RIL-RNRL Dispute

The Ambani Brothers have finally settled the gas dispute by signing a revised Gas Sales Master Agreement (GSMA). Readers may note that the Supreme Court had, on 7th May, ordered RIL and RNRL to renegotiate the GSMA and held, among other things, that:

"b) The EGOM has already set the price of gas for the purpose of the PSC. The parties must abide by this, and other conditions placed by the Government policy. The GSMA/GSPA deeply affects the interests of the shareholders of both the companies. These interests must be balanced. This balance cannot be struck by the court as the court does not have the power under Sections 391-394 to create new conditions under the scheme. In view of the same, RIL is directed to initiate renegotiation with RNRL within six weeks the terms of the GSMA so that their interests are safeguarded and finalize the same within eight weeks thereafter and the resultant decision be placed before the Company Court for necessary orders.

c) While renegotiating the terms of GSMA, the following must be kept in mind:
1) The terms of the PSC shall have an over-riding effect;
2) The parties cannot violate the policy of the Government in the form of the Gas Utilization Policy and national interests;
3) The parties should take into account the MoU, even though it is not legally binding, it is a commitment which reflects the good interests of both the parties;

d) The parties must restrict their negotiations within the conditions of the Government policy, as reflected inter alia by the Gas Utilization Policy and EGOM decisions."

[emphasis supplied]

Newsreports suggest that RIL and RNRL have finally entered into a GSMA in terms of the SC Judgement. You can access the news report of the Economic Times from here.

Rent-A-Center v Jacskon

Rent-A-Center v Jacskon has been one of the most closely followed cases in the recent past. The case was pending before the US Supreme Court for some time. The oral arguments took place in April this year. A couple of days back (21 June 2010), the US Supreme Court has delivered the judgement.

The case involves the question as to whether under the Federal Arbitration Act, a district court could decide a claim that the arbitration agreement was unconscionable, when the arbitration agreement explicitly assigned that task to the arbitrator.

In a few days, we will have a detailed post on this case and analyse the Indian position concerning the said question. In the meanwhile, readers can access the judgement from this link.

Fortnightly Roundup of SSRN Articles on Arbitration (June 1-15)

Andrej Savin, The Arbitration Exception and Protection of Arbitration Agreements in the EU

Abstract:
Arbitral proceedings are excluded from the scope of Brussels I Regulation on the Recognition and Enforcement of Foreign Judicial Awards. This exception, a result of the fact that the 1958 New York Convention serves successfully as a primary instrument for the recognition and enforcement of arbitral awards, creates a number of difficulties both for arbitral tribunals and for regular courts.

The first part of this article looks at the exception from Article 1(2)(d) of the Regulation through official commentaries and court cases of the European Court of Justice. Although there is confirmation in the latter that arbitration is excluded, the inconsistencies and doubts about the article’s scope continue to put parties in doubt.

The second part analyzes some difficulties which arise out of Article 1(2)(d) and which are encountered in practice. Among these are the problem of the arbitration agreement’s validity, the issues of interim measures and court assistance and the problem of recognition and enforcement of judgments made in violation of arbitration agreements.

The third part analyzes the recent initiatives for reforming the Regulation. Before all, a look is taken at the so-called Heidelberg Report which the European Commission ordered as a basis for its own Green Book on the changes and the Report that follows it. Attention is also drawn to other suggestions which look at arbitration exception.

Lorenzo Casini, The Making of a Lex Sportiva: The Court of Arbitration for Sport 'Der Ernährer'

