SECURED VICTORY FOR NHAI AGAINST ITS CONSULTANT

SECURED VICTORY FOR NHAI AGAINST ITS CONSULTANT

Madhu Sweta and Kanika Tandon won a case in favour of NHAI before the Delhi High Court pertaining to blacklisting of the Consultant/ Petitioner i.e. Sheladia Associates. The Consultant had filed the writ petition challenging the circular issued by NHAI which inter- alia debarred the Consultant for a period of one year on three grounds. First, no show cause notice was issued to the Petitioner specifically stating that NHAI proposed to blacklist the Petitioner for which reliance was placed on the judgment of Gorkha Security Services Vs. Govt. of NCT of Delhi & Ors.: (2014) 9 SCC 105 passed by the Supreme Court; second, the circular is arbitrary and discriminatory as though the Petitioner is debarred on account of substandard construction of Highway, no punitive action has been taken against the Concessionaire who is equally responsible for the construction and third, Sheladia disputed the proportionality of the punitive action as only LD has been imposed against the Concessionaire whereas the Petitioner has been debarred for one year.

 

The High Court refused to interfere with the impugned circular issued by NHAI and upheld the contention of NHAI that show cause notice was issued to Sheladia intimating the constitution of the committee to consider the proposed punitive action against the Consultant in terms of the extent policy of NHAI dated 17.04.2012. The circular stipulated various deterrent penalty actions amongst which blacklisting was also specified. Hence, the Petitioner was fully aware that penalty action is being contemplated against it. The Hon’ble Court relied on the judgment of Gorkha Security Services (supra) and clarified that object of such a show cause notice is to enable the concerned party to respond to the allegations and meet the case set up against it. Accordingly, the Petitioner was put to notice of such punitive measure and was duly afforded an opportunity to be heard.

 

On the second ground, the Court held that the scope of the present proceedings being limited, the Court is not inclined to enquire into the allegations regarding deficiency in service of the Petitioner. The fact that the Petitioner never disputed the existence of various deficiencies on inspection of the Project Highway, proves that the NHAI was justified to hold that the services rendered by the Petitioner were deficient. Thus, the punitive action taken against the Petitioner did not warrant any interference. The third ground was also rejected and the Court refused to accept that the punitive action taken by NHAI is disproportionate considering the allegations levelled against the Petitioner.

SUPREME COURT’S TAKE ON THE FATE OF AUTOMATIC STAY GRANTED TO SECTION 34 PETITIONS POST THE AMENDMENT ACT.

SUPREME COURT’S TAKE ON THE FATE OF AUTOMATIC STAY GRANTED TO SECTION 34 PETITIONS POST THE AMENDMENT ACT.

The controversy pertaining to the amended provisions of Section 36 of the Arbitration and Conciliation (Amendment) Act, 2015 (“The Amendment Act”) has finally seen the dawn of the day, settling the existing ambiguity with regard to Section 36 and the mishmashes arising out of the judgment of Delhi High Court (“HC”) titled, Ardee Infrastructure Pvt. Ltd. v. Ms. Anuradha Bhatia and Ardee Infrastructure Pvt. Ltd. v. Yashpal & Sons[1] which was discussed in detail in our previous write-up article[2] on the same subject.

 Recently the Supreme Court (“SC”) in the judgment titled, Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd[3] has at last settled the on-going divergence of various High Courts by deciding the Moot Question in hand: ‘Whether Section 36, as substituted by the Amendment Act, 2015 would apply in its amended form or original form to pending appeals instituted under Section 34 before the date of amendment, i.e. 23.10.2015?

INTRODUCTION

The bone of contention arising out of the foregoing Moot Question stands finally settled by the Supreme Court vide the present verdict, wherein the SC has observed that all petitions filed under Section 34 of the Arbitration and Conciliation Act, 1996 (“The Act”) prior to the amendment i.e. 23.10.2015, would now be covered under the amended provisions of the Act and consequently, the contesting party would thereby not be entitled to automatic stay of enforcement of the award till the disposal of the said petitions.

Keeping Section 26 of The Amendment Act[4] as the axis of the dispute, the SC not only discusses the applicability of the amended Section 34 and Section 36(2), 36(3) of The Amendment Act, but also hinges a clear and much awaited interpretation of Section 26 of The Amendment Act in regard to arbitral and court proceedings.

FACTUAL BACKGROUND:

The case comprises of the following 8 appeals in totality, out of which four (4) appeals pertain to Section 34 applications which were filed before the cut-off date of 23.10.2015, and the remaining four (4) appeals pertain to those Section 34 applications which were filed after the said cut-off date.

S. No Filed before the Cut-off date Filed after the Cut-off date
1. BCCI v. Kochi Cricket Wind World v. Enercon GMBH
2. Arup Deb v. Global Asia Yogesh Mehra v. Enercon
3. Maharashtra Airports v. PBA Infrastructure Ajay Mehra v. Enercon
4. UB Cotton v. Jayshri Ginning Anuradha Bhatia v. Ardee Infrastructure

The Appellants contended that their petitions under Section 34 of The Act shall be governed by the un-amended provisions of Section 36 and they shall thus have the right to an automatic stay on the award upon filing the said petitions. Whereas the Respondents argued that the amended provisions of Section 36 shall apply thereby denying an automatic stay to the Appellants. The pre-amended and the amended provision of Section 36 of the Act are reproduced as under:

Pre-Amended Section 36 Amended Section 36

 

Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.” (1)    Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court.


