Call for Submissions: Trade, Law & Development: Issue 10.2 | Winter ’18

(The Call for submissions for Trade, Law & Development is below)

The Board of Editorsof Trade, Law and Development is pleased to invite original, unpublished manuscripts for publication in the Winter ’18 Issue of the Journal (Vol. 10, No. 2) in the form of Articles, Notes, Comments and Book Reviews.

Manuscripts received by October 15, 2018 pertaining to any area within the purview of international economic law will be received for publication in the Winter ’18 issue.

Founded in 2009, the philosophy of TL&D has been to generate and sustain a constructive and democratic debate on emergent issues in international economic law and to serve as a forum for the discussion and distribution of ideas.Towards these ends, we havepublished works by noted scholars such as Prof. PetrosMavroidis, Prof. MitsuoMatsuhita, Prof.Raj Bhala, Prof. Joel Trachtman, Gabrielle Marceau, Simon Lester, Prof. Bryan Mercurio, Prof.E.U. Petersmann andProf. M. Sornarajah among others. TL&D also has the distinction of being ranked the bestjournal in India across all fields of law for seven consecutive years by Washington and Lee University, School of Law [The Washington & Lee Rankings are considered to be the most comprehensive in this regard].

Manuscripts may be submitted via e-mail or ExpressO. For furtherinformation about the journal please click here.For submission guidelines, please click here.

In case of any queries, please feel free to contact us at: editors[at]tradelawdevelopment[dot]com.

LAST DATE FOR SUBMISSIONS: 15^thOctober, 2018

Guest Post: Mid-Year Arbitration Review- Part III by Juhi Gupta

(Continuing with her mid-year arbitration review (see previous posts here and here), Ms. Juhi Gupta, an LL.M. graduate from Harvard Law School, has penned the third part of the series of posts on the topic. Do check out the awesome, crisp and to-the-point descriptive comment on prominent arbitration related cases decided in India in the first half of 2018. Happy reading!)

In the third of a series of posts, I review two significant Supreme Court decisions on the issue of binding non-signatories to an arbitration agreement. I have discussed the cases in slight detail as they involve different facts and circumstances that demonstrate different aspects of the issue.

Non-signatories to arbitration agreement can be referred to domestic arbitration under section 8 based on facts and circumstances; mere allegations of fraud cannot disable arbitration

Ameet Lalchand Shah and Others v Rishabh Enterprises and Another (Supreme Court, 3 May 2018)

Brief facts: The respondent (Rishabh Enterprises) entered into four agreements: two agreements with Juwi India that contained arbitration clauses, a sale and purchase agreement with Astonfield Renewables (hereinafter “Astonfield Agreement”) that did not contain an arbitration clause, and an equipment lease agreement with Dante Energy that contained an arbitration clause. The agreements related to the commissioning of a solar power plant in Uttar Pradesh, India.

A dispute arose between the parties wherein the respondents alleged that Dante Energy defaulted in payment of rent and that Astonfield Renewables committed fraud by inducing Rishabh Enterprises to purchase certain products under the Astonfield Agreement. Dante Energy invoked the arbitration clause in response to which the respondents filed a civil suit for fraud and misrepresentation. In response to the civil suit, the appellants filed an application under section 8 of the Arbitration Act (hereinafter “the Act”) seeking reference of the dispute to arbitration on the ground that all four agreements were inter-connected as they were executed between the same parties and pertained to the same purpose. The respondents opposed the application, contending that the matter could not be referred to arbitration while the suit for declaration that the agreements were vitiated due to fraud and misrepresentation was pending. Further, the suit only concerned fraud committed by Astonfield Renewables and Dante Energy for which a criminal case had been registered and hence, the dispute could not be referred to arbitration.

The single judge and subsequently Division Bench dismissed the section 8 application by relying on Sukanya Holdings - the Astonfield Agreement, which was the principal agreement according to them, did not contain an arbitration clause and the agreement was not inter-connected with the other agreements. Further, given serious allegations of fraud were involved, the dispute was not arbitrable. The respondents appealed against the Division Bench judgment to the Supreme Court.