Abstract:
The purpose of this paper is to examine the structure and functions of the Court of Arbitration for Sport (CAS), in order to highlight a number of problems concerning judicial activities at the global level more generally. Section 1 will outline CAS’ organization and functions, from its inception to the present date. In particular, this section will show how the history of the CAS is reminiscent of a famous German novel based on a biblical saga, “Joseph and his brothers” by Thomas Mann. Put briefly, the CAS was originally the “favourite son” of the Olympic movement’s founding fathers; it subsequently became the target of its envious “brothers” - i.e. the International Federations and other sporting arbitration institutions - which viewed the CAS as a dangerous enemy; ultimately, the CAS defeated its opponents, gained independence and brought normative harmonization, thereby becoming “the Nourisher” (Der Ernährer) of global sports law. Section 2 will focus on the role of CAS in making a lex sportiva, and it will take into account three different functions: the development of common legal principles; the interpretation of global norms and the influence on sports law-making; and the harmonization of global sports law. Section 3 will consider the relationships between the CAS and public authorities (both public administrations and domestic courts), in order to verify the extent to which the CAS and its judicial system are self-contained and autonomous from States. Lastly, section 4 will address the importance of creating bodies like CAS in the global arena, and it will identify the main challenges raised by this form of transnational judicial activity. The analysis of CAS and its role as law-maker, in fact, allows us to shed light on broader global governance trends affecting areas such as the institutional design of global regimes, with specific regard to the separation of powers and the emergence of judicial activities.

Thomas V. Burch, Manifest Disregard and the Imperfect Procedural Justice of Arbitration

Abstract:
Arbitration is an efficient dispute-resolution system that respects parties’ right to an accurate award. But because arbitration is designed to be efficient, accuracy is not guaranteed. This presents a challenge when courts are asked to confirm or vacate arbitrators’ decisions. Judges dislike approving inaccurate awards, especially in cases where parties have unequal bargaining power. Yet, judges also recognize arbitration’s limited-review principle. So they are forced to balance their desire for accuracy against arbitration’s efficiency policy. Efficiency typically wins at the expense of accurate outcomes.

This Article contends that courts place too much emphasis on the efficiency policy in mandatory arbitration. Consider the narrow manifest disregard standard that most courts apply. It is virtually impossible to vacate an award under this standard because the court must have proof that the arbitrator consciously disregarded known, applicable law. Consequently, parties subjected to mandatory arbitration have little chance of overturning inaccurate awards, which is problematic from a procedural justice standpoint because parties like decision control. This Article proposes giving parties greater decision control by allowing them to appeal arbitrators’ awards for legal error. This expanded standard creates a procedural mechanism for correcting arbitrators’ mistakes, thereby enhancing mandatory arbitration’s procedural justice.

Alessandra Asteriti & Christian J. Tams, Transparency and Representation of the Public Interest in Investment Treaty Arbitration

Abstract:
This article addresses one of the crucial tensions facing modern investment arbitration: that between confidentiality and privacy on the one hand and transparency and inclusiveness on the other. It begins by reviewing how investment arbitration frameworks have addressed this tension so far, noting the traditional focus on confidentiality and privacy and the more recent trend towards transparency and inclusiveness of proceedings before ICSID and/or NAFTA tribunals.

In line with the central methodological premise of the book, the chapter then moves on to compare domestic public law approaches to questions of transparency and public interest representation. Having reviewed U.S., English, French, German and Greek law, it shows that domestic public law seems to accept the principle of transparency and provides for various forms of indirect public interest representation (e.g. through amicus curiae briefs) but also different forms of public interest claims. While this approach cannot be directly transposed to the international legal order, it can clearly – and arguably should – guide the approach of investment lawyers. In any event, the experience of many domestic legal systems suggests that there is no reason to be overly afraid of transparency and some degree of public interest representation.

Christian Tietje, The Applicability of the Energy Charter Treaty in ICSID Arbitration of EU Nationals vs. EU Member States

Abstract:
The relationship between EC law and international investment law has gained increasing attention. This is due to ongoing proceedings before the European Court of Justice (ECJ) concerning the compatibility of bilateral investment treaties (BITs) of EU Member States with EC law, several arbitral proceedings of investors versus EU Member States based on BITs between EU Member States and/or concerning substantive legal problems that are somehow related to EC law (e.g. Eastern Sugar). Insufficient attention, however, has so far been paid to the relationship between EC law and the Energy Charter Treaty (ECT) with regard to the specific situation of a possible arbitral proceeding of an EU national versus an EU Member State. As the ECT is a plurilateral treaty that has been concluded as a so-called mixed agreement by the EC and all its Member States, the questions that arise are to a large extent different than in the Eastern Sugar/BIT situation.

