Critique of the Specific Relief (Amendment) Act, 2018

Over at Obiter Dicta, the respected Dr. Nilima Bhadbhade, one of the foremost experts in India on Contract and Specific Relief law, has penned a comprehensive critique on the Specific Relief (Amendment) Act, 2018. The post by Dr. Bhadbhade primarily argues that the amendment was a case of hurried legislation and was a comprehensive deviation from the Expert Committee Report. The post notes that the Ministry of Law & Justice did not publish the report but the same was made available through the RTI Act. This was probably a reference to our post making the Report public pursuant to an RTI application by us.

We had several posts in this blog (here, here, here and here) and elsewhere critiquing one particular aspect: the way in which the amendment affected the balance maintained by contract law between the interests of the victim of the breach and the perpetrator of breach. The post by Dr. Bhadbhade confirms the validity of the criticisms made, and coming from a person with immense expertise and who was a part of the Expert Committee, the Government should take it seriously to explore the option of amending the amendment to ensure that legitimate criticisms of the Act are addressed. 

Tribunal Secretaries & the Proposed Amendments to the Indian Arbitration Law

The Arbitration and Conciliation (Amendment) Bill, 2018 has been passed in the Lok Sabha and is likely to be discussed in the Rajya Sabha in the forthcoming Parliamentary session. The amendments seek to establish India as a robust centre for international arbitration. Of the many aspects that the Bill has missed out, one of the crucial aspects of international arbitration that the Bill has failed to address is the issue relating to tribunal secretaries. 

Tribunal secretaries are considered as an integral part of international arbitrations, especially with high stakes and complexities involved.  They have been regarded as the fourth arbitrator and yet the appointment, functioning and other aspects relating to tribunal secretaries are hardly addressed by the amendment. Given that the role and functioning of tribunal secretaries is a grey area, it would do well for India to address this statutorily. Hence, the following amendments are suggested (sincere thanks to Dr Shaswat Bajpai for his comments on the topic)

Inclusion of Fee to Tribunal Secretaries in Costs of Arbitration

The definition of "costs" in Section 31A should include the fees to tribunal secretaries as well. This would mean that the arbitral tribunal will have a lien over the award under Section 39(1) if the fee of the tribunal secretaries remain unpaid. The following amendments are suggested in Section 31A:

Explanation to Section 31A(1) which defines costs should include fees and expenses of tribunal secretaries also.  Accordingly, the phrase "tribunal secretaries" is sought to be added to clause (i) of the explanation as below:

"Explanation: For the purpose of this subsection, "costs" means reasonable costs relating to
i) the fees and expenses of the arbitrators, tribunal secretaries, Courts and witnesses;
(ii) legal fees and expenses;
(iii) any administration fees of the institution supervising the arbitration; and
(iv) any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award."

Immunity to Arbitrators to Extend to Tribunal Secretaries

The 2018 Amendment Bill proposes to introduce a provision on immunity of the arbitrators in the firm of Section 42B. This immunity should be extended to tribunal secretaries as well. It is suggested that the phrase “or the tribunal secretary” is added after “the arbitrator” in the proposed Section 42B.

An amended Section 42B as per the above suggestion would read as below:

”No suit or other legal proceedings shall lie against the arbitrator or the tribunal secretary for anything which is in good faith done or intended to be done under this Act or the rules or regulations made thereunder."

Arbitration Promotion Council to Take Steps to Recognise Professional Institutes Providing Accreditation of Tribunal Secretaries

Section 43D proposed to be introduced vide the 2018 Amendment Bill lays down the functions of the Arbitration Promotion Council of India. It does not deal with tribunal secretaries. While conducting training programmes for tribunal secretaries could be covered under Section 43D(2)(i), Section 43D is silent on tribunal secretaries. From a perusal of Section 43D, it appears that the Arbitration Promotion Council of India is not tasked with directly accrediting arbitrators. Section 43D(2)(b) provides for recognition of professional institutes which accredit arbitrators. The Council, then, should also recognize professional institutes accrediting tribunal secretaries. To this end, the phrase “and tribunal secretaries” should be added after “arbitrators” in Section 43D(2)(b).