Issues: (1) Were all four agreements inter-connected such that the parties could be referred to arbitration even though there was no arbitration clause in the Astonfield Agreement?; and (2) was the dispute non-arbitrable on account of the allegations of fraud or was the dispute arbitrable by taking the agreements as a commercial undertaking of the parties with a sense of business efficacy as held in Ayyasamy?

Arguments: On the first issue: the respondents argued that the Astonfield Agreement was the main agreement and the High Court’s reliance on Sukanya Holdings was correct since under Part I of the Act, parties who were not signatories to the arbitration agreement (in this case Astonfield) cannot be referred to arbitration. The appellants’ reliance on Chloro Controls was misplaced as that case was decided under Part II of the Act and did not overrule Sukanya Holdings (note: Chloro Controls held that non-signatories could be referred to a foreign-seated arbitration under section 45 of the Act in certain circumstances).

On the second issue: the appellants argued that were no serious allegations of fraud to decline a reference to arbitration. Based on Ayyasamy, they submitted that mere allegations of fraud were not sufficient to detract from the referring the matter to arbitration as per the agreement. The respondents argued that the allegations were very serious and not merely to disable the arbitration, and that the appellants were guilty of cheating the respondents from the very beginning.

Decision: The Supreme Court decided both issues in favour of the appellants and referred the parties to arbitration.

On the first issue, the Court, albeit not expressly, applied the principles laid down in Chloro Controls, such as “direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction” (paragraph 20; paragraph 73 of Chloro Controls). The Court concluded that the four agreements were for the single purpose to commission the solar power plant. The Court characterised the equipment lease agreement with Dante Energy as the principal agreement and after undertaking an analysis of the relevant clauses, the Court concluded that the other three agreements were ancillary agreements, which led to the main purpose of commissioning the power plant:

“Even though, the Sale and Purchase Agreement (05.03.2012) between Rishabh and Astonfield does not contain arbitration clause, it is integrally connected with the commissioning of the Solar Plant…and even though, Astonfield and appellant No.1 Ameet Lalchand Shah are not signatories to the main agreement viz. Equipment Lease Agreement (14.03.2012), it is a commercial transaction integrally connected with commissioning of [the power plant]…what is evident from the facts and intention of the parties is to facilitate procurement of equipments, sale and purchase of equipments, installation and leasing out the equipments to Dante Energy. The dispute between the parties to various agreements could be resolved only by referring all the four agreements and the parties thereon to arbitration” (paragraph 21) [emphasis supplied].

Therefore, the Court essentially concluded that since all parties were involved in a single commercial project that was executed through several agreements, they were all covered by the arbitration clause in the equipment lease agreement that was the main agreement. The Court pointed out that the Delhi High Court erred in characterising the Astonfield Agreement as the main agreement.

In this context, the Court also referred to the 2015 amendment of section 8 which amplified the relevant “party” that is entitled to seek a reference to arbitration to include all persons claiming “through or under” a party to the arbitration agreement. Further, as per the recommendations of the 246^th Law Commission Report, a prima facie existence of an arbitration agreement was sufficient to refer parties to arbitration under section 8.

On the second issue, the Court concurred with the appellants’ reliance on Ayyasamy. In that case it was held that when a party wants to wriggle out of an arbitration agreement on the basis of alleged fraud, then a strict and meticulous inquiry is needed to determine whether the allegations are of a serious and complicated nature that should be addressed by the court. Further, it was pointed out that mere allegations of fraud could not preclude arbitration and it was the duty of the court to impart business efficacy to commercial transactions.

Applying Ayyasamy, the Court held that the allegations of fraud were not serious and in any event, could very well be examined by the arbitral tribunal. Even though Juwi India and Astonfield were not parties to the lease agreement, all the agreements contained clauses referring to the lease agreement and it was the duty of the Court to not merely go by the averments made in the submissions but to also adopt a commercial understanding and impart business efficacy.