(2)    Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.


(3) Upon filing of an application under subsection (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing:

Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).”

ARGUMENTS BY THE APPELLANTS:

  1. That Section 26 of the Amendment Act comprises of two parts. The second part of makes the Amendment Act applicable in relation to arbitral proceedings commenced on/after 23.10.2015, whereas the first part is in nature of a proviso or exemption to the same. Section 26 of The Amendment Act also does not express any intention of retrospective operation.
  2. That the vested right to challenge arbitral awards would continue by the virtue of Section 36 of the old Act, which would apply to all cases.
  • That Section 36 is substantive in nature and that the expression “arbitral proceedings” in both parts of Section 26 refers only to proceedings before an arbitrator and is the same in both parts.
  1. That Section 36 of the Act should not be given a retrospective approach as there is no distinction between execution and enforcement, and “enforcement” under Section 36 is nothing but execution of an award, as if it were a decree under the Code of Civil Procedure, 1908.

ARGUMENTS BY THE RESPONDENTS:

  1. That no vested right exists inasmuch as Section 34 proceedings are not appellate proceedings.
  2. That Section 26 of the Amendment Act evinces a contrary intention and would take away any such right assuming a vested right is involved.
  • That Section 36 is more in the form of an execution proceeding which is procedural in nature and would thus will be retrospective in nature.

THE JUDGMENT

The SC categorises the judgment to deal with four major facets which provide detailed insights into the withstanding dispute. These facets are discussed as follows;

  1. Interpretation of Section 26 of the Amendment Act with respect to Section 34 and 36 petitions-
  2. Section 26 of the Amendment Act bifurcates proceedings with great coherence, into two sets of proceedings- Arbitral proceedings and Court proceedings in relation thereto.
  3. The scheme of Section 26 makes it clear that the Amendment Act is prospective in nature and will apply only to those arbitral proceedings that are commenced, as understood under Section 21 if the 1996 Act, on/after the Amendment Act and to those court proceedings which have commenced on/after the Amendment Act came into force.
  • Section 26 postulates that the court proceedings in relation to such Arbitral proceedings are independent and shall not be viewed as a continuation of arbitral proceedings.
  1. The true definition of Substantive Vested Right
  2. While expounding the definition of “vested rights”, the Court placed reliance on the judgment of Narhari Shivram Shet Narvekar v. Pannalal Umediram[5] stating that the right of the judgment debtor to pay up the decree passed against him cannot be said to be a vested right, nor can the question of executability of the decree be regarded as a substantive vested right of the judgment debtor.
  3. A decree is enforced under the Code of Civil Procedure, 1908 only through an execution process (Order XXI). Section 36(3) as amended refers to the provisions of the Code of Civil Procedure for grant of a money decree i.e. (Order LXI, Rule 5). This being so, it is clear that section 36 refers to the execution of an award as if it were a decree, attracting the provisions of Order XXI and Order LXI.
  • Since it is clear that execution of a decree pertains to the realm of procedure, and that there is no substantive vested right in a judgment debtor to resist execution, Section 36, as substituted, would apply even to pending Section 34 applications on the date of commencement of the Amendment Act.
  • Applicability of Section 36 of the Amendment Act
  1. Section 36 prior to the amendment was considered to be a clog on the right of decree holder who cannot execute the award in its favour. This does not mean that there is a corresponding right in the judgment debtor to stay the execution of such an award.
  2. Section 26 in relation with Section 36 postulates that Court Proceedings are related to Arbitral Proceedings, being independent from arbitral proceedings would not be viewed as a continuation of arbitral proceedings, but would rather be viewed independently or separately.
  • The expression “has been” in Section 36(2) as amended, makes it unambiguous that the Section itself refers to Section 34 applications, which have been filed prior to the commencement of the Amendment Act and thus the said section would apply to even Section 34 Applications that have been filed prior to the commencement of the Amendment Act of 2015.
  1. The Court reserved its comments on the proposition of whether a proceeding under Section 36 could be said to be a proceeding which is independent of Section 34.
  1. Applicability & Limitation of the proposed Arbitration & Conciliation (Amendment) Bill, 2018.
  2. While taking note of the Arbitration Amendment Bill, 2018 the Court held that if such bill and in particular, Section 87[6] is enacted, then the same would be wholly contrary to the objective of the Arbitration Act. For the foregoing reason, the Court also held that a copy of the judgment is to be sent to the Ministry of Law and Justice and the Learned Attorney General for India. The observation of the Court in this regard is as follows-

