Guest Post: Response of Arbitral Institutions to the COVID-19 Crisis– An Indian Perspective: Part II

  [Pranay Jaiswal, a fourth year student at the ILS Law College, Pune, writes on how well the arbitral institutions in India have responded to the Covid19 crisis. This interesting post is in two parts. The first part can be accessed from here. This is the second part of the post] 

Response of Arbitral Institutions to the COVID-19 Crisis–  An Indian Perspective: Part 1I

By Pranay Jaiswal, IV BA.LLB, ILS Law College, Pune.

1.      Pre-Existing rules of the Arbitral Institutions supporting the prevailing circumstances.

The Chartered Institute of Arbitrators (CIArb) is running an initiative known as Pandemic Business Dispute Resolution Service[1] in collaboration with the Centre for Effective Dispute Resolution (CEDR). This initiative aims at resolving business disputes, or disputes that may arise, as a consequence of the pandemic,whatever stage it is at, with cost-effective and expedite resolution of disputes.[2]

ICC has issued its 'Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic' dated 9 April 2020 ("ICC COVID-19 Guidance"),[3] intimating parties regarding the steps which the ICC is taking in this regard, and the considerations which are relevant to the conduct of arbitration in the prevailing circumstances.

Institutions like London Court of International Arbitration have also issued “Guidelines to Arbitrators”[4] adhering to the principle of arbitration i.e. flexibility and party autonomy.[5] It grants freedom to the arbitrators to adopt the flexible procedure as they may deem fit in order to remedy the circumstance, the arbitral proceeding is in. The Guidance Note reflects upon the existing rules that inherently support the circumstances in the pandemic.

"14.4 Under the Arbitration Agreement, the Arbitral Tribunal's general duties at all times during the arbitration shall include:

...(ii) a duty to adopt procedures suitable to the circumstances of the arbitration, avoiding unnecessary delay and expense, so as to provide a fair, efficient and expeditious means for the final resolution of the parties' dispute.

14.5 The Arbitral Tribunal shall have the widest discretion to discharge these general duties, subject to such mandatory law(s) or rules of law as the Arbitral Tribunal may decide to be applicable; and at all times the parties shall do everything necessary in good faith for the fair, efficient and expeditious conduct of the arbitration, including the Arbitral Tribunal's discharge of its general duties."[6]

Similarly, The International Chambers of Commerce (ICC) have given due consideration to the protection of party autonomy and flexibility in arbitration. On the other hand, in order to maintain the uniformity and the structure of the arbitral proceedings, the ICC has shown the adaptability of the inherent rules that support the current situations. For instance, Rule 22(2) of the ICC arbitration rules reads as follows;

"In order to ensure effective case management, the arbitral tribunal, after consulting the parties, may adopt such procedural measures as it considers appropriate, provided that they are not contrary to any agreement of the parties."

a.      Concerns Specific to India

India is trying to pave its way towards an International Arbitration hub through introducing the 2015 and the 2019 Amendments in order to improve Indian Arbitration and empower Arbitral Institutions. However, no significant steps or norms have been adopted by Indian Arbitral Institutions to deal specifically with the COVID-19 crises, in comparison to other foreign Arbitral Institutions. This becomes an impediment to India, especially when it is trying to promote Institutional Arbitration.

Nonetheless, there are some instances of steps being taken in the COVID-19 crisis. For instance, the Indian Council of Arbitration (ICA), has issued a notice[7] on the manner in which the arbitration proceeding is to be conducted through video conferencing and is accepting the new arbitration matters through e-mail. But, it is still disappointing that the Institution has made the parties submit hard copies of the document post the lockdown orders,[8] whereas, the other Arbitral Institutions have accepted electronic submission of documents as mentioned above.

Similarly, Section 19 of the Indian Arbitration and Conciliation Act, 1996, provides that, the parties may decide upon the procedure or arbitral tribunal shall be free to determine the procedure with the consent of the parties. However, in the matter where the assistance of the Court is required in taking evidence or under Section 34 challenge gets hampered due to shutdown of the Court. Even so, the Hon’ble Supreme Court, through its order dated March 23, 2020 has provided for relaxation for such timelines laid down in the Act.[9]

2.      Significant reduction in the Costs of arbitral proceedings

The transition that is taking place in the nature of conducting arbitral proceedings from having a consensus on a neutral place, to participating in the proceedings sitting at their convenient venue, the costs of the proceedings have reduced in these terms. Parties no longer have to travel to the place of arbitration as all the proceedings are taking place in virtual forms. Similarly, expenses required for the infrastructure in support of the arbitral proceedings have considerably mitigated.