Comment: The Supreme Court appears to have limited the application of Sukanya Holdings under section 8. While discussing the 2015 amendments to this provision, the Court pointed out the introduction of the section 45 language (“through or under”) and that the amendments apply notwithstanding any judicial precedent, which would arguably include Sukanya Holdings. Therefore, this judicial decision assumes immense significance because it demonstrates the application of Chloro Controls to domestic arbitrations and expands the traditional conception of “parties” to an arbitration agreement to include non-signatories based on the facts and circumstances. Based on this decision, it would probably be prudent for parties in a composite transaction involving multiple agreements with arbitration clauses to expressly exclude arbitration in any agreement should that be the intention.

Although Ayyasamy has been subjected to considerable criticism, this decision is important because it clearly reiterates that mere allegations of fraud cannot be used to disable or obstruct a domestic arbitration.

Mere reference in an agreement to another document containing an arbitration clause is insufficient to incorporate the clause

M/S. Elite Engineering and Construction v M/S. Techtrans Construction India Private Limited (Supreme Court, 23 February 2018)

Brief facts: The respondent (Techtrans) was party to a construction agreement that contained an arbitration clause (“any dispute...between the parties…shall be finally settled by binding arbitration”). Under this agreement, the respondent entered into a sub-contract with the appellant (Elite Engineering) that did not contain an arbitration clause. When disputes arose between the appellant and respondent, the appellant filed a petition under section 9 of the Act. This petition was subsequently allowed but the judge left open the issue of existence of an arbitration agreement. Meanwhile, the appellant’s petition under section 11 of the Act to appoint an arbitrator was dismissed by the High Court on the respondent’s contention that there was no arbitration agreement.

Issue: Was the arbitration clause in the construction agreement incorporated into the sub-contract?

Arguments: The appellant argued that (i) the sub-contract incorporates the arbitration agreement in the construction agreement by implication by virtue of the following clauses: clause 2 that provides that “all the conditions and special conditions of contract, specifications (general and additional clauses relating to the works and quality specified in the [construction agreement] are binding on the Subcontractor” [emphasis supplied]; and clause 9.10 of the Annexure that provides that “for items which are not mentioned in this Agreement Clauses, terms and conditions of [the construction agreement] will be applicable” [emphasis supplied].

The result of reading both clauses together was that the arbitration clause in the construction agreement became applicable to the sub-contract by incorporation; (ii) when the appellant was required to execute the work on the terms and conditions contained in the principal agreement (i.e. the construction agreement), the parties clearly intended to incorporate all terms including the arbitration clause; (iii) clause 8.7 of the sub-contract provides that other terms related to termination of work will be same as the agreement between the EPC, Concessionaire and respondent, which would include settlement of disputes on termination through arbitration as provided in the sub-contract; and (iv) the appellant’s statement in its section 9 petition that it would be constrained to file a suit against the respondent was on account of mistaken understanding of law and cannot be held against it.

The respondent argued that clause 2 of the sub-contract clearly demonstrated that there was only a qualified incorporation of the terms and conditions of the construction agreement, namely only those relating to the works and quality. There was no conscious acceptance of the arbitration clause by the parties, which was reflected in the fact that the appellant did not even refer to it in its section 9 petition.

Decision: The Supreme Court agreed with the respondent’s contentions and held that there was no arbitration agreement between the parties. Relying on its verdict in M.R. Engineers and Contractors Private Limited, the Court held that as per section 7(5) of the Act, an arbitration clause in an independent document can be imported into an agreement between parties by reference to such independent document in the agreement, even if there is no specific provision for arbitration. However, what is key is that the reference must be such so as to make the arbitration clause in such independent document a part of the agreement. Therefore there is a difference between mere reference and incorporation, which is made clear by the language of section 7(5):

“Therefore when there is a reference to a document in a contract, the court has to consider whether the reference to the document is with the intention of incorporating the contents of that document in entirety into the contract, or with the intention of adopting or borrowing specific portions of the said document for application to the contract” (paragraph 16; paragraph 16 of M.R. Engineers) [emphasis supplied].