“…57. The Government will be well-advised in keeping the aforesaid Statement of Objects and Reasons in the forefront, if it proposes to enact Section 87 on the lines indicated in the Government’s press release dated 7th March, 2018. The immediate effect of the proposed Section 87 would be to put all the important amendments made by the Amendment Act on a back-burner, such as the important amendments made to Sections 28 and 34 in particular, which, as has been stated by the Statement of Objects and Reasons, “…have resulted in delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act”, and will now not be applicable to Section 34 petitions filed after 23rd October, 2015, but will be applicable to Section 34 petitions filed in cases where arbitration proceedings have themselves commenced only after 23rd October, 2015 .This would mean that in all matters which are in the pipeline, despite the fact that Section 34 proceedings have been initiated only after 23rd October, 2015, yet, the old law would continue to apply resulting in delay of disposal of arbitration proceedings have been initiated only after 23rd October, 2015, yet, the old law would continue to apply resulting in delay of disposal of arbitration proceedings by increased interference of Courts, which ultimately defeats the object of the 1996 Act…”

ANALYSIS:
Although the judgment does create a rippling effect on all pending Section 34 applications filed prior to the commencement of the Amendment Act who have been savouring the leverage of an automatic stay, yet the intent of such a decision speaks volumes of Court’s intention to increase compliance of parties of an arbitral award, even in respect of arbitrations initiated prior to the cut-off date. The ball now lies in Government’s court which may or may not accept the recommendation of the Court and still proceed ahead to enact Section 87 as proposed under the Arbitration Amendment Bill, 2018. The Court held that a copy of the judgment is to be sent to the Ministry of Law and Justice and the Learned Attorney General for India but the Court did not itself express any speculation on the amendments made to Section 34 as the same were not diametrically before the Bench. However, The Court observed that, “it is enough to state that Section 26 of the Amendment Act makes it clear that the Amendment Act, as a whole, is prospective in nature”.

[1] FAO(OS) no. 221/2016 and FAO(OS) No.222/2016, judgment delivered on 06.01.2017

[2] ‘ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2015, THE FATE OF AUTOMATIC STAY ON SECTION 34 PETITIONS FILED POST AMENDMENT’ dated 02.02.2017.

[3] Civil Appeal Nos. 2879-2880 of 2018, decided on 15.03.2018

[4] Section 26 – Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.

[5] Narhari Shivram Shet Narvekar v. Pannalal Umediram [(1976) 3 SCC 203]

[6] http://pib.nic.in/newsite/erelease.aspx?relid=177117 – A new section 87 is proposed to be inserted to clarify that unless parties agree otherwise the Amendment Act 2015 shall not apply to (a) Arbitral proceedings .which have commenced before the commencement of the Amendment Act of 2015 (b) Court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Amendment Act of 2015 and shall apply only to Arbitral proceedings commenced on or after the commencement of the Amendment Act of 2015 and to court proceedings arising out of or in relation to such Arbitral proceedings.

INVESTMENT ARBITRATION – THE ASSIGNATION & ITS WAY AHEAD IN INDIA

INVESTMENT ARBITRATION – THE ASSIGNATION & ITS WAY AHEAD IN INDIA

India has given notice of unilateral termination of 58 Bilateral Investment Treaties (BIT) on 31st March 2017 and it is in process of signing some crucial BITs, such as the US-India BIT. All of this in conjunction with India’s aim of increasing foreign investment flow into the country makes the topic BITs and Investment Treaty Arbitration all the more important.

Introduction – The Regression of Gunboat Diplomacy

In the gamut of a sound and systematized International Arbitration regime, Investment Arbitration (IA) is more than often described as an insurgent counter against “Gunboat Diplomacy[1].” Investment Arbitration usually arises out of Investment treaties that are entered into by the foreign investors and the Host States, with a view to make an investment by one party in the business ventures of the other. The chariot of Investment Arbitration (IA) thrives upon its following wheels:

  1. An investment treaty, either multilateral (MIT) or bilateral (BIT).
  2. The national law of the Host State pertaining to Investments.
  3. An independent Investment Agreement, if entered.
  4. Choice of Independent and individual Arbitrator/Arbitral Tribunal.

The failure of either of the wheels makes the functioning of the entire regime a fruitless exercise. As a general way of practice, a majority of Investment Arbitrations are treaty based which are governed by either Bilateral or Multilateral Treaties. Essentially, International Investment Arbitration adopts the body of procedure and enforcement from International Commercial Arbitration and applies the same to disputes between foreign investors and host states. The regime works hand in glove with the International Commercial Arbitration to create a conducive environment for Foreign Direct Investment (FDI) and business to flourish in any country. Thus the key aspect of investment arbitration is that it transplants the private adjudicative model from the sphere of International Commercial Arbitration into the realm of government, thereby giving individual investors/private parties a chance to seek redressal for treatment accorded to them by the Government of India.

Objective & Procedure

The dispute resolution clause which provides for the appointment of arbitrator is based either on treaties or general agreements. Such clauses entrust power and discretion to the appointed Arbitrators to make findings on the behavior of the Host State towards the foreign investors. The parties to an Investment Arbitration are free to engage independent arbitrators to make what are in quintessence; governmental decisions. These dispute resolution clauses which are common to all Investment Arbitrations are carefully drafted to either concur to an institutional arbitration format or an ad-hoc format, depending on the nation and its relevant treaties.