However, it is perplexing that the Arbitral Institutions make parties bear a huge amount of fee even if the parties are not using the infrastructure of Arbitral Institutions. No stand has been taken by Arbitral Institutions regarding the reduction of fees or adjustment of the fee already paid for proceedings postponed or cancelled due to the pandemic. Except for SIAC[10], which has explicitly mentioned that there would be no discount in the fees or any adjustment towards the same in future, no arbitral institution has come out clearly on the policy.

3.      Confidentiality during the Pandemic: A core principle of arbitration

Confidentiality and privacy are the core attributes of Arbitration. As arbitral proceedings are moving from physical to virtual hearings, ‘data confidentiality’ becomes a huge concern. Cyber threats such as breach of privacy and data, ransomware attacks and ransomware surround such technological steps. Preventive measures are required to be taken around this aspect.

Following are a list of precautions that can be applied:

·         Encryption of data/ files using password

·         Invitation link and restricted access

·         Secure Internet Connections

·         Secure storage of the recording of Hearings.[11]

Some Arbitral Institutions such as the American Arbitration Association, have come up certain guidelines regarding Ethical Principles.[12] Similarly, the International Chamber of Commerce has also taken up the measures by issuing the Cybersecurity Protocol for International Arbitration (2020)[13], which sets out the guidelines for the conduct of the proceeding and in order to maintain the confidentiality of arbitration.

In India, DIAC, in its guidance note, has prescribed that the arbitrator may take a binding undertaking related to confidentiality by the parties.[14] However, no procedure or remedy is mentioned in case of any breach of the data.

4.      Third-Party Host for the conduct of virtual hearings.

In order to ensure smooth conduct of virtual hearings, many Arbitral Institutions have collaborated with online dispute resolution platforms. For instance, the Singapore International Arbitration Centre has insisted parties to arrange for virtual hearing facilities with a service provider (Maxwell Chambers ADR Hearing Solutions, in this case) including services for real-time transcription. In the domestic arena, famous upcoming legal-Tech startups such as Centre for Online Resolution of the disputes (CODR) and Presolve360 are assisting the Arbitral Institutions for the conduct of virtual hearings.

5.      Conclusion

The manner in which disputes are resolved has undergone a sea-change because of the COVID-19 crises. However, the measures adopted by Arbitral Institutions are ambitious. Only time will prove the success rate of these norms.

There is a demand in the market for inexpensive and effective resolution of disputes, including those arising out of the COVID-19 crisis. Parties cannot afford to spend substantial time or money for dispute resolution. It is important that Arbitral Institutions answer to these demands by putting in place certain appropriate mechanisms. Unfortunately, Arbitral Institutions have hardly responded to this dire need of making dispute resolution more affordable.

Some Arbitral Institutions have not taken any effort to address the crisis and are still functioning with the existing rules/ procedures as though not much has changed. International arbitration’s success lies in adapting to the ever-changing times. Arbitral Institutions should do more for International arbitration to continue as an effective dispute resolution mechanism. 

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[1] Pandemic Business Dispute Resolution Service, http://ciarb.org/disputes/pandemic-business-dispute-resolution/

[2]Ibid.

[3] ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19Pandemic. https://iccwbo.org/publication/icc-guidance-note-on-possible-measures-aimed-at-mitigating-the-effects-of-the-covid-19-pandemic/?dm=bypass

 

[4]LCIA Notes for Arbitrators,

https://www.lcia.org/adr-services/lcia-notes-for-arbitrators.aspx#6.4%20Meetings%20and%20hearings

[5]COVID-19 and the global approach to further court proceedings, hearings, by Norton Rose Full bright, April 2020, https://www.nortonrosefulbright.com/en-in/knowledge/publications/bbfeb594/covid-19-and-the-global-approach-to-further-court-proceedings-hearings

