Impiety of a Supreme Court Judgment

The Supereme Court of India has recently came lashing down on a Union Minister, Mr. Vilasrao Deshmukh for no reason other than being insensitive to the farmers of Vidarbha. (Please read an earlier post on this here). the language used by the SC was so strong that any slef respecting person would have resigned a public post. But then propriety is the last thing expected of a politician in our nation. If he is not resigning, one would genuinely expect that the team leader will sense the signals and would show him the door. Instead, Mr. Manmohan Singh in the recent cabinet reshuffle gave Vilasrao Deshmukh the key portfolio of Rural Development and Panchayati Raj.

P Sainath has saracstically mentioned this act of the Prime Minister as the Lurch of the Lemmings in a piece written on 28/1/11.

Unilateral Appointment of Arbitral Tribunal

One of the fundamental features of arbitration is that the disputing parties reach a consensus and constitute the arbitral tribunal jointly. But what happens if the arbitration clause provides that one of the parties would unilaterally constitute the arbitral tribunal? We shall see a real life situation.

The English daily Hindustan Times has organised an event called as the Tree of Wishes event. The arbitration clause contained in the Terms and Conditions for the event reads:

"The event shall be governed by and construed in accordance with the laws of India. Any disputes, differences and, or, any other matters in relation to and arising out of the event and, or, pertaining to the rules and regulations and, or, the Terms and Conditions shall be referred to arbitration under the Arbitration & Conciliation Act, 1996. The arbitral tribunal shall consist of a sole arbitrator to be appointed by HTML. The venue of arbitration shall be New Delhi and the proceedings of such arbitration shall be in English Language only."(emphasis not in the original)

The clause thus provides that HTML (HT Media Limited) would appoint the sole arbitrator. The question is whether this portion of the arbitration clause would be valid or not. In other words, in case any dispute arises, whether HTML can appoint an arbitrator even if the other disputing party disapproves of the arbitrator so appointed?

If the Arbitrator Appointed is an Employee of the Appointing Party: For the answer to this question, we first look into the case of Indian Oil Corporation v. Raja Transport. The case has already been analysed in this blog in Augist 2009. In that case, the arbitration clause provided that the Indian Oil Corporation would have the right to appoint one of its officers as the arbitrator. Raja Transport objected to this clause on the ground that there was a chance that the arbitrator may be biased. The Supreme Court rejected the contention and upheld the validity of the arbitration clause (the grounds on which the court upheld the clause are in the August 2009 post). The court also held:

"The position may be different where the person named as the Arbitrator is an employee of a company or body or individual other than the state and its instrumentalities. For example, if the Director of a private company (which is a party to the Arbitration agreement), is named as the Arbitrator, there may be valid and reasonable apprehension of bias in view of his position and interest, and he may be unsuitable to act as an Arbitrator in an arbitration involving his company."

Thus, the position is clear that HT Media Limited (HTML) cannot appoint its one of own officers as the arbitrator. But what if chooses to appoint a third person as an arbitrator? Would that appointment be valid?

If the Arbitrator Appointed is not an Employee of the Appointing Party but is Third Party: In A.V.N. Tubes Ltd. vs Bharatia Cutler Hammer Ltd., the arbitration clause in challenge read as follows:

"WITHOUT prejudice to the above Clause 17, of the Contract the Company, M/s. Avn Tubes Limited, reserves its right to go in for arbitration, if any dispute so arisen is not mutually settled within 3 months of such notice given by the Company to the Contractor. And, the award of the Arbitrator, to be appointed by the Company, M/s. Avn Tubes Limited, shall be final and binding on both the Company and the Contractor."

The Delhi High Court held that the above agreement was not enforceable because it was cumulatively unilateral as:

1. the agreement only granted the right of AVN Tubes to refer the dispute to arbitration
2. the procedure to be followed in the agreement entitles only VN Tubes to invoke arbitration
3. the other party had no say in the appointment of arbitrator

The court made an observation seems to answer the issue under analysis:

“The cumulative effect of all the three clauses is that it is unilateral agreement. In case any one of the clauses alone had been there, that by itself may not have made the agreement unilateral.” (emphasis not in the original)

[The AVN Tubes case was applied in Emmsons International Ltd. v. Metal Distributors (UK) And Anr. II (2005) BC 465: 2005 (1) CTLJ 39 Del.] Thus, according to the court, the mere fact that the clause granted exclusive right to one party to constitute the tribunal, that itself would not render the arbitration clause unenforceable.