Accordingly this paper discusses the applicability of the ECT in ICSID arbitrations of EU nationals versus EU Member States. The first part of the paper provides an introduction to the applicable law concerning the admissibility and merits of ECT/ICSID proceedings. The second part discusses the public international status of the ECT towards the EC and its Member States and analyses the legal phenomenon of ‘mixed agreements’ within the EC and its Member States. The author continues to examine the general aspects concerning the legally-binding effects of mixed agreements such as the ECT from a public international law perspective. Following the emphasis upon a number of intrinsic legal principles of public international law, the author argues that the ECT as a mixed agreement under EC law does not influence the comprehensive legally-binding effect of the ECT treaty in view of the EC and its Member States under public international law. In the third part of the paper the contributor adheres to providing an overview of the exemptions to the comprehensive binding effects regarding mixed agreements, focussing particularly on the analysis of possible limitations of the legally-binding inter se relationship as a result of explicit and implicit ECT standards. Subsequently an intermediate conclusion is presented, which underlines that from a public international law perspective, an inter se modification of the ECT by EC law is not possible. The author continues to contextualise Part III and V of the ECT and concludes that no competency is given therein to the EC. In the last part of the paper the contributor assesses the associated sub problem of the conflicting jurisdiction in the sense of Art. 292 EC and discusses the irrelevance of Art. 307 EC from an international public law perspective in relation to ECT/ICSID proceedings.The paper closes by providing an analysis of the legal principles of lex arbitri and ordre public concerning the applicability of EC law in an ECT/ICSID proceeding. The author concludes that the legal provisions of the ECT are applicable in an ICSID proceeding of an EU national versus an EU Member State; similarly it is established that EC law does not influence such proceedings which are exclusively governed by public international law.
Emilia Onyema, The Doctrine of Separability Under Nigerian Law

Abstract:
This article examines the provisions of the Nigerian Arbitration and Conciliation Act and judicial pronouncements from the higher courts of record in Nigeria, to determine the question whether the doctrine of separability or autonomy of the arbitration clause from the underlying contract is recognised and applied in Nigeria.

Notable cases cited: The Owners of the MV Lupex v Nigerian Overseas Chartering & Shipping Ltd; Fiona Trust & Holding Corporation & Others v Perivalov & Others; Nigerian Telecommunications plc v Pentascope Int'l BV Pte Ltd.

Nicholas Pengelley, This Pig Won't Fly: Death Threats as Grounds for Refusing Enforcement of an Arbitral Award

Abstract:
Do death threats allegedly made by one party to an arbitration agreement, which deter the other party from attending the arbitration hearing out of fear for his safety, constitute grounds for a court exercising its discretion to refuse enforcement of a foreign arbitral award? This question is considered in the light of current Ontario litigation with particular reference to the inability of a party to present his case, and public policy.

Gus Van Harten, Thinking Twice About a Gold Rush: Pacific Rim v. El Salvador

Abstract:
This is a short op-ed on Pacific Rim's CAFTA claim against El Salvador. It discusses the tension between stability and change in law and the role played by investment treaty arbitrators in resolving this tension.

Institute for the Advancement Of the American Legal System, Civil Litigation Survey of Chief Legal Officers and General Counsel Belonging to the Association of Corporate Counsel

Abstract:
This Report sets forth the results of the Institute for the Advancement of the American Legal System’s civil litigation survey of Chief Legal Officers and General Counsel belonging to the Association of Corporate Counsel. This survey explored the opinions of those who lead corporate legal departments – one per company – in an effort to capture how businesses experience the American civil justice process. The survey’s goal was to achieve a better understanding of the litigant’s perspective. While businesses are certainly a specific category of litigants, they are an important one, and their often repeat contact with the civil justice system is relevant to obtaining a complete picture of the status of that system.

Karsten Nowrot, International Investment Law and the Republic of Ecuador: From Arbitral Bilateralism to Judicial Regionalism

Abstract:
Following more than two decades of unprecedented expansion, the legal regime on the protection of foreign investments has more recently become – again – increasingly controversially debated. There are clear indications in state practice, that an increasing number of countries assume a more cautious or even openly critical position on the current predominant approach in international investment law. This applies also to the recently renewed suspicion displayed by many Latin American countries in this regard. Among the Latin American countries, it is in particular also Ecuador, which has in recent years emerged as one of the main opponents of the current state of international investment law in general and international investment arbitration in particular.