[6]The "New Normal" For International Institutional Arbitrations, by Chakrapani Misra , Yashashree Munde and Rajeswari Mukherjee, June 17, 2020, https://www.mondaq.com/india/arbitration-dispute-resolution/954662/the-new-normal-for-international-institutional-arbitrations

[7] Indian Council of Arbitration, http://www.icaindia.co.in/Notice-for-ICA.pdf

[8]Supra note 6

[9]Covid 19: Supreme Court saves the day on limitation, https://www.barandbench.com/columns/litigation-columns/covid-19-supreme-court-saves-the-day-on-limitation

 

[10] SIAC COVID-19 Frequently Asked Questions (FAQs), https://www.siac.org.sg/faqs/siac-covid-19-faqs

[11]Arbitration Privacy and Confidentiality In the Age of (Coronavirus) Technology, David C. Singer,Wiley Online Library, https://onlinelibrary.wiley.com/doi/10.1002/alt.21849

[12] AAA Statement of Ethical Principles, https://www.adr.org/StatementofEthicalPrinciples

[13] ICCA-NYC BAR-CPR CYBERSECURITY PROTOCOL FOR INTERNATIONAL ARBITRATION (2020) https://www.cpradr.org/programs/committees/digital-transformation-committee/index/_res/id=Attachments/index=0/ICCA-NYC%20Bar-CPR%20Cybersecurity%20Protocol%20for%20International%20Arbitration%20-%20Electronic%20Version.pdf/

[14]Supra note 10

Portions of the (Indian) Arbitration Amendment Act, 2019 Notified

We had two posts (here and here) on the coming into force of the Arbitration and Conciliation (Amendment) Act, 2019. We had argued that the said law had not been brought into force as on the date of the post. The last post was dated 30.08.2019. 

Thereafter, it appears that a Notification dt. 30.08.2019 has been uploaded on the website of the Ministry bringing into force certain provisions of the Arbitration and Conciliation (Amendment) Act, 2019, including Section 15 thereof, confirming our argument that Section 15 had not been brought into force on the date of presidential assent of the Amendment Act. Notification of Section 15 has made these arguments irrelevant since it is retrospective in operation (w.e.f. 23 October 2015). Had Section 15 not been notified, the arguments made in the aforesaid posts would have been valid.

The notification does not bring into force all the provisions of the 2019 Act. Basically, it excludes from its purview those provisions relating to the Arbitration Council of India. Apart from this, the notification also excludes Eighth Schedule, which deals with qualifications of an arbitrator. 

The operative portion of the Notification reads:

"S.O. 3154(E).—In the exercise of the powers conferred by sub-section (2) of section 1 of the Arbitration and Conciliation (Amendment) Act, 2019 (33 of 2019), the Central Government hereby appoints the 30th August, 2019 as the date on which the provisions of the following sections of the said Act shall come into force:—

(1) section 1;

(2) section 4 to section 9 [both inclusive];

(3) section 11 to section 13 [both inclusive];

(4) section 15."

The provisions brought into force are the following:

Section 1:

"1. (1) This Act may be called the Arbitration and Conciliation (Amendment) Act, 2019.

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

Sections 4 to 9

"4. In section 17 of the principal Act, in sub-section (1), the words and figures “or at any time after the making of the arbitral award but before it is enforced in accordance with section 36” shall be omitted.

5. In section 23 of the principal Act, after sub-section (3), the following sub-section shall be inserted, namely:––

“(4) The statement of claim and defence under this section shall be completed within a period of six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in writing, of their appointment.”.

6. In section 29A of the principal Act,—

(a) for sub-section (1), the following sub-section shall be substituted, namely:—

“(1) The award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23:

Provided that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavour may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23.’’;

(b) in sub-section (4), after the proviso, the following provisos shall be inserted, namely:––

“Provided further that where an application under sub-section (5) is pending, the mandate of the arbitrator shall continue till the disposal of the said application:

Provided also that the arbitrator shall be given an opportunity of being heard before the fees is reduced.”.

7. In section 34 of the principal Act, in sub-section (2), in clause (a), for the words “furnishes proof that”, the words “establishes on the basis of the record of the arbitral tribunal that” shall be substituted.