The Court referred to the conditions laid out in M.R. Engineers that need to be fulfilled for a valid incorporation of an arbitration clause and accordingly agreed with the High Court’s conclusion that there was no conscious acceptance of the arbitration clause in the construction agreement by the appellant and respondent. The Court agreed with the respondent that clause 2 had limited coverage, and noted that clause 9.10 only referred to “items” which had to be taken from the principal contracts. Further, the Court rejected the appellant’s termination of work argument, holding that the procedure relating to termination is completely separate and different from resolution of disputes.

Comment: This case is yet another illustration of the requirement to be express and specific in providing for arbitration in an agreement. Parties’ intention to consent to arbitration has to manifest clearly as opposed to appearing as an after thought. As regards the inclusion of arbitration by incorporation, this decision emphasises that the agreement should contain a clear reference to the document/s containing the arbitration clause and the intention to either incorporate the document/s in their entirety or at least the arbitration clause, unlike a reference to mere technical provisions that is likely to prove insufficient.

Guest Post: Mid-Year Arbitration Review- Part II by Juhi Gupta

(Continuing with her mid-year arbitration review (see previous post), Ms. Juhi Gupta, an LL.M. graduate from Harvard Law School, has penned the second part of the series of posts on the topic. Do check out the awesome, crisp and to-the-point descriptive comment on prominent arbitration related cases decided in India in the first half of 2018. Happy reading!)

MID-YEAR ARBITRATION REVIEW – II

In the second of a series of posts, I continue to review important Supreme Court and High Court decisions on arbitration so far this year. The decisions covered in this post provide valuable insights into the questions of the status of an interim award, competence of arbitral tribunals and the scope of authority of tribunals to rule on their own jurisdiction.

Agreement to arbitrate - Parties’ written consent to arbitrate required for judicial referral to arbitration; oral consent of counsel is insufficient

Kerala State Electricity Board v Kurien E Kalathil (Supreme Court, 9 March 2018)

Brief facts: The respondent contractor filed a writ petition in the Kerala High Court to direct the appellant to pay certain sums as determined in a prior dispute between the parties. The Court allowed the writ petition and also referred the parties to arbitration under section 89 of the CPC upon the oral consent of their counsel to resolve certain pending matters. It was undisputed that there was no arbitration agreement between the parties. The arbitrator issued an award in the respondent’s favour. The appellant’s petition under section 34 of the Arbitration Act (hereinafter “the Act”) was dismissed and subsequently, its section 37 appeal was transferred to the Supreme Court as it had also challenged the High Court’s verdict in the writ petition before the Supreme Court.

Issue: Whether or not the High Court was right in referring the parties to arbitration on the appellant’s counsel’s oral consent without written instruction from parties?

Arguments: The respondent (Kalathil) argued that the party’s counsel has implied authority to consent to arbitration on behalf of the party.

Decision: The Supreme Court set aside the arbitral award holding that oral consent given by counsel without written memos of instruction from parties does not fulfil the requirement under section 89 of the CPC (Afcons Infrastructure). The Court emphasised the serious civil consequences of referring parties to arbitration under section 89 in the absence of an arbitration agreement:

“Once the parties are referred to arbitration, the proceedings will be in accordance with the provisions of Arbitration and Conciliation Act and the matter will go outside the stream of the civil court. Under Section 19 of Arbitration and Conciliation Act, the arbitral tribunal shall not be bound by the Code of Civil Procedure and the Indian Evidence Act. Once the award is passed, the award shall be set aside only under limited grounds. Hence, referring the parties to arbitration has serious civil consequences procedurally and substantively. When there was no arbitration agreement between the parties, without a joint memo or a joint application of the parties, the High Court ought not to have referred the parties to arbitration” (paragraph 39).

The Court rejected the respondent’s implied authority argument stating that counsel should not act on implied authority unless there is exigency of circumstances demanding immediate adjustment of suit by agreement or compromise (Byram Pestonji Gariwala v Union Bank of India and Ors., (1992) 1 SCC 31).