Ecuador not only adopted an increasingly critical stance on this issue but has also – in contrast to many other Latin American countries – in fact already employed a variety of measures in the domestic and international realm that clearly signal this state’s intention to exit the present system and to establish a new alternative scheme of international investment protection.

Against this background, the contribution is intended to analyse some international legal implications of Ecuador’s actions aimed at largely disconnecting itself from the present framework of international investment protection. Furthermore, some broader conceptual thoughts on the perspectives for the future design of international investment agreements in the Latin American context will be provided. For this purpose, the contribution has been divided into three main parts.

The first part is devoted to an identification and overview of the characteristics and importance of the currently predominant scheme of international investment protection, including certain public interest challenges arising from the present design. In the second part some legal implications and thus possible short-term effects of Ecuador’s recent policy responses to these public interest challenges are evaluated. Finally, the third part includes some thoughts on potential medium-term alternatives enjoyed by Latin American countries to initiate and implement a reformation of the international legal framework on investment protection. In this connection, it will be argued that the adoption of a regional investment agreement including the creation of a Latin American court of investment law – although appearing at first sight a rather ambitious (and not only to many foreign investors probably suspicious) alternative – can in the medium-term perspective be considered as an acceptable, politically feasible and thus viable option to facilitate a reconciliation, on modified terms, between countries like Ecuador and the international legal regime on the protection of foreign investments.

James Thuo Gathii, Alternative and Critical: The Contribution of Research and Scholarship on Developing Countries to International Legal Theory

Abstract:
The first set of articles provides an explanation of international law from the viewpoint that international law is culturally constitutive and historically contingent. Obiora Okafor’s article demonstrates that the frailty of the nation state in Africa is partly connected to the impositions of Eurocentric notions of the nation-state on culturally heterogenousheterogeneous African nations, which led to a view of illegitimacy in the eyes of sub-state groups. Balakrishnan Rajagopal uses an ahistorical reading of international legal history to show how Third World resistance as a factor in expansion, consolidation, and renewal of international institutions has been underestimated.

The second set of articles argues that international law can play a mediating role in addressing some legal gaps in market reform. Amy Chua explains the fundamental conflict between free markets and democracy. Eleanor Fox demonstrates that market failures in competition policy can result from the removal of market restraints. Kenneth Vandevelde examines bilateral investment treaties and raises concerns about their narrow focus.

The last set of articles argues that notions of international law, development policy, and local custom do not have predetermined outcomes. Amr Shalakany discusses how bias is not the discernible and determinate outcome of doctrines and institutions in his examination of international commercial arbitration. Celestine Nyamu examines gender hierarchy and demonstrates that custom has both positive and negative impacts on women, which runs counter to the assumptions in human rights and development policy.

Bhushan Steel Ltd. v. Singapore International Arbitration Centre & Anr.

Case No: IA No. 11355/2009 & CS (OS) No. 1392/2009

Court: High Court of Delhi 

Bench: Manmohan Singh, J. 

Date: 4 June 2010

Below is the arbitration clause in the contracts between the Bhushan Steel Ltd, an Indian company and a Danish company.

“In the event of any question of dispute arising under the contract, the same shall be referred to the award of arbitrators to be nominated one each by the sellers and buyers within 30 days notice from either side or in the case of arbitrators not agreeing then to the award of an umpire to be appointed by the arbitrators in writing prior to proceeding with the arbitration. The decision of the arbitrators or the umpire as the case may be shall be final and binding on both parties. The arbitration will take place in Singapore as per the international law.”

We'll call the Indian company by the acronym of its name- "BS" and the Danish company as "DC'. The facts leading to this decision are:

2007: Fourteen Sales Contracts were entered into between BS and DC for the sale and purchase of certain goods. The parties were in accord with the quality and quantity of the goods. Curiously, the parties agreed that the specifications of the goods were to be determined at the time of placing of the purchase orders.

July- November 2007: 776 units of the goods under eight contracts were despatched to DC. The said goods were received without objection by DC. Invoices for the said goods were also sent to DC. 

