The Arbitration and Conciliation (Amendment) Ordinance, 2015: Impact on Law Laid Down in Balco

Yaman Kumar


01/12/2017  

In recent times there has been a rapid increase in commerce and industry which has led to parties resorting to arbitration to avoid delayed and protracted litigation. However, in India, the Arbitration and Conciliation Act, 1996 was failing to serve the purpose of alternate dispute resolution. The Arbitration and Conciliation (Amendment) Ordinance, 2015 (No.9 of 2015) (“Ordinance”) dated 23.10.2015, has given a radical overhaul to The Arbitration and Conciliation Act, 1996 (“the Act”). The amendments brought about by the Ordinance aim at rendering the Act more object oriented.

One of the significant amendments that the Ordinance has introduced is the shift from the law laid down in BALCO qua applicability of Part I of the Act to the Foreign Seated Arbitrations. In order to appreciate the impact of the Ordinance, it is necessary to know the legal position pre & post BALCO.

Legal position before BALCO

The question as to whether part I of the Arbitration and Conciliation Act, 1996 would apply to foreign seated arbitrations was first examined by the Hon’ble Supreme Court of India in a celebrated judgment by a three Judge bench in the year 2002 titled Bhatia International vs. Bulk Trading SA[1] (“Bhatia International”). The core issue before Hon’ble Supreme Court was the interpretation of Section 2(2) of the un-amended Act which stated that, “This Part shall apply where the place of arbitration is in India.” The Hon’ble Apex Court had compared the said provision with the UNCITRAL Model Law[2], which clearly stated in its preamble that, “the provisions of this Law… apply only if the place of arbitration is in the territory of this State.”

The Act is based on the UNCITRAL Model law and while interpreting section 2(2) of the un-amended Act the Court had held that during the enactment of the legislation, the word “only” was excluded from the provision on purpose. The court further observed that the intention of the legislature behind the exclusion was to make Part I of the Act applicable upon arbitrations held outside India unless the intention of the parties was to expressly or impliedly exclude its applicability. One of the several reasons given for reaching to such a conclusion was that incase Part I was held to be inapplicable to arbitrations held outside India, then the parties would be left remediless when seeking interim injunctions as provided for in Part I from the Court

Legal position after BALCO

The Hon’ble Supreme Court of India in the case of Bharat Aluminum and Co. vs. Kaiser Aluminium and Co.[3] (BALCO) had revisited the law laid down in Bhatia International and overruled the same. In the landmark judgment pronounced by the Constitution Bench of Hon’ble Supreme Court of India on September 06, 2012 it was concluded that “Part I of the Arbitration & Conciliation Act, 1996 is applicable only to the arbitrations which take place within the territory of India”. The Hon’ble Apex Court had observed as under:

“In our opinion, the provision contained in Section 2 (2) of the Arbitration & Conciliation Act, 1996 is not in conflict with any of the provisions either in Part I or in Part II of the Arbitration Act, 1996. In a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration & Conciliation Act, 1996 is limited to all arbitrations which take place in India” (Emphasis Supplied).

Difficulties associated with the decision in BALCO

Though the law laid down in BALCO was the correct law on legal parameters, however, it also posed certain difficulties[4]. The nature of difficulties faced was as follows:-

  1. Where the assets of the party would be located in India, and there would be a likelihood that the party would dissipate its assets in the near future, no efficacious remedy would be available. Neither the foreign Court, nor the arbitral tribunal would provide an effective remedy to the arbitral party.
  2. BALCO was prospective, but it was an interpretation of already existing law and was thus declaratory. In absence of retrospectivity, the courts were being compelled to apply the incorrect law to the arbitration agreements entered before 06.09.2012.
Legal position after Ordinance

By way of the Ordinance an endeavor has been made to overcome the difficulties associated with BALCO. In order to effectively resolve the difficulties posed by BALCO, the Ordinance has enlarged the scope of Section 2 (2) of the Act. Section 2 (2) of the Act lays down the ‘Scope’ of Part-I of the Act. Prior to Ordinance Section 2 (2) of the Act read as follows:

“This Part shall apply where the place of arbitration is in India”.