Further, the judicial order referring the parties to arbitration cannot be sustained in any event. This is because it made many observations affecting crucial areas of the dispute and therefore, encroached upon the arbitral tribunal’s competence and seriously prejudiced the appellant’s rights to pursue the matter in arbitration. The Court also noted that the appellant could not have challenged the absence of jurisdiction and arbitration agreement before the arbitral tribunal since it had challenged the High Court’s order before the Supreme Court.

Comment: This decision emphasises the essential requirement of an express agreement between parties to arbitrate, wherein the parties themselves consent as opposed to an agent acting on their behalf. The Court also makes an important observation regarding the High Court’s unjustified encroachment upon the arbitral tribunal’s competence.

Interim award and jurisdiction under section 16 – interim award can be challenged separately and independently under section 34, and arbitral tribunal’s authority to rule on its own jurisdiction is restricted and specific

M/S Indian Farmers Fertilizer Co-Operative Limited v. M/S Bhadra Products (Supreme Court, 23 January 2018)

Brief facts: In an arbitration of a contractual payment dispute between the parties, the arbitrator decided the issue of limitation in favour of the respondent, holding that the respondent’s claim was not time barred. The appellant challenged this award under section 34, labelling it as the ‘first partial award’. The District Court and High Court dismissed the section 34 petition on the ground that they lacked jurisdiction as the award in question could not be characterised as an interim award. The appellant subsequently appealed to the Supreme Court under section 37.

Issues: (1) Is an award deciding the issue of limitation an interim award; (2) can such interim award be directly set aside under section 34 or does it relate to jurisdiction, in which case the procedure under section 16 is required to be followed?

Arguments: The appellant argued that the impugned award was an interim award under the Act and therefore amenable to challenge under section 34. The point of limitation was one of the issues between the parties, which was finally decided by the arbitrator. The respondent argued that a ruling on limitation pertains to jurisdiction of the arbitral tribunal and is merely an order passed under section 16. Since the plea of limitation was rejected, the arbitral proceedings ought to continue as per section 16 (since appeals under section 37 are only available when a plea under section 16 is accepted) and the appellant’s challenge has to be deferred until all other issues have been determined.

Decision: On the first issue, the Supreme Court decided in favour of the appellant for the following reasons:

(i) Broad statutory scope of interim award

In the absence of an express definition in the Act of an interim award apart from section 2(c) stating that an arbitral award includes an interim award, the Court relied on the language of section 31(6) wherein it is stated that “the arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award” [emphasis supplied]. The Court agreed with the appellant that limitation was a point of dispute between the parties and noted:

“the language of section 31(6) is advisedly wide in nature. A reading of the said sub-section makes it clear that the jurisdiction to make an interim arbitral award is left to the good sense of the arbitral tribunal, and that it extends to ‘any matter’ with respect to which it may make a final arbitral award. The expression ‘matter’ is wide in nature, and subsumes issues at which the parties are in dispute. It is clear, therefore, that any point of dispute between the parties which has to be answered by the arbitral tribunal can be the subject matter of an interim arbitral award” (paragraph 9) [emphasis supplied].

(ii) Availability of multiple interim awards

The Court adverted to section 32(1) that states that arbitral proceedings would be terminated only by a final award, as opposed to an interim award, “thus making it clear that there can be one or more interim awards, prior to a final award, which conclusively determine some of the issues between the parties, culminating in a final arbitral award which ultimately decides all remaining issues between the parties” (paragraph 10) [emphasis supplied].

Therefore, since the arbitrator disposed of the issue of limitation finally, it is clear that the award was an interim award that could be challenged under section 34.

While the Court decided this issue in the appellant’s favour, it cautioned against delivering interim awards as they delay resolution of disputes and increase parties’ expenses. The Court advised arbitral tribunals to consider whether there is any real advantage in passing interim awards as a fair means for resolution of disputes should be the principal consideration.