16.01.2008: BS received a letter from DC stating that the goods supplied under the contracts were not in accordance with the specifications of DC. BS sent its surveyor to verify if the goods were not in consonance with the specifications. The surveyor found DC's complaint to be wrong. Also, the surveyor found that only 32 of the 776 units of goods remained in the possession of DC. Yet, DC chose to make advance payment for the goods under the remaining contracts, consequent to which BS started making the goods. Subsequently, however, BS was informed by DC not to dispatch the said goods till further directions from DC. BS has allegedly suffered a loss of USD 777,297.23 as BS could not sell the goods in open market as the goods were tailor-made to DC's specs.

11.06.2008: BS received a notice from DC stating that BS was liable to pay DC Rs. 4,278,689.88 plus interest @12%. Further DC also asked BS to deliver the remaining goods in the contract.

18.06.2008: BS replied that it was DC which had to pay USD 777,297.23to BS. Further BS also contended that arbitration clause was vague, and was therefore, not valid.

05.01.2009: DC initiated winding up proceedings against BS and had asked for payment of money due to it under the said contracts.

DC sent a notice invoking arbitration against BS in respect of the allegedly defective goods supplied under the first eight contracts. Against the said notice, BS filed a suit before the Delhi High Court for:  

1. declaring the arbitration clause as vague and therefore incapable of being enforced
2. declaring that Singapore International Arbitration Centre (SIAC) had not jurisdiction in respect of the matter
3. declaring that the contracts in the transactions were to be interpreted as per the substantive laws of India.
4. grant permanent injunction against SIAC and DC preventing them from initiating arbitration proceedings
5. declaring that there were no arbitrable disputes between BS and DC. 

An interlocutory application was filed by DC under Order VII Rule 11(d) of the CPC.  Rule 11(d) reads:

"The plaint shall be rejected in the following cases:
...
(d) where the suit appears from the statement in the plaint to be barred by any law:"

DC, the second Defendant has sought to argue the following against the plaint:

• The suit is barred by S 5 of the Arbitration and Conciliation Act, 1996.
• The suit by BS was a counter to the winding up proceedings initiated by DC against BS and was merely a dilatory tactic adopted by BS to delay the arbitration.
• The issue regarding the validity of the arbitration clause could be canvassed before the arbitral tribunal and not by a separate suit.
• BS had acquisced to the arbitration clause and hence the suit is not maintainable by the reasons of waiver, estoppel and acquiscence.
• The suit is undervalued and is without adequate court fee.

Tha plaintiff, BS, had argued that the bar under S 5 is only as regards matters that cover Part I and not matters under Part II, which are, by their very nature, 'international'. S 5 of the Arbitration and Conciliation Act, 1996 (Act) reads:

"Extent of judicial intervention. -Notwithstanding anything contained in any other law for the time being in force, in matter governed by this Part, no judicial authority shall intervene except where so provided in this Part."

BS argued that the suit filed by it could be barred on satisfaction of the requirements under S 45 of the Act. S 45 reads:

"Power of judicial authority to refer parties to arbitration. -Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908) a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed."

BS further alleged that DC had not deliberately made an application under S 45 because that would mean that the judicial authority referred to thereunder would have to decide on the validity of the arbitration clause, which would be dangerous to DC's case.

BS cited S 9 of the Code of Civil Procedure, 1908 (CPC) and certain decisions underlying it and contended that the bar to sue should be express.

BS also argued that DC had wrongfully brought the suit under Order VII Rule 11 when it should have approached the court under S 45 of the Act. It intent, BS argued, was not to delay the arbitration but to contend that the arbitration clause was vague and unenforceable.

On the contention as to S 5 not applying to arbitrations which are 'international' in character, DC argued that as per Bhatia International Part I would apply to arbitration held even outside India.

Issues:

The court framed two issues:

1. Whether the suit is barred under Order VII Rule 11(d) of the CPC?
2. Whether S 5 of the Act bars the jurisdiction of this court to take cognisance of the suit? If this is in the negative, is the present suit barred by any other law for the time being in force as per the said Rule 11(d)?