8. In section 37 of the principal Act, in sub-section (1), for the words “An appeal”, the words “Notwithstanding anything contained in any other law for the time being in force, an appeal” shall be substituted."

9. After section 42 of the principal Act, the following sections shall be inserted, namely:––
“42A. Notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.
42B. No suit or other legal proceedings shall lie against the arbitrator for anything which is in good faith done or intended to be done under this Act or the rules or regulations made thereunder.”"

Sections 11 to 13

"11. In section 45 of the principal Act, for the words “unless it finds”, the words “unless it prima facie finds”, shall be substituted.

12. In section 50 of the principal Act, in sub-section (1), for the words “An appeal”, the words “Notwithstanding anything contained in any other law for the time being in force, an appeal” shall be substituted.

13. After section 86 of the principal Act, the following section shall be inserted and shall be deemed to have been inserted with effect from the 23rd October, 2015, namely:—

“87. Unless the parties otherwise agree, the amendments made to this Act by the Arbitration and Conciliation (Amendment) Act, 2015 shall—

(a) not apply to––

(i) arbitral proceedings commenced before the commencement of the Arbitration and Conciliation (Amendment) Act, 2015;

(ii) court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Arbitration and

Conciliation (Amendment) Act, 2015;

(b) apply only to arbitral proceedings commenced on or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015 and to court proceedings arising out of or in relation to such arbitral proceedings.”.

Section 15

"15. Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 shall be omitted and shall be deemed to have been omitted with effect from the 23rd October, 2015."

Retrospectivity & Bringing into Force: Arbitration Amendment Act, 2019

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

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

Part I

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

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

Section 1(2) of the 2019 Act provides: "(2) Save as otherwise provided in this Act, it shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision."

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

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

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

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

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

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

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

Part II

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

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

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

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

Scope of Public Policy in Setting Aside Awards: Ssangyong v NHAI

As stated in the previous post, the decision of the Supreme Court in Ssangyong Engineering & Construction Co. Ltd. V. NHAI [Civil Appeal No. 4779/2019 dt. 8 May 2019]  is significant for several reasons and one of the important reasons is because it lays down the contours of setting aside arbitral awards on the grounds of public policy and patent illegality post the 2015 amendments. 

In this post, we look at what the Supreme Court held as regards the scope of the ground of public policy in setting aside the arbitral award.

Provisions of Law

Some salient provisions of the amended Arbitration and Conciliation Act, 1996 ("Act" or "1996 Act") are given below:

Section 28(3): "While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction."

Section 34(2)(b)(ii): "An arbitral award may be set aside by the Court only if—... 

(b) the Court finds that—...

(ii) the arbitral award is in conflict with the public policy of India.

Explanation 1.For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,

(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice. 

Explanation 2.For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute."

Section 34(2A): "An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence."

The Contours of Public Policy and Patent Illegality: Ssangyong

The Supreme Court laid down what can be done and what cannot be done in a petition for setting aside an arbitral award on the ground of public policy and patent illegality. These are given below:

General

• The amended provisions would apply for petitions filed on or after 23 October 2015 (see last post)
• "Public policy" under Section 34(2)(b)(ii) and Section 48(2)(b) will have the same meaning. Additionally, purely domestic awards could be set aside on the ground of patent illegality appearing on the face of the record.
• The ground of interest of India as was recognised in Renusagar v GE  has been deleted and no more exists.

Fundamental Policy of Indian Law

• "Fundamental policy of Indian law" would not entail a review on merits of the dispute. 
•  Disregarding orders passed by superior courts of India, violation of foreign exchange laws  and contravention of statute linked to public policy or public interest would amount to contravention of the fundamental policy of Indian law.
• But fundamental policy of Indian law does not entail a review on the merits of the dispute.
• Fundamental policy of Indian law does not mean perversity. Wednesbury principles do not apply to the ground of fundamental policy of Indian law and decisions which fall short of reasonableness cannot be questioned on this ground. 
• While audi alterem partem principle is of great importance, it falls is already covered in Section 34(2)(a)(iii) and therefore does not fall within the scope of fundamental policy of Indian law. 