On the second issue as well, the Court decided in favour of the appellant. The Court undertook detailed legislative and judicial analyses of the kompetenz-kompetenz principle and concept of jurisdiction to clarify the import of the language of section 16(1) that the tribunal may rule on its own jurisdiction:

“the ‘jurisdiction’ mentioned in Section 16 has reference to three things: (1) as to whether there is the existence of a valid arbitration agreement; (2) whether the arbitral tribunal is properly constituted; and (3) matters submitted to arbitration should be in accordance with the arbitration agreement” (paragraph 20).

Accordingly, the Court concluded that a finding on limitation does not relate to jurisdiction and therefore, the procedure under section 16 is not required to be followed.

It is important to note that the Court opined that Parliament could consider amending section 34 in order to consolidate all interim awards with the final award so that a singular section 34 challenge can be made after the final award is delivered as opposed to piecemeal challenges that lead to “unnecessary” delay and additional expense.

Comment: While the Supreme Court may not have said anything new, it is nevertheless an important decision to keep in mind as it clarifies two significant concepts of the broad scope of an interim award as well as the restricted scope of “own jurisdiction” under section 16. It will be interesting to see whether the Court’s suggestion of consolidating interim and final awards will find its way into the Arbitration Act. The 2018 Amendment Bill is silent on this.

Competence of arbitral tribunal - tribunal has power to award interest pendente lite unless specifically and clearly barred by parties from awarding it

M/s Raveechee and Co. v Union of India (Supreme Court, 3 July 2018)

Brief facts: In an arbitration of a payment dispute between the parties regarding contractual works, the arbitral tribunal awarded the appellant (Raveechee and Co.) interest pendente lite on the award for damages. Upon the respondent’s challenge, the High Court set aside the award to the extent of the interest pendente lite granted.

Issue: Did grant of interest pendente lite fall within the arbitral tribunal’s competence?

Arguments: Union of India contended that the relevant contractual clause barred the arbitral tribunal from awarding interest pendente lite.

Decision: The Supreme Court upheld the award of interest pendente lite, observing that a plain reading of the relevant contractual clause (that barred interest on certain amounts) did not bar the arbitral tribunal from making such an award. The liability to pay interest pendente lite does not arise from any term of the contract but from the finding entitling the appellant to damages, payment of which was denied due to pendency of the arbitration i.e., pendente lite. Unless expressly barred, grant of interest pendente lite will predominantly be based on the arbitrator’s discretion. Upholding the kompetenz kompetenz principle (albeit not expressly), the Court ruled:

“Undoubtedly, such a power must be considered inherent in an Arbitrator who also exercises the power to do equity, unless the agreement expressly bars an Arbitrator from awarding interest pendente lite. An agreement which bars interest is essentially an agreement that the parties will not claim interest on specified amounts. It does not bar an Arbitrator, who is never a party to the agreement from awarding it” (paragraph 12; the Court relied on its prior decisions in Irrigation Dept., State of Orissa v G.C. Roy, (1992) 1 SCC 508 and Union of India v Ambica Construction, (2016) 6 SCC 36) [emphasis supplied].

Competence of arbitral tribunal – tribunal has power and jurisdiction to dissolve partnership on just and equitable grounds unless specifically and expressly excluded by parties

Yogendra N. Thakkar v Vinay Balse and Ors. (Bombay High Court, 13 June 2018)

Brief facts: The petitioner (Yogendra Thakker) submitted a claim to arbitration for dissolution of the partnership (between the respondents and him) on just and equitable grounds under section 44(g) of the Indian Partnership Act, 1932. This was challenged by the respondents under section 16 of the Arbitration Act on grounds of lack of jurisdiction. The arbitrator ruled that he lacked jurisdiction to dissolve the partnership under section 44(g), against which the petitioner filed a petition to the Supreme Court under section 37(2)(a) of the Arbitration Act.

The arbitration agreement in the partnership deed read as follows: “All dispute[s] and questions in connection with the Partnership of this Deed arising between Partners or their representatives shall be referred to [arbitration]” [emphasis supplied].

Issue: Whether an arbitral tribunal has the power and jurisdiction to dissolve a partnership on just and equitable grounds or does that power only vest in courts?