The Ordinance has now inserted a proviso to Section 2 (2) of the Act which provides as under:

“PROVIDED that subject to an agreement to the contrary, the provisions of section 9 (Interim measures etc. by court), section 27 (Court assistance in taking evidence) and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognized under the provisions of part II of this Ordinance”[5].

  1. There should be no agreement to the contrary meaning thereby that Section 9 of the Act would be applicable to a Foreign Seated Arbitration unless the intention of the parties is to expressly or impliedly exclude its applicability.
  2. An arbitral award made or to be made in such place is enforceable and recognized under the provisions of Part II of this Ordinance. Hence, the award should fulfill the following criteria:
  • The award should either be New York Convention Award or Geneva Convention Award;
  • The award is made or to be made in such territory with which India has reciprocal arrangement in terms of Section 44 (b) and Section 53 (c) of the Act;
  • The award should fulfill the conditions for enforcement of foreign award laid down in Section 48 and Section 57 of The Act.

To conclude it may be said that the modification made by the Ordinance in case of Foreign Seated Arbitrations is a welcome change. However, from the scheme of the Act it is clear that Sections 9, 27 and 37(1) (a) and 37 (3) of the Act would apply only to arbitrations having seat in such countries with which India has reciprocal arrangements in terms of the Act.

[1] (2002)4 SCC 105

 

 

[2] The UNCITRAL Model Law on International Commercial Arbitration was prepared by UNCITRAL, and adopted by the United Nations Commission on International Trade Law on 21 June 1985.

 

 

[3] (2012) 9 SCC 552

 

 

[4] Law Commission of India, “Amendments to the Arbitration and Conciliation Act, 1996”, Report no. 246

 

 

[5] However, it is observed that there is an apparent error in the drafting of the proviso to Section 2 (2) of the Act. Going by the intention of the legislation and in view of the provision of Section 37 as it stands after Ordinance, instead of inserting clause (a) of sub-section (1) of section 37 in the proviso, the Ordinance should have inserted clause (b) of sub-section (1) of section 37 in the proviso. This is because clause (a) of subsection (1) of the new Act, deals with Appeal from an order refusing to refer parties to arbitration under Section 8. However, it could not have been the intention of the legislation to make the appeal from Section 8 applicable to Foreign Seated arbitrations in as much as Section 8 is not applicable to these arbitrations. Hence, It appears that the insertion of clause (a) of sub-section (1) of section 37 in the proviso is a clerical error and the same should be replaced with clause (b) of sub-section (1) of section 37 otherwise the Proviso inserted in Section 2 (2) of the Act would not serve its purpose.

The author would like to thank Gunjan Chhabra, Associate of the firm for the valuable assistance in researching for this article.

 

 

Pre-trial, Disclosures and Other Applicable Rules

Yaman Kumar


01/12/2017  

PRE-TRIAL CONDUCT

In pre-trial hearing parties to the dispute and their lawyers hold a pre-schedule meeting before the trial begins in the presence of judge, or a magistrate or a judicial officer who possesses fewer judicial powers than a judge.

In India, the system of pre-trial hearing is not clearly celebrated as a distinctive feature of the judicial process, although both the Civil Procedure Code and Criminal Procedure Code contain certain provisions that can be utilized for this purpose.

The Law Commission has rejected the proposal for pre-trial conferences in the Fourteenth Report. It observed that conditions in our country are not yet ripe for the introduction of such an innovation. Although, government is seeking to speed up disposal of cases by introducing the system of ‘pre-trial hearings’ on the lines of the UK and the US.

