"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.

Saturday, March 23, 2013

I pardon thee ...

Executive's power of pardon has resurfaced on the wake of the Mumbai blast judgment. Heavyweights including a retired Supreme Court judge have lined up to ask the executive to invoke the constitutional power of pardon by the Governor for Sanjay Dutt. Power of pardon is no more the act of mercy entrenched in the punishing and exacting God's/Rulers nature. Justice Holmes has reoriented the power of pardon in a constitutional democracy in the following words;

[P]ardon ... is not a private act of grace from an individual happening to possess power. It is a part of the constitutional scheme. When granted, it is the determination of the ultimate authority that the publicwelfare will be better served by inflicting less than what the judgment fixed (Biddle v. Perovich)

Germane to this debate is the mode in which the power of pardon is exercised. This has been a perpetual debate and much has been written about it. Major concern is the exercise of this power, what distinguish a case fit to be pardoned from  the undeserving. The lack of guideline to help the executive to award or reject pardon is an important fact. It is also argued that a discretionary power of this nature cannot be straightjacketed with specific guidelines. The arbitrary and unreasonable use and potential to use this power has resulted in a series of judgments (see, Maru Ram, Dhananjoy Chatterjee, Kehar Singh, Ranga Billa, Swaran Singh, Epuru Sudhakar). In Epuru, Supreme Court has laid down the principle of limited judicial review of executive's power to pardon on the following grounds;
  1. Lack of application of mind
  2. Malafide order
  3. Order based on extraneous and irrelevant considerations
  4. Order without considering relevant materials
  5. Arbitrariness
These are conditions that can set the review jurisdiction of judiciary into motion. Sanjay Dutt's application, if any, for pardon will be a tight rope walk for the executive. The decision of the executive should not be the vanishing point of democratic trust. The grounds in Epuru is for the invocation of the review jurisdiction, not to help the executive to take the decision. 

The trust factor could be restored only by principled decision making in the exercise of discretionary powers as this. It would be beneficial if state/central government could come up with norms to be followed on determination of  the power to pardon. Setting up an agency in the model of the Parole Board of Canada to help the Executive Head in decision making could be considered. Making the decisions of this administrative body judicially reviewable only for the check of non arbitrariness and principled decision making will be helpful to tide over some of the criticisms Canadian Board has faced. Having said that with the kind of delay in the judicial process, it shall not be a never ending ordeal for the deserving to get pardon. Therefore lot of things has to be set right to win back the receding confidence level of the society in democracy.

Thursday, March 21, 2013

Spend as much as you can, account as you like: A comment on the disqualification of elected member under Section 10A of RP Act 1951

Accounting election expenditure would never be easier if the stand taken by the central government in Ashok Chavan (Paid News) case is accepted. Section 10A of the Representation of the People Act, 1951 gives power to Election Commission to disqualify a returned candidate for non-lodge of election accounts as prescribed. 

Section 10A- Disqualification for failure to lodge account of election expenses.—If the Election Commission is satisfied that a person

(a) has failed to lodge an account of election expenses within the time and in the manner required by or under this Act; and
(b) has no good reason or justification for the failure,

the Election Commission shall, by order published in the Official Gazette, declare him to be disqualified and any such person shall be disqualified for a period of three years from the date of the order.

The Central Government's stand is the literal interpretation of Section 10A, that EC has power to disqualify only on failure to lodge account of election expenses not on its incorrectness.  This gives a very convenient way out for many representatives. Candidates have to file an account thats all but integrity of it is not a matter of concern. The entire Act otherwise does not provide any process to disqualify a candidate who has filed incorrect expenses. This will result in a situation where the law prescribes for filing of accounts, else attract disqualification but is unconcerned about the correctness of the same. Anyone can get away with timely filing of any returns.

It could be argued that the statute does not hand down power to EC than what is expressly given. The question is why is this power given, especially this being an amendment in the backdrop of discussions about cleansing the Aegean Stable of corrupt politics, especially electoral politics. A purposive and dynamic reading of section sure can find a solution in the line what society needs.

Still this will not solve the problem. The disqualification in section 10A is a default action on non submission of expenditure statement and not having a  justifiable reason. Incorrect statement but would need inquiry, marshaling of evidence and finding of incorrectness before disqualification. The section but is silent on this. Naturally the section as it stands is defective and courts, however dynamic in construction, cannot go around correcting the defect in law, here the lacking of process. Now that the situation has arisen and seen the defect in law, it is the Parliament to correct the anomaly. But then who will bell the cat.