Dispute resolution by way of an institutional format or an ad-hoc basis comes with an elaborate procedure of rules which must be adhered to depending on the format the parties chose. Several treaties are either governed by the terms of International Convention for Settlement of Investment Disputes (“ICSID Convention”) or the UNCITRAL Rules for Arbitration (“UNCITRAL”).The basic structure, procedure and formats of Investment Arbitration are reproduced as follows:

The Indian Endeavor

The 1965 ICSID convention[2] created first of its kind forum for resolution disputes between states and the investors (directly), by way of including arbitration clauses in contract between states. India like many other developing countries hasn’t signed or ratified this convention (ICSID). Despite that India has entered into ‘Bilateral Investment Treaties’ commonly known as Bilateral Investment Protection Agreements (“BIPAs”)[3]with many countries, been part of various arbitrations and even had two major Investment Arbitration awards against it. The obligations that the contracting parties i.e. The Government of India and the foreign Investor are largely independent of the domestic legal systems, thereby pave way for public international law. The following are the essential clauses which involves BIT/BIPA:

  1. Applicability
  2. Fair and Equitable Treatment (FET)
  3. Full Protection and Security
  4. Most favored nation treatment (MFN)
  5. Expropriation
  6. Dispute Resolution Regime

India signed its first BIT with the United Kingdom[4] in 1994, and since then has signed more than 83 BITs with various nations across the globe, out of which 72 are still in force, while the remaining ones have not been enforced. Although India promises to be one of the most attractive destinations for FDI, but the relaxation of FDI norms still does not gel with many states making India a difficult jurisdiction to do business with.[5] Consequently, the investor-state disputes are inevitable.

The Union Government released the text for the new Model Indian BIT in December 2015[6]. This new Model BIT contains some controversial and debatable clauses, such as the updated ‘Most Favoured Nation’ (‘MFN”) clause, which may not gel with the interests of many contracting states. The issue of lack of awareness and the prevalence of misconceptions on BIT’s and BIPA’s implies that the investors are consequently unaware of all the protections that are afforded by such Investment Treaties. Under the Indian regime, the Investors should keep the following points in mind:[7]

  1. The conceptual framework of an ‘investment’ covers multitude of activities and contributions that might broadly be said to lead to acquisition of any right or asset by the investor.
  2. The protection afforded by investment treaties is usually in addition to the normal contractual rights that the investor will have against its counterpart.
  3. The protection afforded by investment treaties are directly enforceable by the investor against the Host State- often through international arbitration and without the need to litigate in the Host State’s Courts.
  4. Indian investment treaties do not just benefit foreign investors investing into India; claims can also be brought by Indian investors against foreign governments.

But much stands to be changed now as recently the Union Minister for Commerce and Industry has announced that the Indian Government intends to unilaterally terminate all existing BITs by 31st March, 2017. The Government of India had already conveyed this to all the contracting states of the existing BITs. What the Indian Government wants to convey with this is the intent to sign new BITs based on the new Model BIT that it published in December 2015, replacing all the existing BITs.

This comes at a juncture when around 23 BITs between India and various EU nations are on the verge of renewal/replacement. These numbers make the Indian BIT programme one of the biggest amongst developing countries. This bilateral regulatory framework is significant in terms of its effect on the domestic regulatory behavior of India as regards investment inflows from its treaty partners. The basic idea that persists is that investments and investor covered under the BITs are not to be put under risks, which are inappropriate or unreasonable.[8] The current Indian BITs do not give ‘a right to make investments’ in India. This is one of the most noticeable features of the BITs to which currently India is a party. Thus, what it conveys is that the rights under the BITs can only be exercised after making Investments in India.

White Industries vs. Republic of India

The dispute in this matter between Coal India Ltd. (a PSU) and White Industries (Australian Company) arose out of an ICC Arbitration Clause in relation to contract of development of a mine in Piparwar in India, valued at 206.6 Australian Dollars (AUD). The Arbitration whose seat was fixed in Paris resulted in effecting the Republic of India with an award worth 4.06 Million Dollars in favor of White Industries. In pursuance to the legal battle with respect the enforcement of such award, it is in 2009 when White Industries invoked the provisions of the India-Australia BIT, and opted for Investor-State Dispute Resolution. As a result, an Ad Hoc tribunal was constituted and the Investment Arbitration proceedings were conducted according to UNCITRAL Arbitration Rules.

The Tribunal observed in its award dated November 30, 2011[9], that “India had breached its obligation to provide effective means of asserting claims and enforcing rights”. What led the Republic of India to such knell was the “Most Favoured Nation” (MFN) clause which entailed the India-Australia BIT. White Industries had argued that Article 4(5) of the India- Kuwait BIT, made it mandatory for the host State to provide “effective means of asserting claims and enforcing rights” to investors, would be applicable to the India-Australia BIT as well, owing to MFN clause in the India-Australia BIT.