DISCLOSURES

  1. Disclosure refers to that juncture of the litigation process when each party is required to disclose the documents that are relevant to the issues in dispute to the other party. Under Civil Procedure Code, a party by the way of discovery is enabled to obtain material facts or information in the form of documents from the other party.
  2. An application for discovery of documents may be made to the court and the court may direct the other party to the suit to disclose the documents requested by the other side in case such document is in the possession of the opposite party. However, such a discovery shall not be ordered if the court is of the opinion that it is not necessary either for disposing of the suit or for saving costs.
  3. The process of the discovery of documents is made after the examination of parties in three stages:
    1. the disclosure in writing by one party to the other of all the documents which he has in his possession;
    2. the inspection of the documents disclosed, other than those for which privilege from or other objection to production is properly claimed or raised: and
    3. the production of the documents disclosed either for inspection by the opposite party or to the court.
  4. The court has the power to make an order, at any time during the pendency of any civil proceedings, where it deems appropriate, production of any document in the possession or power of any party to such proceedings.
  5. While it must be noted that an arbitral tribunal constituted under Arbitration & Conciliation Act, 1996, is not bound by the Code of Civil Procedure, 1908 and the Indian Evidence Act, 1872, however, in practice, the rules of document disclosure followed in arbitration proceedings remain largely similar to those applied in civil proceedings. However, it is significant that under the Arbitration Act, parties are free to decide the procedure to be followed by the arbitral tribunal and the tribunal may conduct the proceedings in a manner it deems fit on a case to case basis.
  6. Whereas, when conciliation proceedings are conducted under the Arbitration & Conciliation Act, 1996, the conciliator and the parties are required to keep and maintain secrecy concerning all matters relating to the conciliation proceedings or including any settlement agreement apart from where its disclosure is necessary for purpose of implementation and enforcement of any order.

OTHER APPLICABLE RULES
In practice, the Courts in India in their respective jurisdictions, in the form of notifications, circulars, handbooks, etc. issue rules governing litigation procedures applicable to advocates and courts all over India.

Awards and Remedies in Civil Suits

Yaman Kumar


01/12/2017  

DAMAGES

The term damages may be defined as the monetary compensation which is payable by the defaulting party to the aggrieved party for the loss suffered by him. It can be granted by the Civil Courts as well as by Arbitral Tribunals where parties agreed to submit their disputes to arbitration. The primary aim of damages is to compensate the aggrieved party and to place him in the same position which he would have occupied had the breach of contract not occurred.

A contracting party who has suffered loss due to the breach of contract can file a suit in a Civil Court or pray for an award from the Arbitral Tribunal seeking damages against the defaulting party under the applicable provisions of law.

Kinds of damages recognised under Indian laws are:

  1. Compensatory Damages – There are two categories of compensatory damages. The first category, General Damages which include damages that arise from breach of contract. The second categories called Special Damages, which arise due to the special circumstances foreseeable.
  2. Nominal Damages – Where a person brings a legal action for breach of contract and proves that a breach actually occurred but fails to prove that any actual damage has been suffered, the injured party may be awarded nominal damages.
  3. Liquidated Damages – The contracting parties may stipulate in the contract a sum of money to be paid as damages in case the contract is breached by either party.
  4. Incidental Damages – Includes reasonable charges, expenses, or other costs which directly flow from breach.

Difference between damages and compensation is that damages provide for monetary compensation to a person from a court of law or arbitrators for injuries or losses suffered by him because of the breach of another person. Whereas, compensation seeks to redress injustice to a person by way of providing him monetary help or assistance from the guilty party.

DECLARATIONS

Declaration is the pronouncement by the Civil Court in respect of a person’s right to property whether movable or immovable or in respect of any other right, which once passed, becomes binding on the world at large. It is pronounced in civil cases where Court declares the rights, liabilities, duties of the parties over certain issues. This is not specific performance of a contract or award of compensation/ damages but merely a declaration of rights of the parties. The Court shall not give the decree of declaration where a party do not seek consequential relief but a mere declaration of title.

Who can file suit for declaration:

  1. Persons having any legal character or
  2. Person having any right in any property.

Against whom the suit can lie:

  1. Any person who is denying a right or
  2. Interested to deny his title of such character of right.

OTHER RELIEFS

Temporary Injunction

A Civil Court on an application by any party to a suit, if is satisfied that, till the passing of the final decree/order, the subject matter of suit is likely to be damaged, wasted or being moved out of the jurisdiction of the court where suit is pending, the Court may grant Temporary Injunction to protect the subject matter.