Arguments: The petitioner argued that (i) the arbitration agreement was very wide and conferred powers on the arbitrator to decide all disputes and questions in connection with the partnership deed, including dissolution under section 44(g); (ii) there is no statutory bar or impediment to an arbitrator’s powers to dissolve a partnership on just and equitable grounds under any law, including the Partnership Act; (iii) the two exceptions to the arbitrability of a dissolution dispute, namely (1) an express exclusion and (2) an action in rem, do not apply since a dissolution under section 44(g) is an in personam action; (iv) pursuit of arbitration under the partnership deed as well as a suit on just and equitable grounds could culminate in inconsistent outcomes; and (v) the respondents themselves did not argue that dissolution on just and equitable grounds violated public policy or constituted an action in rem.

The respondents argued that (i) the parties have specifically agreed on the mode and manner of dissolution in the partnership deed and since the arbitrator was a creature of contract, he derived his powers from the partnership deed and could not exceed the scope of agreement between the parties; (ii) section 44 does not refer to an agreement between parties for dissolution and only courts have inherent powers to order dissolution on just and equitable grounds, not arbitral tribunals; and (iii) in light of section 28(2) of the Arbitration Act (power of an arbitral tribunal to decide only if expressly authorised by parties), an arbitrator cannot dissolve a partnership on just and equitable grounds unless expressly authorised to do so by the parties. There was no such authorisation in the present case.

Decision: The Court agreed with the petitioner’s arguments and held that the arbitrator has jurisdiction to dissolve the partnership under section 44(g). Accordingly, the arbitrator was directed to proceed with the arbitration. The Court noted the parties’ intention, which must be given paramount consideration, as reflected in the wide arbitration agreement.

Although section 44 refers to dissolution of a partnership by a court (“at the suit of a partner”), it does not expressly or impliedly bar an arbitrator from dissolving a partnership. The Court relied upon the Supreme Court decision in V.H. Patel & Co. v Hirubhai Himabhai Patel ((2000) 4 SCC 368) wherein the powers of an arbitrator to dissolve a partnership under clauses (c) to (f) of section 44 were recognised. The High Court took the view that there was no reason to not extend this power to clause (g). The Court also agreed with the petitioner’s parallel proceedings argument holding that the petitioner cannot file a civil suit for dissolution on just and equitable grounds and simultaneously pursue an arbitration for dissolution on other grounds under section 44 by invoking the same arbitration agreement.

The Court pointed out that the respondents blew hot and cold by arguing that the powers under section 44(g) vest only in courts but at the same time acknowledging that an arbitral tribunal could have exercised these powers had the parties entered into an agreement to this effect. Further, the respondents could not urge that the arbitrator was empowered to dissolve the partnership under clauses (d), (e) and (f) but not clause (g) of section 44. Applying the Supreme Court decision in Booz Allen, the High Court affirmed the petitioner’s submission that an action under section 44(g) is in personam and therefore, arbitrable.

Comment: These two decisions on the competence of an arbitral tribunal underscore the minimal judicial encroachment and broad competence of arbitral tribunals that are generally, and now increasingly, favoured by courts. The onus is on parties to expressly and specifically circumscribe the tribunal’s powers and jurisdiction should by making the necessary inclusions and exclusions they wish to do so. This also ties in with the importance of carefully drafting an arbitration clause/agreement as the broader the language, the more easy it would be for courts to rule in favour of a tribunal’s competence.

(more in another post)

Arbitration & Conciliation (Amendment) Bill, 2018 and the Definition of Court

We had done about three posts on the Arbitration and Conciliation (Amendment) Bill, 2018 before it was formally introduced in the Lok Sabha. These posts are given below. Before you jump in into the posts, the official version of the Bill has been uploaded on the Lok Sabha website and can be downloaded from this link:

Prospectivity, Retrospectivity & the Arbitration & Conciliation (Amendment) Bill, 2018

Arbitration and Conciliation (Amendment) Bill 2018: Comments on Certain Amendments

Arbitration and Conciliation (Amendment) Bill 2018

This blogger is not sure if there are substantial changes between the Bill partially reviewed in the above posts and the Bill uploaded now. On a glance, it appears that they are the same and therefore, the aforesaid comments still hold good. 