Decision:

The court held that the contention of BS that the application under Order VII Rule 11(d) is not maintainable does not hold good because an application under the said rule could be filed at any time before the conclusion of the trial. S 5 is very clear. It begins with a non-obstante clause and the judicial authority referred to in S 5 would clearly include even civil courts. The purpose of S 5 was to limit the extent of judicial intervention in arbitration only for necessary purposes. In the exercise of its powere, the courts should not bypass settled law. 

Further, Part I would apply, by virtue of Bhatia International, to even arbitrations that are the subject matter of Part II of the Act, unless they were excluded. In this case, Part I was not excluded. Part I could be excluded by one or all of the following ways:

"(a) There must be no agreement as to the governing law of the contract, governing law being presumed to be the law of arbitration also;

(b) There must be no agreement as to the place of arbitration; and/ or

(c) It must be shown that if no interim action is taken, a party would be remidiless."

Plaintiff's contention to counter the argument of estoppel/ waiver that the arbitration clause had to be treated independently of the main contract did not find favour with the court. The court held that severability of the arbitration clause from the main agreement was only for the purpose of enabling the arbitral tribunal to rule on its own jurisdiction. After having signed and acted upon a contract, a party cannot later rescind the terms of the contract by quoting a statutory provision out of context. Further, the plaintiff had raised invoices by attaching the contracts in their entirety.

Under the Singaporean International Arbitration Act (SIAA), the place of arbitraiton is Singapore. Further, the arbitration is international as BS is situated outside Singapore. Also, as per the SIAA, UNCITRAL Model Law on International Commercial Arbitration (UML) would be applicable in case of international arbitrations.

Also, the words "international law" in the arbitration clause "were intended to mean the [UML]..." The governing law as per the arbitration clause was to be the UML and the venue was Singapore. The court stated:

"43. It is evident from the above that the arbitration clause in the sales contract clearly provides the governing law as well as the place of arbitration in case of disputes between the parties. The 'International Law' which is stated to be applicable to the dispute clearly exlcudes this Court's jurisdiction in the present matter."

The court found that the arbitration clause was valid in view of the fact of reliance of the said clause by the plaintiff.

Comment:

Clarification: In  Para 43 of the the judgement quoted above, the judge referred to governing law being Singaporean law. Note that this is probably not the reference to the governing law of the contract but to the governing law of arbitration. If the governing law of the contract was 'international law', I am not sure if such a choice could be sustained. As Redfern and Hunter say:

"There is no reason in principle why [parties] should not select public international law, or alternatively the general principles of law as the law which is to govern their contractual relationship... [T]he problem of adopting international law [] as the system of law which is to govern a commercial relationship is not a problem of principle, but of practice. International law [is] concerned primarily concerned with the relationship between states, is not particularly well equipped to deal with detailed contractual matters..." (p. 119-121)

Maintainability of the Suit and the Validity of the Arbitration Agreement: If the question before the judge is only regarding maintainability of the suit (or even the validity of the arbitration agreement,) what is the need to take note of detailed facts relating to performance of the contract? Such recording of facts might have serious implications when the arbitral tribunal or the award-reviewing/ enforcing courts deal with the matter. For example, what if the tribunal's finding on a fact is contrary to that of the High Cout judge? In this case, several such facts have been recorded by the Single Judge. For instance, the judge states that the allegedly defective goods were received by DC without any objection. How does this help in the ultimate decision-making on the issues?

Saraf & Jhunjhunuwala, in their book titled 'Law of Arbitration and Conciliation' state:

"Section 5 does not bar filing of a suit in the court in a case where there is an arbitration agreement. Section 8 of the Act deals with that situation. What Section 5 provides is that in the matter governed by the Act, i.e. in arbitral proceedings, no judicial authority shall intervene except as provided in the Act." (p. 120, 5th ed.)

On this point. the learned authors have cited (and so have the counsel for BS) the case of PK Bajaj v. Reminiscent India Television Ltd. 2006(2) Arb. LR 361 (Delhi): MANU/DE/8612/2006 (Bajaj) where a Single Bench of the same High Court has held that "[Section 5] does not say that a suit will not lie in case there is an arbitration agreement in respect of the dispute between the parties. All that it says is that in case there is any matter governed by this part of the Act, the judicial intervention would be only as provided in this Act."