Permanent/ Perpetual Injunction

A permanent or perpetual injunction can only be granted by the decree made at the hearing and upon the merits of the suit; the defendant is thereby perpetually prohibited from the assertion of a right, or from the commission of an act, which would be contrary to the rights of the person seeking the injunction.

Interlocutory Order

Interlocutory or interim orders are interim in nature which are passed during the pendency of the suit to achieve some purpose necessary and essential for the progress of a suit, which are collateral to the issues/ disputes to be settled by the court in the final judgement.

Specific Performance

It is equitable relief granted by the courts in case of breach of a contract in the form of a judgment that the defaulting person must perform the contract according to its terms and stipulations. Where no compensation can be considered enough, in such a case, law provides a way to enforce the parties to actually fulfill their obligations. However, no direction for specific performance of a contract will be passed where the breach can be compensated monetarily.

Evidence, Appeals and Judgment

Yaman Kumar


01/12/2017  

EVIDENCE

Evidence is defined under Section 3 of Indian Evidence Act, 1872 as oral statements made by the witnesses and documents produced into the court.

Procedure under law-
  • According to the Code of Civil Procedure, 1908, the parties state their cases through their pleadings which are accompanied by the documents being relied upon by the parties. Thereafter, both the parties file evidence to support their issues.
  • Once the stage of pleadings is over and issues are framed by the Court, parties proceed to the stage of evidence whereby examination-in-chief and cross-examination of the witnesses takes place. The procedure of evidence in a civil suit is explained below.

Examination and Cross-examination-

  • As per the Indian Evidence Act, a witness is first examined by the party who has produced him as a witness, the said process is called examination-in–chief. Subsequently such witness is cross-examined by the opposite party and the statements made therein through their examination and cross-examination are recorded.

Doctrine of Estoppel-

  • Doctrine of Estoppel prevents a person from taking up different positions from what he had stated earlier.

Final Judgment/ Decree

  • After the stage of evidence is over, final arguments take place by the respective parties and final judgment/ decree is passed by the court.

APPEALS

An appeal is a process through which an aggrieved party challenges any order to the Appellate Court. Right to appeal is neither an inherent nor natural right but a statutory and a substantive right.

There are four kinds of appeals provided under Code of Civil Procedure, 1908 (CPC):

Appeal from original Decree

  • An appeal can be filed under CPC challenging any final decree passed by the Court exercising Original Jurisdiction except under certain circumstances.

Second Appeals

  • As per CPC, an appeal shall lie to High Court against any decree passed in the first appeal by any subordinate court, if the High Court is satisfied that a substantial question of law is involved.

Appeals from Orders

  • No appeal lies from an order, unless it falls within the category of appealable orders provided under Section 104 or Section 105.

Appeal to the Supreme Court

  • A party may approach Supreme Court of India against any judgment, decree or final order in a civil proceeding of a High Court subject to the conditions below:
  • The High Court has to certify that the case involves a substantial question of law of general importance and that in the opinion of the High Court the said question needs to be decided by the Supreme Court of India.
  • A Special Leave Petition can still be filed in case the High Court refuses to grant the certificate of fitness for appeal to Supreme Court of India.

Judgement

A Judgement is defined under Section 2 (9) of the CPC as the statement given by the Judge on the grounds of a Decree or Order. A judgment states the ground and the reasons for the Judge to have arrived at a decision. It is the decision of a court of justice upon the respective rights and claims of the parties in a suit. A judgment includes-

  • A crisp statement of facts of the case.
  • The points or issues for determination.
  • The decision on such issues and finally.
  • The reasons for such a decision.

Decree

  • A decree is the formal expression of an adjudication which is expressed by the Court, and the same conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit. It can be final or preliminary. It is defined under Section 2(2) of CPC.
  • Adjudication of a decree in the court is a necessity.
  • Decree can only be given in relation to any or all of the matters in controversy in the suit.
  • There must be a conclusive determination of the rights of the parties in the suit
  • .A mere comment of the judge cannot be a decree.