In Jindal Exports Ltd v. Fuerst Day Lawson Ltd., it was the contention of Jindal that since the arbitration clause was unilateral, it was not enforceable. The court rejected the contention of Jindal after analysing several English cases and the Indian cases on the point. 

Thus, the clause quoted above would be valid as per the existing cases on the subject.

Notwithstanding the approval by the English courts of such unilateral arbitration clauses, what is the difference between reference by a dispute by a private entity to its own employee and reference by it to a third person whom it can influence?

Fortnightly Roundup of (Indian) Arbitration Judgements (January 1- January 15, 2011)

In this blog, for a long time we have been doing fortnightly roundup of arbitration related articles published in the Social Science Research Network. From the year 2011, we have decided to post a fortnightly roundup of Indian cases on arbitration. The cases listed below are those which have been decided in the first fortnight of this year.

State of UP v. Combined Chemicals Company Private Limited (Supreme Court, 04.01.2011)
Key Aspects: Formation of Contract, Existence of Arbitration Agreement, Acceptance of Tender, Appointment of Arbitrator by Court without Hearing Objections of the Objecting Party, Award suffers from Patent Illegality,

Delhi State Civil Supply Corporation v. Bhagwati Transport Corp. (Delhi High Court, 06.01.2011)
Key Aspects: Limitation, Time Limit for Filing Petition for Setting Aside Arbitral Award, Section 42 Arbitration and Conciliation Act 1996, “Court” as per the Arbitration and Conciliation Act 1996

Ramesh Chander Arora vs Kashmir Saree Kendra (Delhi High Court, 06.01.2011)
Key Aspects: Appeal against Order rejecting Challenge of Arbitral Award, Award Contrary to Public Policy, Validity of the Arbitration Agreement, Delhi Hindustani Mercantile Association.

M.Sons Enterprises Pvt. Ltd. v. Shri Suresh Jagasia & Anr. (Delhi High Court, 07.01.2011)
Key Aspects: Challenging Arbitral Award, Power of Arbitrator to Act as Mediator, Consent Award, Deficiency in Stamping as a Ground for Setting Aside an Award, Enforcement of an Insufficiently Stamped Award, Suit for Declaration of Invalidity of Arbitration Agreement, Scope of the Power of a Court to Allow Amendment of Petition filed under Section 34

JMC Projects (India) Ltd v. Mechtech Engineers (Gujarat High Court, 10.01.2011)
Key Aspects: Deposit of a Percentage of Award Pending Challenge and its Consequences, Arbitration under the Micro, Small and Medium Enterprises Development Act, 2006.

Saipem Triune Engineering v. Indian Oil Petronas Pvt. Ltd. (Delhi High Court, 10.01.2011)
Key Aspects: Existence of Arbitration Agreement, Arbitrator's power to Rule on the Validity of Arbitration Agreement

Girnar Traders vs State Of Maharashtra (Supreme Court of India, 11.01.2011)
Key Aspect: Arbitration under the Maharashtra Regional and Town Planning Act,1966

Penn Racquet Sports vs Mayor International Ltd (Delhi High Court, 14.01.2011)
Key Aspects: Enforcement of Foreign Awards, Challenge of Foreign Arbitral Awards under Section 34 of the Arbitration and Conciliation Act, 1996, Scope of Enquiry of a Court hearing an Application for Enforcement of Award, Scope of Setting Aside an Award due to Patent Illegality, Narrow Construction to be Accorded to Public Policy in Section 48 of the Arbitration and Conciliation Act, 1996, Counter-claim and Advance Costs under the ICC Rules of Arbitration.

