"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, November 18, 2011

Ariba India Pvt. Ltd. V Ispat Industries 2011(3) Arb LR 163 (Delhi)

Case No. OMP No. 358/ 2010 
Date: 04.07.2011
Bench: Vipin Sanghi, J.

Generally speaking, a singe judge’s decision wouldn’t merit much attention as compared to more “interesting” topics such as Exclusion of Part I of the Arbitration and Conciliation Act, 1996 (“Act” or the “1996 Act”) or the enforcement of foreign awards. But this case reflects what really ails arbitration in India. Several supposedly “notorious” decisions such as SAW Pipes had to be rendered that way not because of a step-motherly attitude towards arbitration in India but because of misgivings about the arbitration process in India. These misgivings, as Ariba India v. Ispat Industries (“Ariba India”) would show, are not exaggerated. Critique on Indian arbitration law is focused on the outcomes of judicial pronouncements and comparison of the same with jurisdictions which are pro-arbitration- typically UK, Singapore, France, USA, etc. Any critique on Indian arbitration law is to be rejected as incomplete if it does so without looking at the ground realities of arbitration in our country. One of the best places to look for what really ails Indian arbitration is Ariba India

The judgement was pursuant to an application by Ariba under Section 14 of the Act. The judgement also discusses extensively the law on forum selection clauses and territorial jurisdiction, which would not be dealt with in this post.

Disputes arose between Ariba and Ispat under the Access and Services Agreement (Contract) 01.05.03. The disputes were referred to arbitration. After elapse of almost five years, Ariba has approached the Delhi High Court for termination of the mandate of the arbitral tribunal [consisting of three arbitrators- Former Chief Justice of India AM Ahmadi (presiding arbitrator), Justice (Retd) AK Sengupta (Calcutta High Court), Justice (Retd.) PK Bahri (Delhi High Court)] on the ground that the tribunal failed to act without undue delay.

The first hearing took place in December 2005 where the time-table and other preliminary matters were fixed. Shockingly, in the next four and a half years almost nothing happened in the arbitration except for exchange of pleadings and examination of a witness. The hearings took place after long gaps as this table reproduced from the judgement would show:

Time Period
Time Gap (Months)
December 2005 – November 2006
November 2006 – January 2007
January 2007 – February 2008
February 2008 – March 2008
March 2008 – February 2009
February 2009 – December 2009
December 2009 – April 2010

The court found that the delay in conducting the proceedings as evident from the above table arose due to repeated adjournments sought by the Respondent, which were entertained by the arbitral tribunal. It appears that the delay was also due to the non-availability of one of the three members of the tribunal. It was not that the parties paid the arbitrators paltry fees. The fee paid to the each member tribunal per sitting was Rs. 50,000. Each sitting was for two hours. The cost incurred by each party till then was Rs. 12.75 Lacs.

Vipin Singhi, J had to say this of an arbitral tribunal consisting of a Former Chief Justice of India and Two Former Judges of the Calcutta and the Delhi High Courts.
From the facts narrated by the petitioner, which are supported by correspondence/ order-sheets placed on record and also not denied by the respondent, it is evident that the tribunal has proceeded rather casually in the matter. These proceedings display a lack of will on the part of the tribunal in reigning in the respondent, and in enforcing discipline on the part of the parties… Obviously, the respondent took the tribunal and the petitioner for granted. This was a result of over-indulgence shown by the tribunal to the respondent… The arbitral tribunal has not shown the commitment expected of it in expeditiously taking up the reference and concluding the same…
On the arbitrator nominated by the Respondent, the court held:
"[T]he [] facts and circumstances suggest that Mr. Justice Sengupta (retd.), who had been nominated by the Respondent was not serious about, and not committed to the arbitration proceedings being conducted expeditiously and efficiently… the respondent had nominated Mr. Justice Sengupta (retd.),the respondent could have, with the consent of the petitioner, terminated the mandate of Mr. Justice Sengupta (retd.) for his exhibiting lack of commitment and interest in the progress of the arbitral reference. However, no step was taken by the respondent. In fact, the slackness displayed by Mr. Justice Sengupta (retd.) in proceeding with the arbitral reference appears to be in consonance with the conduct of the respondent in seeking adjournments on practically every hearing fixed before the Tribunal.”

There is also another side story about imposition of costs of Rs. 4,40,000 on each party by the presiding Arbitrator. The Delhi High Court held that the decision was not a decision of the tribunal but was a decision of one arbitrator alone. The Court held:
I fail to appreciate how the learned presiding arbitrator could have taken such a drastic decision, which had significant monetary consequences for the parties, entirely on his own and without the concurrence of the other two learned arbitrators.”
The court stated that even if the presiding arbitrator had the power to issue such an order, he could have asked the parties to either proceed with the arbitration or pay costs. The Court held that the presiding arbitrator’s decision to adjourn the matter but impose costs meant that “the real emphasis of the ld. Presiding arbitrator was not on holding the hearings on 20th to 22nd May, 2010, but the focus was on realization of the exemplary costs/fees.”

The court also held that the presiding arbitrator had simply rejected bona fide, “relevant and pertinent issues” raised by the petitioner that it was the respondent who was responsible for delay. The court expressed its surprise at the reaction of the presiding arbitrator’s decision to impose costs as the same was in total contradiction to its attitude in accommodating the respondent on several occasions previously.  

On the fee charged for such dismal service as arbitrators, the court held that the fees of the arbitrators and expenses incurred by the parties for them were excessive. The court held:
The institution of arbitration, just like the courts, are created with the litigant, i.e. consumer of justice being the central figure. It is to provide judicial service to the litigating public, so as to preserve law and order in the society, that the courts have been established and all other alternate dispute resolution modes, including arbitration, have been evolved. Just like the courts have not been created for the benefit of the Judges and the support staff, similarly, the arbitrations are not conducted to advance the cause of the learned arbitrators. No doubt, the arbitrators, specially retired judges, are rated very highly on account of their established reputation of honesty, integrity, legal knowledge and acumen, and they must be adequately compensated for devoting their time and effort to help resolving disputes between the parties. However, that does not mean that arbitration should be allowed to become prohibitively expensive for the arbitrating parties, such that it defeats the very purpose of sending parties to arbitration.”
The court ultimately held the order of the presiding arbitrator to be unenforceable and terminated the mandate of the arbitral tribunal. The court appointed a Retired Chief Justice of Delhi High Court as the sole arbitrator.

The judgement, a must-read for those interested in Indian arbitration, can be accessed from here. (pdf)

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