Order

  • Order means the formal expression of any decision of the Court which is not a decree. It is defined under section 2(14) of CPC.
  • An order need not conclusively determines the rights of parties on any matter in dispute. However, it may relate to the issues in controversy.
  • An order need not always be passed on presentation of a plaint in the Court, it can also be passed on presentation of an application or a petition.
  • An order is different from a decree. In case of a decree, an aggrieved party has the right to second appeal on the grounds mentioned in Section 100 of CPC. But in case of appealable orders an aggrieved party does not have the right to second appeal.

Whether The Bar Of Jurisdiction Under Section 42 Applies To An Application Filed Under Section 11 After The Arbitration & Conciliation (Amendment) Act, 2015?

Yaman Kumar


01/12/2017  

By way of the Arbitration & Conciliation (Amendment) Act, 2015 (herein after referred to as the Amendment Act), inter alia, a significant change that has been brought about in Section 11 of the Arbitration & Conciliation Act, 1996 (Hereinafter called the Act), is the insertion of the words “High Court” and “Supreme Court ” instead of “Chief Justice” and “Chief Justice of India”.

This particular amendment has a direct bearing on the interpretation of Section 42 of the Act which envisages exclusion/bar of all courts other than ‘Court’ before which any application under Part I has been initially made with respect to an arbitration agreement. Section 42 of the Act reads as under:

“42. Jurisdiction – Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitration proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.”

To examine the issue the definition of “Court” as defined under Section 2(1) (e) would be relevant which is as under:

““Court” means:-

  1. 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;
  2. 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”

What clearly follows from the above definition is that as regards arbitrations, other than international commercial arbitrations, the principle Civil Court of original jurisdiction in a district, which has the jurisdiction to decide the question forming the subject-matter of the arbitration if the same had been subject-matter of a suit, would be the competent “Court” for the purpose of this Act. It specifically includes the High Court which has ordinary original civil jurisdiction, like Delhi High Court.
Prior to the amendment of 2015, the question as to whether application U/s 11 falls within the purview of Section 42 had been deliberated upon and answered in the negative in catena of judgments. In the judgment of M/s S.K. Brothers Vs. Delhi Development Authority[1] the Single Bench of Delhi High Court was confronted with the question as to whether this court, notwithstanding the amount in the execution application of an arbitral award being below the minimum pecuniary jurisdiction of Rs. 20 lakhs, would have exclusive jurisdiction to entertain the said execution application by virtue of Section 42 merely because this court had exercised the jurisdiction under Section 11 (6) of the Arbitration and Conciliation Act, 1996 by appointing the arbitrator earlier.

The Hon’ble Court while elaborating the aforesaid issue had placed reliance upon the following judicial precedents:

  1. Rodemadan India Ltd. Vs. International Trade Expo Centre Ltd[2]. It was held in the said judgment in Para 8 that the power under Section 11(6) of the Act (1996 Act)is the power of a designate referred to under the section and not that of the Supreme Court, albeit that it has now been held to have judicial characteristics by reason of the judgment in SBP & Co. Vs. Patel Engg. Ltd.[3]. It was further held in Para 25 of the judgment that neither the Chief Justice nor his designate under Section 11(6) is a “Court” as contemplated under 2(1)(e) of the Act and further that the bar of jurisdiction under Section 42 is only intended to apply to a “Court” as defined in Section 2(1)(e).
  2. Union of India Vs. S.R. Constructions Company and Another[4] It was held that mere passing of an order under Section 11(6) of the Act (1996 Act) by this court would not vest this court with the exclusive jurisdiction under Section 42 of the Act to entertain the objections under Section 34 of the Act, if otherwise this court did not have the pecuniary jurisdiction to entertain the said objections.
  3. Pandey & Co. Builders (P) Ltd. vs. State of Bihar and Another[5] It was held that Section 42 only applies to applications and not to appeals under Section 37 of the Act. Applying the same reasoning, Section 42 would also not apply to execution applications. The execution application is not “arbitral Proceedings” within the meaning of Section 42 of the Act and is not a subsequent application arising out of the agreement and the arbitral proceedings. In fact, the arbitral proceedings come to an end when the time for making an application to set aside the arbitral award expires and the execution application is an enforcement of the award which takes the colour of a decree under the C.P.C., by virtue of the provisions of Section 36 of the Act.