Wednesday, March 13, 2013

BALCO: Three Errors or a Half? Part I

Recently, two papers have been published critically analysing the judgement rendered by a five judge Bench of the Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Service Inc (BALCO). These two papers are:

  • V. Niranjan & Shantanu Narvane, ‘Bhatia International Rightly Overruled: The Consequences of Three Errors in BALCO’ (2012) 9 SCC J-26; ("Three Errors")
  • SK Dholakia & Aarthi Rajan, ‘Not Three but Half an Error in BALCO: Bhatia International Rightly Overruled’(2013) 1 SCC J-81. ("Half an Error")
These papers present virtually opposite views on certain aspects relating to BALCO. Half an Error was, in fact, a reply to Three Errors. This series of posts examines the correctness of the contentions in the said papers. The first part of this series discusses the comments in these papers on the interpretation of the term "Court" in the Arbitration and Conciliation Act, 1996 (Act or 1996 Act). The purpose of discussing the same is two fold. First and the obvious purpose is to provide a context to the discussion here as to the correctness of the contentions; second, to enable to "communicate" the arguments to those not having access to the above papers. Hence, the arguments in the said papers are discussed in detail. The next part of the series would analyse the correctness of the contentions in the said papers on BALCO's take as to the interpretation of Section 2(1)(e).

Court is defined in Section 2(1)(e) as below:

"Court" means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes;"

In BALCO, the argument was raised in support of applicability of Part I to foreign seated arbitration that a combined interpretation of Sections 2(1)(e), 20, and 28 read with Sections 45 and 48(1)(e) revealed that Part I is not seat centric but in reality subject matter centric. As regards Section 2(1)(e), it was argued that since the focus therein is on the subject-matter of the arbitration, Part I would be applicable to foreign seated arbitration irrespective of the seat as long as the subject matter of the arbitration relates to India.

Rejecting the contention, the Supreme Court held that these provisions cited should be read with "territoriality" as the focal point in view of Section 2(2). It is in this context that the court sought to interpret Section 2(1)(e). The court's observations on this aspect are summarized:
  • In Section 2(1)(e), the phrase "subject matter of arbitration" should not be confused with the phrase "subject matter of suit". "Subject matter" in the said provision is used to identify the courts having supervisory control over the arbtiration proceedings. It refers to the court which would be the seat of arbitration. The legislature has intentionally provided two courts with jurisdiction over the arbitral process. The court where cause of action arises and the court where the arbitration takes place. For instance, if the parties to the agreement are from Mumbai and Kolkata and if the arbitration is agreed to be held in a neutral place like Delhi, the courts in Delhi will have supervisory control over hte arbitral process.
  • In addition, the court where cause of action arises will also have jurisdiction and the relevant court that would have jurisdiction out of these would be governed by Section 42 of the Act.
  • The definition of "court" under Section 47 refers to the court within whose jurisdiction the asset/person against which/ whom the award is to be enforced is located. The objectives of both these definitions are different.

Arguments in the Three Errors Paper:

The below section of this post summarizes the arguments in the Three Errors paper on the above aspect:
  • Under Section 2(1)(e), the Principal Civil Court of Original Jurisdiction must have jurisdiction to decide on questions forming the subject matter of arbitration.
  • The court construed wrongly "subject matter of arbitration" to be different from "subject matter of suit" when this clearly was no the intention.
  • However, the Act does not fix jurisdiction directly but by analogy to the courts that would ordinarily, but for the arbitration, have jurisdiction in a suit. This is an "indirect way of fixing jurisdiction".
  • This meant that the court should imagine that the arbitration agreement did not exist and question whether it would have jurisdiction. If so, it would be the court for the purposes of the Act.
  • This position has been affirmed by various High Courts in decisions such as GE Countrywide Consumer Financial Services Ltd. v. SS Bhatia (2006) 129 DLT 393. The position in the 1940 Act was also similar to the one in the GE Countrywide case. See, for instance, FCI v, Evdomen Corp (1999) 2 SCC 446, Cursetji Jamshedji v RD Shiralee AIR 1943 Bom 32, Jindal Vijaynagar Steel (JSW Steel) v Jindal Praxair Oxygen (2006) 11 SCC 521.
  • Thus, Section 2(1)(e) is not consent based jurisdiction but jurisdiction based on statute.
  • The position is contrary to the well-established Indian position that jurisdiction to Indian courts cannot be conferred by contract.
  • The Supreme Court's view in BALCO would have the following consequences:
  • The court at seat of arbitration which previously never exercised jurisdiction, would not have jurisdiction.
  • Certain decisions of the Andhra Pradesh High Court (Paramita Constructions v UE Development India (2008) 3 An LT 440 and Jyothi Turbo Power Services v. Shenzhen Shandong Nuclear Power Corporation AIR 2011 AP 111) held that where parties agree to have their arbitration in a seat, that court alone would have jurisdiction. While the Supreme Court has affirmed in BALCO that the court at seat would have jurisdiction, it does not state that such court alone would have jurisdiction.
  • Due to Section 42 (which provides that where any application is made in respect of a Court, that Court alone would have exclusive jurisdiction over all the arbitral proceedings and consequent applications), a court which normally would have jurisdiction under the 1996 Act, would not have jurisdiction, if an application is made to the court at the seat.
For the aforesaid reasons, Three Errors argues that BALCO was erroneous on this aspect:

Arguments in Half an Error:
To the contrary, Half an Error says that there was no error in BALCO on this issue. Following are the contentions in the said paper:
  • The argument which led the court to discuss Section 2(1)(e) was that since Section 2(1)(e) focuses on the "subject matter of arbitration" rather than on the seat of arbitration. The court rejected this argument and the discussion on Section 2(1)(e) was to state that the seat of arbitration was the basis of jurisdiction. The court held that the interpretation of Section 2(1)(e) was consistent with the "internal logic" of BALCO.
  • The contention in Three Errors that the court apart from the court at seat could exercise supervisory jurisdiction over arbitration is not correct. The court at the seat would exercise supervisory control over arbitration.
  • The logic of BALCO and its interpretation is based on the "principle of territoriality" by which seat would have the exclusive jurisdiction over the arbitration. Such an interpretation furthers party autonomy.
  • The court held that in international commercial arbitration held in India, the arbitrations might be held even abroad. In such a scenario, Indian court retains exclusive supervisory jurisdiction.
  • The contention in Three Papers that seat theory was alien to purely domestic arbitrations and that BALCO on this issue contradicted with the settled position is not correct as these decisions were rendered when seat theory did not prevail in India.
  • If jurisdiction, as contended, is connected to the cause of action and not consent, seat theory so well established in Indian arbtiration jurisprudence would be rendered nugatory.
  • Further, if parties belonging to non-Indian countries arbitrate in India, the interpretation afforded in Three Papers would not provide an answer.
  • There is no reason why the principles of territoriality and party autonomy adopted in international commercial arbitrations should not be adopted when the seat of arbitration is India.
  • Courts at the seat of arbitration are in the best position to supervise arbitrations for the following reasons:
    • After BALCO, parties might even choose jurisdictions such as Delhi specifically for the reason that Delhi courts would exercise supervisory jurisdiction over other courts.
    • Since court cultures vary as regards speedy disposal of cases, parties must be left with the choice to select the court of their choice.
    • Such a choice would foster a culture of arbitration in India.
  • The English Arbitration Act, 1979 was specifically enacted to make London a better place of arbitration so that English courts could exercise supervisory jurisdiction in a better manner. London has become a prominent choice of forum for arbitration due to the supportive role of the English courts. With BALCO, India could potentially move ahead in that direction.
The merits of the arguments of both sides on this issue would be analysed in the next post in this series.

Friday, March 8, 2013

Justice Katju, Arbitration and BALCO

Historical research is a very interesting exercise. It brings forth unusual facts. This post discusses one such event. Most of us know that a five judge Bench of the Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Co. (pdf)(BALCO) has held that Part I of the Arbitration & Conciliation Act, 1996 applies only to arbitrations held in India and not to arbitrations seated outside India. The history of how the case came before a five judge Bench is interesting. Most of the history is recorded in para 1 of the said judgement.

image from here
Civil Appeal No. 7019 of 2005 came up before a two judge Bench of the Supreme Court on 16.01.2008. One of the judges was Justice Markandey Katju. When the counsel for Bharat Aluminium relied on Bhatia International v. Bulk Trading SA and Venture Global Engineering v. Satyam Computer Services, Katju J. doubted the correctness of these judgements. Katju, J. doubted if Section 2(2) of the 1996 Act which read: "(2) This Part shall apply where the place of arbitration is in India." should be read the way the three judge Bench Bhatia International did- it did not say that Part I will NOT apply to arbitrations held outside India and hence would apply to such arbitrations.  Hence, the case was placed before the Chief Justice who placed it before a three Judge Bench. A three judge Bench was constituted and placed it before a five judge Bench vide order dated 1 November 2011. And thus, BALCO happened on 6 September 2012. Thus, Justice Katju played an important role in getting Bhatia International reversed.

We take our readers back in history to a judgement rendered by a two judge Bench of a High Court in LML India v. Union of India (01.12.1998). In the said case, a writ petition was filed praying  for declaration that Section 45 of the 1996 Act was unconstitutional and bad in law. The additional prayer was for the issue of a writ of mandamus commanding the second respondent not to act in violation of the agreement. The agreement in question was a technology collaboration agreement between foreign party and an Indian party providing for ICC arbitration. The two judges hearing the matter wrote two judgements but concurred on the ultimate conclusion that "Section 9 of the Arbitration and Conciliation Act, 1996 applies also to the proceedings under Part II of the Act and hence interim relief can be granted by the civil court pending the arbitration proceedings". Specifically, this judge held:
"In our opinion, if Section 9 is treated as inapplicable to Part II, it will make Section 45 too harsh. The purpose of Section 9 is to give interim protection during the arbitration proceedings. In our view, interim protection under Section 9 can be given by the Court in all kinds of arbitration proceedings, even those under Part II, otherwise irreparable loss may be caused." (emphasis supplied).
The High Court which decided so was the Allahabad High Court and the judge who stated the above was none other than Mr. Markandey Katju.