Antrix Devas Case[10]     

In 2005, an agreement to lease out satellite spectrum was entered into between ‘Antrix’, the commercial arm of Indian Space Research Institute (ISRO) and ‘Devas Multimedia’, a Bangalore based company backed by Mauritius based foreign investors. Under the agreement, Antrix was to provide the spectrum to Devas Multimedia on lease for a period of 12 years, in return of payment of 30 million dollars as fees upfront. But in 2011, ISRO annulled the above agreement citing ‘larger national and local interests’. Devas Multimedia initiated International Commercial Arbitration proceedings under an ICC Arbitration Tribunal. This resulted in an award of Rs.4,400 crores. Simultaneously, Devas Multimedia also initiated Investor-State dispute resolution proceedings against Antrix under the India-Mauritius BIT, as Devas Multimedia was backed by foreign investors. What followed was an award against India under the Investment Treaty Arbitration by the Tribunal at Permanent Court of Arbitration (PCA) at The Hague in July 2016. The tribunal ruled that annulment of Devas-Antrix agreement amounted to ‘expropriation’ and resulted in breach of treaty commitments under India-Mauritius BIT, to accord ‘Fair and Equitable Treatment’ to Devas’ foreign investors.

Besides the White Industries and Antrix-Devas awards, India has received several notices for Investment Treaty Arbitration under various BITs by several investors. Pending claims against India include challenges to various regulatory measures such as cancellation of telecom licenses and imposition of retrospective taxes. As on date, there are fourteen known pending proceedings of claims brought against India. Due to the adverse award in the White Industries case and several other notices for Investment Treaty Arbitrations under various BITs, the focus on BITs got renewed. The White Industries case in particular compelled India to rethink its BIT program. Consequently, the Union Government of India undertook a review of the 2003 BIT Model and what followed was the new Model BIT of India in March 2015.

India has given notice of unilateral termination of 58 BITs on 31st March 2017 and it is in process of signing some crucial BITs, such as the US-India BIT. All of this in conjunction with India’s aim of increasing foreign investment flow into the country makes the topic BITs and Investment Treaty Arbitration all the more important.

Conclusion

A spectrum of recent incidents ranging from cancellation of 2G licenses, retrospective tax amendments etc. have resulted in the issuance of BIT Notices to the Government of India. Furthermore, the main problem with India’s new Model BIT lies in its ‘Dispute Resolution ‘clause. The pre-requisite of exhausting and pursuing all domestic remedies before bringing claims under the BIT is a redundant course of action as the same could render the whole purpose of BIT futile. However, the Indian government in its counter strike to avoid claims under the BITs is rather creating a plethora of future disdains. The need of the hour demands an amended ‘Dispute Resolution’ clause of the Indian Model BIT of 2015 which is more pragmatic. In order to achieve this, the Indian government has to work hand in glove with the Indian Judiciary to promote a regime of a rapid inland dispute resolution mechanism.

(The author would like to thank Kanika Tandon, Associate of the firm for the valuable assistance in researching for this article.)

 

[1] Cable, James. “Gunboat Diplomacy: Political Applications of Limited Naval Force” Chatto and Windus for the Institute for Strategic Studies, 1971, p. 10.

In international politics, Gunboat Diplomacy (or “Big Stick ideology” in U.S. history) refers to the pursuit of foreign policy objectives with the aid of conspicuous displays of naval power – implying or constituting a direct threat of warfare, should terms not be agreeable to the superior force. For instance- Great Britain, Germany, and Italy sent warships to the Venezuelan coast to demand reparation for the losses incurred by their nationals when Venezuela defaulted on its sovereign debt.

[2] Campbell MCLachlan et al., International Investment Arbitration: Substantive Principles, 315-49 (2008) as cited in S. I. Strong, Mass Procedures in Abaclat v. Argentine Republic: Are They Consistent with the International Investment Regime? 3 Yearbook on International Arbitration (Forthcoming), at p. 17.

[3] Bilateral Investment Promotion and Protection Agreements, Ministry of Finance, Government of India, available at http://www.finmin.nic.in/bipa/bipa_index.asp http://finmin.nic.in/bipa/bipa_index.asp?pageid=1

[4] Bilateral Investment Promotion and Protection Agreements, Ministry of Finance, Government of India, available at http://www.finmin.nic.in/bipa/bipa_index.asp http://finmin.nic.in/bipa/bipa_index.asp?pageid=1

[5] India an Attractive FDI Destination, Ministry of External Affairs, Government of India, Investment and Technology Promotion Division, available at http://indiainbusiness.nic.in/newdesign/index.php?param=advantage/171; Fact Sheet on Foreign Direct Investment, DIPP available at http://dipp.nic. in/English/Publications/FDI_Statistics/2014/india_FDI_March2014.pd

[6] Article 14.7 (i) of the Indian Model BIT text of 2015- “Applicable Rules- (i) The arbitration shall be conducted under the Arbitration Rules of the United Nations Commission on International Trade Law inforce at the time of the commencement of the dispute or any other rules agreed to -between the parties in writing prior to the commencement of arbitration, and as modified by this Treaty.”

[7] V. Inbavjayan & Kirthi Jayakumar; Arbitration and Investments – Initial Focus, Indian Journal of Arbitration Law, Volume II, Issue 1.