Therefore, the controversial issue as to the retrospective applicability of the 2015 Amendments is sought to be closed with the introduction of Section 13 of this Amendment Act, which is critiqued in the second post listed above. The long and short of it seems to be that the Government has not heeded to the Supreme Court's advice in relation to the the said provision. We will attempt to do a detailed critique of the amendments in the next few posts. We hope proper discussions take place in the Parliament this time regarding the important amendments. In this post, we look at the controversial issue of definition of Courts and argue that the Bill should put to rest the controversy. 

Principal Civil Court of Original Jurisdiction: Does it Include Additional District Courts?

There is a raging controversy in many states in India as to whether "Principal Civil Court of Original Jurisdiction" as provided in Section 2(1)(e) of the Arbitration and Conciliation Act, 1996 would include Additional District Courts. It appears that the question is settled in some states while in some states such as Tamil Nadu, the practice seems to be that Principal District Courts hive off certain matters to the relevant Additional District Courts for disposal of arbitration matters. (For further examples, see Ashiana Infrahomes Pvt . Ltd . and Ors . vs . Adani Power Ltd . ( 18 . 05 . 2018 - DELHC ) MANU/DE/1893/2018; 

Section 2(1)(e) as was enacted reads:

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

The definition was amended in 2015 in order to take away from the District Court the power to hear arbitration related petitions concerning international commercial arbitrations while letting the District Court retain the power to decide arbitration petitions in non-international commercial arbitrations. the amended Section 2(1)(e) reads:

"(e) “Court” means—

(i) in the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes;

(ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court;"

As one would notice, the expression "the principal Civil Court of original jurisdiction in a district" has been retained. Therefore, the question is whether the aforesaid expression would include an Additional District Court? The subsidiary question is whether, if it does not, it should include an Additional District Court?

Some Decisions

One of the earliest decisions is the case of I.T.I.Ltd., Naini, Allahabad vs District Judge, Allahabad, 1998 (3) AWC 2244: AIR 1998 All. 313 where the Allahabad High Court unequivocally held that while it may be true that an Additional District Court might exercise the same powers as the District Judge in relation to the powers assigned by the latter to the former, the term "principal" employed in Section 2(1)(e) of the 1996 Act refers only to the Principal District Court and not to and Additional District Court. Interesting the High Court recognised that such a construction could add additional burden to the Principal District Court but a different construction could not be adopted in view of the plain words of the statute. 

On the other side of the spectrum is the recent decision of the Full Bench of the Bombay High Court in Gemini Bay Transcription Private Ltd . and Ors . vs . Integrated Sales Service Ltd . and Ors MANU/MH/0265/2018 , where the court added another dimension to the debate. It held that for the purposes of execution of decrees, the provisions of the Code of Civil Procedure, 1908 govern and the Bombay Civil Courts Act, 1869 which govern. The Court held: "The emphasis is on the expression "District Court" and the reason is obvious as "the Principal District Judge" has not been contemplated as persona designata, at least in the matter of execution of an Award as a decree." Interestingly, the court recognised that if the Principal District Court alone is to be the court, it would burden the said court. The Court stated that the CPC does not restrict execution by any specific civil court. On these grounds the court held that "principal Civil Court or original jurisdiction" also included an Additional District Court for the purposes of enforcement/ execution of awards. The High Court also relied on the recent decision of the Supreme Court in Sundaram Finance Ltd. v Abdul Samad where the Supreme Court held that an arbitral award could be executed anywhere in India where the assets of the award-debtor were located and not merely in the court, which passed the decree.

We will look at the divergence in views of various High Courts on the issue in another post. Our aim in this post  was to highlight the difference in views as to what constituted "Court" for the purposes of the 1996 Act. The new Bill, sadly, does not address this divergence. It is important for the Government to introduce amendments to the definition of "Court" in Section 2(1)(e) to clarify and put to rest this controversy.