Simplex Infrastructures Ltd. v. NHAI (Delhi High Court, 14.01.2011)
Key Aspects: Power of Court to Order Payment of Money Disputed between Parties, Power of the Court to Order Interim Measures under Section 9 of the Arbitration and Conciliation Act, 1996.

R.L. Kalathia & Co. v. State Of Gujarat (Supreme Court of India, 14.01.2011)
Key Aspects: Implications of No-Dues/ No-Claims Certificate on the Survival of the Arbitration Clause.

B.S.Krishna Murthy v.B.S.Nagaraj (Supreme Court of India, 14.01.2011)
[Case Reported in newspapers: See, here, here, and here for news reports on the case]
Key Aspects: Family Dispute Resolution through Arbitration and Mediation.

On the sidelines, we request readers to check out the judgement of the Supreme Court in Union of India v. PC Ramakrishnayya. In this judgement, the Supreme Court has noted a very peculiar aspect in the judgement of the Central Administrative Tribunal, Hyderabad and of the Andhra High Court: The Tribunal had quoted a couple of sentences from the judgement of the Supreme Court in the case of National High School, Madras v. Educational Tribunal. Curiously the said sentences were actually not to be found in the judgement of the Supreme Court in the National High School case. Curiously, even the High Court 'cited' with approval the sentences 'quoted' by the Tribunal. A shocked Supreme Court held:

"10. As stated above, in National High School, Madras there is no passage as attributed to it in the judgment and order passed by the Tribunal and the High Court. Now, had this mistake occurred only in the judgment of the Tribunal, one could have ignored it as an error of citation. But its repetition in the order of the High Court points to only one thing, that the quoted passage was lifted from somewhere without a proper verification from an approved law report. We express our regret at such cavalier attitude in making judicial pronouncements."

In fact, the 'somewhere' is actually from Rule 20 of the A.P. Civil Services (Classification, Control and Appeal) Rules, 1991.

Horizontal application of fundamental rights- some thoughts

The other day, Prof Singh was talking to the students on Art. 12. He picked up the issue of horizontal application of fundamental rights. Taken us through the importance of horizontal application, especially in India, where state wasn’t the violator as much as fellow members of the society particularly in a cast ridden society. He also took us through the slow progress of acceptance of the horizontal application, rooted in the human rights plane argued his case that Indian judiciary should be more sensitive to this matter as nothing prevents them from enforcing fundamental rights against the private persons. Experiences in Vishaka and other handful of cases have shown that judiciary has already begun to think in those lines.

The impediment in extending enforceability of fundamental rights, to him, is a result of reading Art. 12 as a preamble to Part III. The definition whereas is to economize the use of words wherever the word “the State” occurs.

The tricky question in horizontal application is how far a writ remedy be used to get into private transactions. Interestingly lot of the students seems to be entertaining a conventional thinking that fundamental rights are and should only be enforceable against the state. Their arguments seem to stem from Art. 32 which specify only certain writs and the remedies are available only against the state. Contrasting it with Art. 226, the argument was that in Art. 226, the word ‘any person’ has been used, which is lacking in Art. 32.

On the other hand I was reading Art. 32 in such a way to find whether there is any prohibition to give remedy against the actions of private persons, keeping aside the dogma that writs are only against state. Even other wise, Art. 142 give the SC the power to do complete justice and mould the remedy.

A close analysis of Art. 32 bring forth the following:

1. Clause 1 – only ensures the right to move the SC for the enforcement of the right. It is not said, enforcement against the state. The very fact that there are certain fundamental rights which could be directly violated by private persons, it becomes clear that the intention was never to limit it only against the state.
2. Clause 2- speaks that SC has power to issue directions, orders or writs for the enforcement of any of the rights conferred in this part. SC's power is not limited to writs and even writs are not limited to state, though so is the common law understanding.

Therefore the argument based on Art. 32 fail. One of the remainder issues was that how far it is feasible and advisable for the court to issue a mandamus against a parent discriminating between his children. This was raised in the milieu of SC’s observation in T Sareetha’s case that ‘allowing constitutional law to get into marital relationship would be like a bull in a china shop’. This is where I think one need to make a distinction between the private and public spheres of individual actions. Though it may be argued that in present day understanding private is public.