[8]https://www.mygov.in/sites/default/files/master_image/Model%20Text%20for%20the%20Indian%20Bilateral%20Investment%20Treaty.pdf

[9]  https://www.italaw.com/sites/default/files/case-documents/ita0906.pdf

[10] Antrix Corporation Limited v. Devas Multimedia Pvt. Ltd. (2014) 11 SCC 560

EMERGENCY ARBITRATION IN INDIA: CONCEPT AND BEGINNING

EMERGENCY ARBITRATION IN INDIA: CONCEPT AND BEGINNING

INTRODUCTION

In the gamut of a sound and systematized International Arbitration, an emergency relief is often described as an “Achille’s Heel”[1]. Emergency Arbitration (EA) in the guise of an emergency relief is an upcoming concept in the field of arbitration suitable for those who want to protect their assets and evidence that might otherwise be altered or lost. Such arbitration is usually agreed to and arranged by the parties themselves without recourse to a Tribunal at the first instance. The proceedings either domestic or international are conducted by an Arbitrator as per the agreement between the parties or with the concurrence of the parties.

AIM & ROLE

The objective of EA is to provide urgent pro tem or conservatory measures to a party or parties that cannot await the formation of an Arbitral Tribunal. The efficacy of an Emergency Arbitration, invoked by a party, survives on a chariot of two wheels:

  1. Fumus boni iuris– Reasonable possibility that the requesting party will succeed on merits;
  2. Periculum in mora – if the measure is not granted immediately, the loss would not and could not be compensated by way of damages.

The main role of Emergency Arbitration comes into play in a situation, when there is no arbitral tribunal in place or in a situation where sufficient time would be wasted in setting up one, depending upon the requirements of an arbitration agreement or the institutional rules. EA proliferates as a promise because of various other defects in the system such as lack of confidence in the national courts to grant urgent reliefs, leakage of confidential information, exaggerated litigation cost, etc. Amongst many, two major procedures have to be ineludibly adopted once a party decides to pursue the remedy of EA:

  1. Filing of proof of service of such application upon the opposite parties.
  2. Payment of the decided fee schedule depending upon the schedule for each center, where such arbitration is to be carried out with an implicit understanding that the application of EA would be limited to signatories to the Arbitration agreement or their successors.

POWERS VESTED

An Emergency Arbitration is capable of granting interim measures or conservatory relief only for a stipulated period of time. For all purposes, it exercises similar if not same functions as that of an ad hoc tribunal which has been constituted for a limited purpose and would immediately be dissolved, once the purpose is served or the said time frame in which such issues have to be decided, lapses. Most Arbitration Rules across nations follow an ‘opt-out’ policy with respect to emergency which means that only if the agreement between the parties specifically excludes “Emergency Arbitrator Provisions would these provisions not apply in toto.

An Arbitrator appointed for the purposes of an Emergency Arbitration is known as an Emergency Arbitrator. The Emergency Arbitrator exercises the following functions and becomes functus officio after the Interim Order is made:

  1. The Emergency Arbitrator shall, as soon as possible but in any event within two business days of appointment, establish a schedule for consideration of the application for emergency relief.
  2. Such schedule shall provide a reasonable opportunity to all parties to be heard. It may provide for proceedings by way of telephonic conference or on written submissions as alternatives to a formal hearing.
  3. Due to strict time-lines, the emergency arbitrator may never actually hear or consult with the parties apart from certain major clarifications and simply give his order on the basis of the documents and written submissions placed before him.
  4. Timelines do vary under various International Arbitration rules, but a typical emergency arbitration takes around eight to ten days from the date of application to the date of award.
  5. The Emergency Arbitrator shall have the powers vested in the Arbitral Tribunal pursuant to these Rules, including the authority to rule on his own jurisdiction, and may order any party to take such interim measure of protection, as the arbitrator may consider necessary considering the subject matter of the dispute.
  6. The nature of the interim orders include asset freezing orders, both prohibitive and mandatory injunctions, orders for the preservation and inspection of evidence, preventive orders to avoid misuse of intellectual property or confidential information as well as anti-suit injunctions.

Although the emergency arbitrator’s order is not binding on the arbitral tribunal with respect to any question, issue or dispute determined, yet, the interim order has to be definitely varied, discharged or revoked, in whole or in part, by a subsequent order or award made by the Arbitral Tribunal upon application by any party or upon its own initiative.

LAW COMMISSION’S REPORT:

In order to recognise emergency arbitrations, The Law Commission’s 246th Report[2] on amendments to the Arbitration and Conciliation Act, 1996, proposed an amendment to Section 2(d) of the Act. This amendment was to ensure that institutional rules such as the SIAC Arbitration Rules, or ICC Rules or any other rule which provide for an appointment of an emergency arbitrator are given statutory recognition in India:

“Section 2(d): “Arbitral tribunal” means a sole arbitrator or a panel of arbitrators and, in the case of an arbitration conducted under the rules of an institution providing for appointment of an emergency arbitrator, includes such emergency arbitrator.”

It was expected that the Arbitration and Conciliation (Amendment) Act, 2015[3] would embrace this global turn of tide and create provisions for appointment of Emergency Arbitrator. The Amendment of 2015, however, failed to incorporate the recommendation of the Law Commission and does not provide at all for Emergency Arbitration.