Justice and Morality

• The ground of justice and morality as provided in Renusagar v GE has been replaced with the most basic notions of morality or justice. These grounds as explained in p. 26 to 29 of Associate Builders would apply.
• An award which shocks the conscience of the court is likely to be set aside under this ground. If the claimant claims, say, Rs. X but the tribunal awards Rs. X + Y (i.e., Y is not at all claimed) without reason or justification, the award is liable to be set aside it is is opposed to the most basic notions of justice.
• Morality would obtain the meaning as is given in Section 23 of the Indian Contract Act, 1872. As such it would include sexual morality, such as an award providing for specific performance of an agreement involving prostitution. 
• Morality would also cover agreements that, though not illegal, are against the prevailing mores of the day. 
• However, if an award has to be set aside under this ground, it has to shock the court's conscience. 

In the next post, we shall see what the Supreme Court stated on the scope of Section 34(2A) and its impact on the interpretation of "public policy" in Section 48(2)(b).

Exemplary Costs? No Sir, It is Now a Right!

Exemplary costs are costs imposed by a court on a party for abuse of the court's process or for some conduct that is deprecable. These are imposed in exceptional cases where the party's conduct clearly demonstrates abuse of process or deprecable conduct.

In the recent decision of the Supreme Court in LMJ International Ltd. and Ors. vs. Sleepwell Industries Co. Ltd. (20.02.2019 - SC) : MANU/SC/0251/2019, the Supreme Court rejected the plea for overturning a decision of the court refusing to entertain the plea to refuse to recognise or enforce a GAFTA award. After rejecting the arguments of the Petitioner/ Award Debtor, the court went on to award "exemplary costs" on the Petitioner:

"18. In view of the above, these special leave petitions are dismissed with exemplary costs, quantified at an aggregate amount of Rs. 20,00,000/- (Rupees Twenty Lakh only). The amount towards costs be paid to the Respondent within six weeks from today."

While the eventual decision to award costs and the quantum was reasonable, branding it a "exemplary" is not in accordance with the recent amendments in the form of Section 31A where the court was obligated to award costs on the winning party. Detailed reasons may be found in this blog post and this paper. The long and short of it is that under Section 31A the losing side bears the costs is the norm and the court is obligated to grant reasons for not doing so. Considering the fee that the Supreme Court counsels charge and the likely costs incurred by the Respondent/ Award-Holder in briefing the counsels, stay, time spent,etc., the costs awarded in this case seem reasonable.

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

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

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

Date: 03.10.2018

Bench: Rohinton Fali Nariman and Navin Sinha, JJ.

Description

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

Questions

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

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

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

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

Relevant legal Provisions

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

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

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

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

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

(iv) the Government of a foreign country;”

Decision

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

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

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

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

Outcome

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

Implications and Critique

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

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

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

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

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

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

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

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

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

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

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

Further Updates on the Nissan- Government of India Treaty Arbitration

Readers would recollect that we had done a post on the invocation of investor treaty arbitration by Nissan against the Government of India for the default committed by the State of Tamil Nadu. In the presentation uploaded in the post, we had noted that the State of Tamil Nadu had filed a petition in the Madras High Court seeking an anti-arbitration injunction against Nissan from proceeding with the arbitration. Nissan had filed a counter in the Madras High Court stating, among other things, that the Government had filed the suit belatedly after 10 months from the invocation of arbitration (February 2017)

Nissan had also moved an anti-suit injunction seeking to restrain the Government from proceeding further in the suit. 

Newspapers report that Nissan is now mulling withdrawal of the application for anti-suit injunction. It appears that the application it filed with the tribunal, whose seat is at Singapore, could not be taken up by the tribunal owing to the Chinese New Year. These submissions were made in the Madras High Court in the recent hearing held in the matter. The Judge has posted the matter on 27 February to enable Nissan's counsel to obtain instructions from his client on the anti-suit injunction it sought from the tribunal. 

The newsreport from the Hindu can be accessed from here.

It also appears that against the arbitration notice, the Government had raised jurisdictional issues and had appointed Justice JS Khehar (former Chief Justice of India) as its nominee arbitrator. It also appears that Nissan had no objections to the tribunal bifurcating the arbitration by deciding the jurisdictional issues first. (See this newsreport)

We'll keep the readers posted on further proceedings in the matter.