Taking note of the ratio laid down in the aforesaid judicial pronouncements, the Hon’ble Delhi High Court, in M/s S.K. Brothers (Supra), had turned down the reason propounded by the decree holder and concluded that execution application does not lie before this Hon’ble court.

A similar question had arisen for consideration before the Division Bench of Delhi High Court in the matter of Vijay Gupta vs. Renu Malhotra[6] wherein the Hon’ble Court had reaffirmed the view taken in M/s S.K. Brothers (Supra) and denied the benefit of Section 42 on the basis of the rationale that the expression “Chief Justice” as contained in Section 11 of the Act (1996 Act), is not synonymous with the term the “Court” as defined in Section 2(1)(e) of the Act, and therefore merely because an arbitrator has been appointed by the chief justice, the same in itself would not be sufficient to vest jurisdiction with the High Court to entertain any other/subsequent applications relating to the said arbitral proceedings in which the arbitrator was appointed, irrespective of the pecuniary limits on its jurisdiction.

The Hon’ble Apex Court in its recent (pre-amendment) judgment in State of West Bengal vs. Associated Contractors[7] had distinguished the treatment of Section 9 and Section 11 applications Vis-à-vis Section 42 and held that while applications under Section 9 and 34 fall within the purview of Section 42, the applications under Sections 8 and 11 would be outside Section 42. The Hon’ble Supreme Court had inter alia had arrived at the following conclusions (a) Section 2 (1) (e) contains an exhaustive definition marking out only the Principal Civil Court of original jurisdiction in a district or a High Court having original civil jurisdiction in the State, and no other court as “Court” for the purpose of Part-I of the Arbitration Act, 1996 and (b) Section 42 applies to applications made under Part-I if they are made to a court as defined. Since applications made under Section 8 are made to judicial authorities and since applications under Section 11 are made to the Chief Justice or his designate, the judicial authority and the Chief Justice or his designate not being court as defined, such applications would be outside Section 42.

From the foregoing decisions it is amply clear that the reason of taking the application under Section 11 out of the purview of Section 42 of the Arbitration Act, 1996 was that the expression “Chief Justice” as contained in Section 11 of 1996, Act was not synonymous with the term “Court” as defined in Section 2(1) (e) of the Act.

However, with the amendment to Section 11 which has done away with the expression “Chief Justice” and has rather conferred the power under Section 11 (6) on the “High Court”, the question which arises for consideration, post amendment, is whether the application for appointment of arbitrator under Section 11 would be sufficient to vest exclusive jurisdiction with the High Court to entertain any other/subsequent applications relating to the arbitral proceedings in which the arbitrator was appointed.

Will the amendment to Section 11 replacing the word “Chief Justice” with the “High Court” result in the applicability of Section 42 to the application under Section 11 as such application would no longer be made to the Chief Justice but to the High Court i.e. a Court as defined under Section 2(1) (e) of the Act?

Though the answer to the aforesaid question has to be in the affirmative, however, the effect of the amendment to Section 11 vis-à-vis the bar of jurisdiction under Section 42 is yet to be seen in light of a precedent dealing with this issue post amendment.

[1] Ex. P. No. 234/2008, Delhi High Court, decided on 02.07.2008

 

[2] (2006) 11 SCC 651

 

[3] (2005) 8 SCC 618

 

[4] (2007) 144 DLT 580

 

[5] (2007) 1 SCC 467

 

[6] E.F.A (OS) No. 12/2008, Delhi High Court, decided on 19.12.2008

 

[7] (2015) 1 SCC 32