INDIA’S INITIATIVE TOWARDS EA:

Notwithstanding the fact that the term “Emergency Arbitration” is omitted from the amended Arbitration and Conciliation (Amendment) Act, a new move has emerged by way of which, arbitration institutions are trying to absorb the term “Emergency Arbitration” in their rules and are making simultaneous procedures thereof. Although, the Indian arbitral institutions statutorily are not cogent enough (in realm of an expressly omitted provision), yet they have framed rules which are by large synonymous to the leading international arbitration institutional rules. Some notable institutions with their respective regulations are:

  1. The Delhi International Arbitration Center (DAC[4]), of the Delhi High Court in Part III of its Arbitration Rules includes “Emergency Arbitration”. Further Section 18A enumerates ‘Emergency Arbitrator’ and further explains the appointment, procedure, time period and powers of an Emergency Arbitrator.
  2. Court of Arbitration of the International Chambers of Commerce-India, under Article 29 of the ‘Arbitration and ADR Rules’ r/w Appendix V enumerate the provisions of EA and Emergency Arbitrator.
  3. International Commercial Arbitration (ICA), under Section 33 r/w Section 36(3) w.e.f 01.01.2014, enumerates the provisions of EA and Emergency Arbitrator.
  4. Madras High Court Arbitration Center (MHCAC) Rules, 2014, under Part IV, Section 20 r/w Schedule A and Schedule D enumerate the provisions of EA and Emergency Arbitrator.
  5. Mumbai Center for International Arbitration (Rules) 2016, under Section 3 w.e.f 15.June.2016 enumerates the provisions of EA and Emergency Arbitrator.
    ENFORCEMENT IN INDIA

Enforcement of a foreign seated award in India is highly unlikely as the enforcement shall only be recognized under Part II of the Arbitration and Conciliation Act, 1996. In accordance with the decision laid down by the Supreme Court of India in BALCO vs. Kaiser Aluminum Technical Services[5], the powers of Indian courts are prospectively excluded to grant interim relief in relation to foreign seated arbitrations.

However, India’s approach towards an EA order is that of ancillary enforceability. Judicial decisions concerning emergency arbitration are scant. In the leading cases of HSBC v. Avitel[6] and Raffles Design International India Private Limited & Ors. v. Educomp Professional Education Limited & Ors[7], the Bombay High Court and the Delhi High Court respectively, have emerged as the torch bearers wherein interim reliefs were granted by the Courts in sync with the order of the Emergency Arbitrator. However, a glaring difference between both of these orders is the fact, whether the ratio of BALCO applies to the said cases or not.

HSBC v. Avitel : The case involved an arbitration agreement in which the parties reserved their right to seek interim reliefs before the national Courts of India, even though the Arbitration was conducted outside the country. The parties resorted to EA seated in Singapore, where a favorable order was given to the party who sought to enforce the same in India. The Bombay High Court while upholding the award of the Emergency Arbitrator and granting interim relief observed that the ‘…petitioner has not bypassed any mandatory conditions of enforceability.[8]’ since it was not trying to obtain a direct enforcement of the interim award. It is germane to note that the subject agreements were entered into between the parties prior to the BALCO judgment, thus the ratio decidendi of BALCO did not apply to this case.

Raffles Design International India Private Limited & Ors. v. Educomp Professional Education Limited & Ors : The case involved an arbitration agreement which was governed and construed in accordance with the laws of Singapore. The parties resorted to EA seated in Singapore, wherein an interim order was passed, which was later enforced in the High Court of the Republic of Singapore. The party who obtained the favorable order later filed an application under the amended Section 9 of The Arbitration and Conciliation (Amendment) Act, 2015 seeking interim reliefs alleging that the other party is acting in contravention to the orders passed in the Emergency Award. The Delhi High Court while allowing the maintainability of such petitions highlighted the relevancy of the amended Section 2(2) of the Act. The proviso to Section 2(2) of the amended act has widened the ambit of the powers invested in the Court to grant interim reliefs, as Section 9 shall now apply to international commercial arbitrations, even if the place of arbitration is outside India. It is germane to note, that the subject agreements were entered between the parties after the BALCO judgment. The main matter is yet to be decided on merits by the Delhi High Court.

GLOBAL SCENARIO

Presently, the Singapore International Arbitration Centre (SIAC)[9], the Stockholm Chamber of Commerce (SCC),[10] the Swiss Chambers Arbitration Institution (SCAI)[11], the Mexico City National Chamber of Commerce (CANACO)[12], and the Netherlands Arbitration Institute (NAI)[13] provides for both expedited formation of the Arbitral tribunal as well as the EA. Whereas, the London Court of International Arbitration (LCIA)[14], and the Hong Kong International Arbitration Centre (HKIAC)[15], the International Centre for Dispute Resolution of the American Arbitration Association (ICDR/AAA)[16] and the International Chamber of Commerce (ICC) [17] have opted to provide solely for EA.

