transforming commercial dispute resolution in india
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39 ESSEX CHAMBERSTRANSFORMING COMMERCIAL DISPUTE RESOLUTION
IN INDIA
INDIA: INVESTMENT TREATY DEVELOPMENTS
Marion Smith QC FCIArb
This material is intended to provoke and stimulate. It does not constitute legal advice. Legal advice should always be sought before taking or refraining from taking any action
What is a BIT?
“A bilateral investment treaty is an
agreement between two countries regarding promotion and protection of investment made by investors from respective countries in each other’s territory”
What is a BIT?
“There is ample precedent for the
success of investment treaties ... Existing pacts have helped reduce policy barriers limiting FDI and enhance the investment climate between the partner countries...”
What is a BIT?
“ ... a way to let multinational
companies get rich at the expense of ordinary people ... whenever a government passes a law to, say, discourage smoking, protect the environment or prevent a nuclear catastrophe ...”
What is ISDS?
“... a fundamental element of States’
efforts to reinforce the credibility of the commitments they make in their international investment agreements.”
What is ISDS?
“....a special right to apply to a
secretive tribunal of highly paid corporate lawyers for compensation.”
Facts and Figures
• India signed its first BIT in 1994.
• Signed about 84 since.
• At least 70 in force.
• Majority signed before 2007.
Claims History – pre 2011Dahbol Power Plant
Photo: AFP
Claims History – post 2011
White Industries Australia Limited v. Republic of India
Award, Nov.30, 2011
Further Claims History – post 2011
Photo: Aaron Glantz Centre for Investigative Reporting
Further Claims History – post 2011
• Deutsche Telekom• Vodafone International Holdings BV• Sistema• Telenor• Children’s Investment Fund• TCI Cyprus Holdings• Capital Global and Kaif Investment
Global Known ISDS Cases
Source: UNCTAD ISDS database
Indian Government Responses
• Moratorium on all ongoing BIT negotiations
• Announcement of an intention to
renegotiate existing BITs
• New (draft) amended model BIT
New Model Bit
• Narrow definitions
• Exclusions
• Changes to standard of treatment
• Omission of MFN clause
• Exhaustion of local remedies
What next?
• Termination of BITs?
• Domestic law reform?
• Indian investors as claimants?
• What is politically acceptable?
39 ESSEX CHAMBERSTRANSFORMING COMMERCIAL DISPUTE RESOLUTION
IN INDIA
INDIA: INVESTMENT TREATY DEVELOPMENTS
Marion Smith QC FCIArb
39 Essex Chambers LLP is a governance and holding entity and a limited liability partnership registered in England and Wales (registered number 0C360005) with its registered office at 39 Essex Street, London WC2R 3AT. 39 Essex Chambers‘ members provide legal and advocacy services as independent, self-employed barristers and no entity connected with 39 Essex Chambers provides any legal services. 39 Essex Chambers (Services) Limited manages the administrative, operational and support functions of Chambers and is a company incorporated in England and Wales (company number 7385894) with its registered office at 39 Essex Street, London WC2R 3AT
39 ESSEX CHAMBERSTRANSFORMING COMMERCIAL DISPUTE RESOLUTION
IN INDIA
COMMERCIAL COURTS & ARBITRATIONJonathan Bellamy FCIArb, Barrister
INDIAWill doing arbitration business become easier?
• World Bank Group Report: “Doing Business 2015” India: 186/189 for Enforcing Contracts• Commercial cases pending (31.12.13):
JONATHAN BELLAMY
High Court Dispute pending
Cases > 1 Crore (£100k)
Bombay 1,997 1,276Calcutta 6,932 1,733Delhi 3,582 236Madras 5,865 958Total 18,376 4,203
INDIA
• First instance civil cases pending (31.1213): incl. arbitration petitions and appeals
High Court Cases Judges allocated
Bombay 47,924 3-8
Calcutta 36,087 ?
Delhi 17,597 ?
Madras 41,702 4
Total 143,310 ?
INDIALaw Commission of India Report No. 253
• “Stepping stone” to general reform of the civil justice system• Commercial Division & Commercial Appellate Division of High
Courts and Commercial Courts Bill 2015• “Commercial disputes”• Procedure:
• Judicial case management• Pre-trial timetables• Summary judgment• Strike out of pleadings• Written submissions and time limited oral argument
JONATHAN BELLAMY
INDIALaw Commission of India Report No. 253
• Specialist judiciary:– Recruitment from recognised commercial lawyers and
judges– 2 year allocation to Commercial Court– Increased remuneration
• Costs:• Presumption that costs substantial and to follow the event• Conduct (and other UK CPR factors) relevant
INDIALaw Commission of India Report No. 246
• Investment Treaty Risk: White Industries (2011)• ICA: Indian Offshore companies • Enforcement of ICA awards:
– Court = Commercial Court– Limitation period: 3 months– Disposal period: “expeditiously” and within 1 year– No appeals against interlocutory orders– All appeals to Commercial Appellate Division– Disposal of appeals “preferably” within 6 months– No further appeals
SINGAPORECan doing arbitration business be any easier?
