, a party might have used the arbitration clause to bargain for a better term. But if the other party does not agree for the latter term, the former party might want to get an arbitration clause which is in its favour. It is possible that such renegotiation to occur. In the instant case, though there was no deviation by Vedanta on the clause suggested by Trimex, there was no arbitration agreement between the parties in terms of Clause 29 of the Formal Agreement because Clause 29 was not finally agreed to between Trimex and Vedanta, and therefore, there was no arbitration agreement between the parties in terms of Clause 29 of the Formal Agreement. Hence the court, rightly, found that the arbitration was to be conducted not in terms of the arbitration clause found in the Formal Agreement but in terms of the agreement reached between the parties by email.

Conclusion:Contract law, for that matter, business law in general, must take into consideration the practices of business and law must be expounded by the legislature and the courts to implement the business decisions between consensual parties. Hence, the concepts of contract law and their legal consequences should ideally represent business practices, unless the overt intent of the law is to a secure a specific consequence.