Asian Jurisdictions such as Singapore and Hong Kong are considered to be torch bearers. Both countries have passed amendments to provide express recognitions to the interim orders of the Emergency Arbitrator. The Singapore International Arbitration Act has amended its definition of ‘arbitral tribunal’ to bring Emergency Arbitrator within its ambit. Similarly, Hong Kong amended its Arbitration Ordinance by inserting Part 3A which further allows the recognition and enforcement. Following the lead, the London Court of International Arbitration (LCIA)[18], American Arbitration Association (AAA)[19] and International Chamber of Commerce (ICC) have also amended their rules to incorporate this new concept which not only saves time and money, but also expedites the process and makes the amendments enforceable in nature.

The New York Convention only recognizes a final award which can be enforceable in nature and not an interim order. The order is tested on the touchstone of finality under the said convention. In a 2013 case before the District Court of New York concerning the EA order in Yahoo! Inc. v. Microsoft Corporation case[20], Yahoo’s motion to vacate an EA award was rejected. The Court found that the relief awarded by the Emergency Arbitrator was, “in essence final” and therefore confirmed it for the purposes of recognition and enforcement. The Court, reasoned that the Emergency Arbitrator is not barred from awarding final reliefs for the purposes of preserving status quo in the subject matter, irrespective of the fact that a final award of the Arbitral Tribunal is yet to follow.

However, in 2011, Southern District Court of California came to the opposite conclusion in Chinmax Medical Systems v. Alere San Diego[21]. In this case, the Court addressed a request to vacate a decision of an emergency arbitrator. The Court denied jurisdiction purporting that the decision was not final and binding for the purposes of the NY Convention.

CONCLUSION

The emergency arbitrator’s order shall take the form of an interim award which the parties undertake to comply with. In the event that a party fails to comply with such order, it may be enforceable in nature under the provisions of various national laws depending upon the discretion of national courts and national laws which may or may not include Emergency Arbitration provisions.

Although, Emergency Arbitration steps in as a turning tide for the global scenario in view of injunctions in Arbitration proceedings, India still awaits a formal statutory recognition of the awards of the Emergency Arbitrator.

(The author would like to thank Kanika Tandon, Associate of the firm for the valuable assistance in researching for this article.)

[1] Martin Davies, Court ordered Interim measures in aid of International Commercial Arbitration, 17 AM, Rev. Int’l Arb. 299, 300 (2006).

An Achilles’ heel is a weakness in spite of overall strength, which can actually or potentially lead to downfall. In Greek mythology, when Achilles was a baby, it was foretold that he would die young. To prevent his death, his mother took Achilles to the River Styx, which was supposed to offer powers of invulnerability, and dipped his body into the water; however, as Thetis held Achilles by the heel, his heel was not washed over by the water of the magical river. Achilles grew up to be a man of war but, One day, a poisonous arrow shot at him was lodged in his heel, killing him shortly afterwards.

[2] The Law Commission’s 246th Report dated 05.08.2014.[3]The Arbitration and Conciliation (Amendment) Act, 2015 (No. 3 of 2016), dt. 31.12.2015, w.r.e.f. 23.10.2015.[4] Delhi International Arbitration Center (DAC)[4], Part III, Section 18A.[5] BALCO Kaiser Aluminum Technical Services (2012) 9 SCC 552[6] HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd & Ors., Arbitration Petition No. 1062/2012 dated January 22nd, 2014.[7] Raffles Design International India Private Limited & Ors. v. Educomp Professional Education Limited & Ors, O.M.P (I) (Comm.) 23/2015, CCP(O) 59/2016 and IA Nos. 25949/2015, 2179/2016 dated October 7th, 2016.[8] HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd & Ors., Arbitration Petition No. 1062/2012 dated January 22nd, 2014, Para 89.[9] Singapore International Arbitration Center (SIAC) included the provision for Emergency Arbitration only in July 2010. The International Chamber of Commerce (ICC) included Emergency Arbitration Provisions in the 2012 Rules via Article 29 and Appendix V[10] SCC Rules (2010), Expedited Rules and Appendix II.[11] Swiss Rules (2012),Articles 42–43[12] CANACO Rules (2008), Articles 36 and 50.[13] NAI Rules (2010) Articles 42a and 42b.[14] London Court of International Arbitration (LCIA) amended its Rules of 1988 in 2014 to create a provision for Emergency Arbitration (Article 9).These rules are applicable to agreements concluded on or after 01.10.2014, unless the parties opt-in[15] HKIAC Administered Arbitration Rules (2008) Article.38.[16] ICDR / AAA Rules (2006), Article.37.1.[17] ICC Rules (2012) , Article 29(1) and Appendix II.[18] London Court of International Arbitration (LCIA) amended its Rules of 1988 in 2014 to create a provision for Emergency Arbitration (Article 9).These rules are applicable to agreements concluded on or after 01.10.2014, unless the parties opt-in[19] American Arbitration Association (AAA) issued revision to its Rules on 08.09.2013. Rule 38 particularly deals with Emergency Arbitration.[20] Yahoo! Inc. v. Microsoft Corporation, United States District Court, Southern District of New York, 13 CV 7237, October 21, 2013.[21] Chinmax Medical Systems Inc., v. Alere San Diego, Inc., Southern District of California, Case No. 10cv2467 WQH (NLS), May 27, 2011.