In Bajaj, Reminiscent India Television Ltd., the Defendant (RIT) had entered into an agreement with one Mr. Aman Bajaj. The agreement contained an arbitration clause and also provided that Mumbai courts would have jurisdiction for entertaining matters related to the agreement (Note that such forum selection clauses are regarded as subject to the arbitration clauses). In this case, arbitration was invoked by RIT against PK Bajaj when PK Bajaj was not a party to the agreement. PK Bajaj filed a suit in the Delhi High Court contending that he was not a party to the contract (consequently the arbitration agreement). In the same suit, RIT had filed an interlocutory application, stating that in view of Order VII Rule 11 CPC read with Section 5 of the Act, the suit has to be dismissed. Justice Manju Goel disagreed with RIT, dismissed the IA and also imposed costs amounting to Rs 3000 on RIT.

Bajaj, like, Bhushan Steel, is a decision by a single judge. Bhushan Steel has reached a conclusion that it diametrically opposite to Bajaj. While Bhushan Steel states that a court could dismiss ,by virtue of Order VII Rule 11 CPC read with S 5 of the Act, a suit in respect of a dispute under contract containing arbitration clause, Bajaj states that the appropriate remedy is S 8 of the Act and not Order VII Rule 11 CPC read with S 5 of the Act. I fail to understand why the judge in Bhushan Steel failed to analyse Bajaj and clearly state why he disagreed with Bajaj.

The law as it stands as regards S 8 and S 45 is this: when the court refers a matter to arbitration it has to be satisfied of the existence of the arbitration agreement. S 45 clearly provides that the court cannot refer a matter to arbitration if it "finds that the [arbitration] agreement is null and void, inoperative or incapable of being performed". By invoking Order VII Rule 11(d) CPC, the court has circumvented the statutory requirement of determination of the validity of arbitration clause when such circumvention was not possible under S 45 of the Act. Note that the court actually decided on the validity of the arbitration clause. Should the court have done so? The simple question that the court had to decide was whether the suit was liable to be dismissed under Order VII Rule 11(d) CPC read with S 5 of the Act. Why did the judge decide on the validity of the arbitration clause? If the suit was not maintainable by virtue of the said provisions, shouldn't the judge have simply dismissed the suit without giving any finding on the validity of the arbitration clause?

Drafting of the Arbitration Clause: The arbitration clause quoted above provides for the following:

1. Two arbitrators are to be appointed to resolve the dispute.
2. In case there is no unanimity between the arbitrators on the award, an umpire is to be appointed in writing.
3. Such appointment is to be done even prior to proceeding with arbitration
4. In case there is no unanimity between the arbitrators, the decision of the umpire (and not the majority of arbitrators) would be final and binding on the parties
5. The venue of arbitration would be Singapore
6. The arbitration would be conducted in accordance with 'international law'.

I am surprised at how parties choose such an irregular arbitration clause when there are innumerable model clauses available these days. Despite that, I think the said clause creates an unambiguous intent to arbitrate disputes under the contracts. Even the complicated appointment procedure cannot be held to be unenforceable. The arbitral tribunal, as per the clause, would consist of two arbitrators. If there is no unanmimity in their decision, the matter would have to be referred to an umpire (Curiously, the clause also provides impliedly that even if the umpire comes to a decision that is not in complete agreement with either of the arbitrators, his decision would be final). The clause provides that the arbitration will take place in Singapore. What seems to be ambiguous is the choice of law. The arbitration is supposed to take place as per international law. The Single Judge interpreted the term 'international law' to the UNCITRAL Model Law which is made applicable in Singapore by the SIAA in case of international arbitrations. Lucky for DC- the seat of arbitration was Sinapore and not New York or France or London. If it was France or London or New York how could the court have interpreted 'international law'? Most websites of the International arbitration institutions provide for model arbitral clauses that parties could incorporate in their agreements. 

[Note: On the validity of the arbitartion agreement in this case, the justification that can been made to validate the arbitration clause is the almost universal principle of severability of invalid protions of a contract from the valid portions. Clearly, the choice of international law is vague. Even in the absence of such a choice, the arbitration would, in any case, be conducted in accordance with the UML (SIAA). (Note that this severability is not the same as the severability doctrine which implies that the arbitration clause forming a part of a contract is deemed independent of the contract).]