The proposed Section 43D(2)(b) would read as below:

“(2) For the purposes of performing the duties and discharging the functions under this Act, the Council may—

(b) recognise professional institutes providing accreditation of arbitrators “and tribunal secretaries”;

General Norms Applicable to Arbitrators in Eighth Schedule Should Apply Mutatis Mutandis to Tribunal Secretaries

Section 43G of the 2018 Bill provides that the qualifications, experience and norms for accreditation of arbitrators shall be as specified in the Eighth Schedule. Eighth Schedule sought to be introduced by the 2018 Bill lays down the qualifications, experience and norms for accreditation of arbitrators. The norms should apply to tribunal secretaries also.

Although it may be unreasonable to provide for experience requirements for tribunal secretaries, it is imperative that appointment of trained tribunal secretaries is encouraged. To that end, a tribunal secretary to be eligible for appointment must have at least undergone training from recognized institutions.

Following amendments are suggested:

The phrase “and tribunal secretaries” should be added after “of arbitrators” in Section 43G. Section 43G would then read:

“The qualifications, experience and norms for accreditation of arbitrators and tribunal secretaries shall be such as specified in the Eighth Schedule:

Provided that the Central Government may, after consultation with the Council, by notification in the Official Gazette, amend the Eighth Schedule and thereupon, the Eighth Schedule shall be deemed to have been amended accordingly.”

At the end of the Eighth Schedule, the following are to be added:

“Qualifications of Tribunal Secretary

A person shall not be qualified to be a tribunal secretary unless he is trained and certified as such by a professional institute recognised by the Arbitration Promotion Council of India.

General Norms Applicable to Tribunal Secretary

The general norms applicable to arbitrator shall apply mutatis mutandis to tribunal secretary.”

Model Rules Applicable to Appointment and Functioning of Tribunal Secretaries

The current law is silent on the rules regarding the appointment and functioning of tribunal secretaries. Hence, it is proposed that a new Section 15A is added to provide detailed rules that would apply in default for appointment of tribunal secretaries unless parties agree otherwise. Detailed rules in this regard could be contained in a Ninth Schedule. Similar to Section 11A, the Central Government will be empowered with the right to amend the Ninth Schedule.

The provisions proposed will be as below:

“15A. Tribunal Secretaries.-

(1) The parties are free to agree on the number, qualifications, procedure for appointment and functions of tribunal secretaries to the arbitration proceedings.

(2) Failing any agreement referred to in sub-section (1), the Ninth Schedule shall guide the parties and the arbitral tribunal in the appointment and functioning of tribunal secretaries in the arbitration proceedings.

(3) If the Central Government is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, amend the Ninth Schedule and thereupon the Ninth Schedule shall be deemed to have been amended accordingly.

(4) A copy of every notification proposed to be issued under sub-section (3), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by the both Houses of Parliament.”

The Government could come up with draft model rules addressing the topics of appointment, role and functions of tribunal secretaries. If India has to achieve the salutary aim of becoming a robust centre for international arbitration, the arbitration law should reflect the best practices in international arbitration. The need of the day is a comprehensive and enabling system of international arbitration. It would do well for the Government to explore the option of introducing these amendments in the current round of reforms.

Article Review: Shivprasad Swaminathan's De-inventing the Wheel: Liquidated Damages, Penalties and the Indian Contract Act, 1872

Shivprasad Swaminathan's latest article in the Chinese Journal of Comparative Law (link-subscription required) De-inventing the Wheel: Liquidated Damages, Penalties and the Indian Contract Act, 1872, 6 Chinese Journal of Comparative Law 103-127 (2018) presents an interesting read and is an article which every Indian lawyer- practitioner, judge or academician- should read, Good articles on Contract Law from an Indian perspective are rare and the paper provides deep insights on the subject. 

Ask any lawyer about what are essentially required to be established in a court to be entitled for liquidated damages and he is likely to scratch his head or mislead you. If you file a claim in a court (or an arbitral tribunal) for liquidated damages and furnish some evidence, you can only hope to god on whether the court will award you the said amount.  So the claimant ends up furnishing the best evidence he has, "whether or not actual damage or loss is proved to have been caused".

The key takeaways of the article are listed out below:

• The article provides a much-required drafting history of Section 74
• It also discusses the objective of Section 74- to no more get into the LD-penalty dichotomy and how the dichotomy was introduced through the 1899 amendments. 
• The article notes how the supposedly "landmark" decisions on LD repeatedly brought the dichotomy into S. 74 when it was not warranted at all.
• "Reasonable" was a "trouser word": its determination was by establishing unreasonableness. 
• The article also analyses the relatively recent judgement Kailash Nath v DDA and how the Supreme Court tried to construe Section 74 to mitigate the uncertainty brought about by the dichotomy. 

The author argues that a "trichotomy" was introduced in Kailash Nath- liquidated damages, other liquidated amounts and penalty in place of the standard dichotomy (See, Part II of the article). This blawgger is not sure if RF Nariman, J did that in the case.  We'll quote the relevant portion of the judgement from which the author seeks to draw this inference:

"Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation.

Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.

Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section.

The Section applies whether a person is a plaintiff or a defendant in a suit.

The sum spoken of may already be paid or be payable in future.

The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded."

Kailash Nath nowhere uses the phrase "other liquidated amounts". It appears that "liquidated amounts" referred to above is qualified by "payable by way of damages". Nariman's decision is that if the above said liquidated amount payable by way of damages is found by the court to be a genuine pre-estimate of damages fixed by both parties, then the said amount is reasonable compensation but if it is not a genuine pre-estimate of damages fixed by both parties, it is a penalty for which only reasonable compensation could be awarded. In sum, there seems to be no trichotomy.

Nevertheless, this is just a minor issue with the paper that's a brilliant read. The author admirably concludes that the Act has deviated from the drafter's design, which originally could accommodate the test of legitimate interests of the promisee in assessing reasonableness (and enforcement of) the LD clause. The test is currently in vogue post-Cavendish Square. The author argues that the Section as originally drafted without the dichotomy could accommodate the legitimate interest test "[b]ut it was not to be". Now that Canvedish is the law in the common law world, it is time for us to exorcise the dichotomy and embark on reforming the law. 

Citation of the Practical Academic Blog in Journals

Readers are aware that we are doing a survey on the completion of ten years of the Practical Academic Blog. The responses so far to the survey are interesting. One of the questions asked was if the reader was aware that this blog has been cited in reputed dispute resolution journals world over and many of the responses expressed their ignorance about it. 

In this post, we provide links to some of the journal articles where the Practical Academic Blog has been cited. The list, for obvious reasons, excludes the papers of the authors of the blog.

• ICSID Review: Loukas A. Mistelis, Award as an Investment: The Value of an Arbitral Award or the Cost of Non-Enforcement, 28 ICSID Review 64-87, 81 (2013) (link- subscription required)
• ICSID Review: AP Karreman & K Dharmananda, Time to Reassess Remedies for Delays Breaching ‘Effective Means’, 30 ICSID Review 118-141 (2015) (link- subscription required)
• Pepperdine Dispute Resolution Law Journal:: Jory Canfield, Growing Pains and Coming-of-Age: The State of International Arbitration in India,14 Pepp. Disp. Resol. LJ 335-353, 353 (2014) (link-pdf)
• Singapore Law Review: N. Grover, Dilemma of the Proper Law of the Arbitration Agreement: An Approach towards Unification of Applicable Laws, 32 Sing. L. Rev 227 (2014) (link- subscription required)
• European Scientific Journal: Dmytro Galagan & Patricia Živković, If They Finance Your Claim, Will They Pay Me If I Win: Implications of Third Party Funding on Adverse Costs Awards in International Arbitration, European Scientific Journal (2015) (link-SSRN)

 This is apart from a Cambridge University Press publication: Gary F. Bell, The UNCITRAL Model Law and Asian Arbitration Laws: Implementation and Comparison (2018), p. 52 (link) and Indian journals such as the Indian Journal of Arbitration Law, etc.