• World Bank Group Report: “Doing Business 2015” Singapore: 1/189 for Enforcing Contracts• Dedicated regime for ICA: International Arbitration Act
– Restricted judicial oversight– No appeal on question of law– Enforcement in accordance with Art V New York Convention: S31 IAA
• Judicial interpretation of public policy exception: AJU v AJT :• “an international [not local] focus”• “exceptional circumstances”• “most basic notions of morality and justice”• Fraud and due process but not errors of fact or law
JONATHAN BELLAMY
39 ESSEX CHAMBERSTRANSFORMING COMMERCIAL DISPUTE RESOLUTION
IN INDIA
COMMERCIAL COURTS & ARBITRATIONJonathan Bellamy FCIArb, Barrister
THE ROADBLOCKS TO INDIA RELATED INTERNATIONAL
ARBITRATION (WITH A SPECIFIC REFERENCE TO THE PROPOSED REFORMS)
BY
ANIRUDH KRISHNAN
PARTNER, AK LAW CHAMBERS,
CHIEF - EDITOR, JUSTICE R.S. BACHAWAT’S LAW OF ARBITRATION AND CONCILIATIONCONSULTANT, 246TH AND 253RD REPORTS
OF THE LAW COMMISSION OF INDIA
THE ROADBLOCKS TO INDIA RELATED INTERNATIONAL
ARBITRATION
I. Judicial interventions in foreign seated arbitrations
II. Anti-arbitration injunctions and the Section 45 test
III. Enforcement of foreign awards
IV. Incentives to frivolous litigation
JUDICIAL INTERVENTION IN FOREIGN SEATED ARBITRATIONS
▪Application of Sections 9 and 34 to foreign seated arbitrations
•Sections 9 and 34 are in Part I of the Act.
•Section 2(2) of the Act-"This Part shall apply where the
place of arbitration is in India“
•Contrast with Article 1(2) of the UNCITRAL Model Law-“The
provisions of this Law, except articles 8, 9, 35 and 36,
apply only if the place of arbitration is in the territory of
this State.”
▪ Supreme Court in Bhatia (Bhatia International v. Bulk Trading
S.A. (2002) 4 SCC 105 ) on Section 2(2):
• Part 1 mandatorily applies if the arbitration is held in India.
• Part 1 applies if the arbitration is held abroad unless it is
expressly or impliedly excluded.
• Merely specifying the seat of arbitration to be foreign does
not amount to implied exclusion.
• Entire jurisprudence has since developed on how to
construe an implied exclusion.
JUDICIAL INTERVENTION IN FOREIGN SEATED ARBITRATIONS
JUDICIAL INTERVENTION IN FOREIGN SEATED ARBITRATIONS
Foreign seat alone = no implied exclusion
(Bhatia International v. Bulk Trading S.A. and Anr., (2002) 4 SCC 105)
Foreign law governing contract, nothing else specified= no implied exclusion
(Venture Global Engineering v. Satyam Computer Services Ltd. and Anr., (2008) 4 SCC 190)
Foreign seat+ foreign law governing the contract= implied exclusion can be presumed
(Dozco India P. Ltd. v. Doosan Infracore Co. Ltd., (2011) 6 SCC 179)
JUDICIAL INTERVENTION IN FOREIGN SEATED ARBITRATIONS
Foreign law governing the arbitration+ Indian law governing contract= express exclusion.
(Videocon Industries Limited v. Union of India (UOI) and Anr., (2011) 6 SCC 161)
Simple point- implied exclusion not based on conflict of laws principles.
▪ Bhatia overruled by the Supreme Court in Bharat Aluminium
Company and Ors. v. Kaiser Aluminium Technical Service,
Inc. and Ors. (2012) 9 SCC 552 (“BALCO”)
• Only if the seat is determined to be India, would Part I be
applicable;
• If seat is outside India, even express inclusion of Part I
cannot confer jurisdiction on an Indian Court.
• The decision in BALCO would have prospective effect and
apply only to arbitration agreements executed after the
date of judgement.
JUDICIAL INTERVENTION IN FOREIGN SEATED ARBITRATION
▪ Consequence of BALCO
• If the seat of the arbitration is located abroad, a party
cannot resort to Sections 9, 27 of the Act;
• Courts to continue to apply Bhatia even though it is
recognized to be bad law.
JUDICIAL INTERVENTION IN FOREIGN SEATED ARBITRATION
PROPOSED REFORMS
▪Law Commission changes
•Prospectivity of BALCO overturned;
•Section 9, 27, 37(1)(a) and 37(3) applicable to
foreign seated arbitrations unless expressly excluded.
PROPOSED REFORMS
(2) Scope.—This Part shall apply only where the seat of arbitration is in India.
Provided that, subject to an express agreement to the contrary, the provisions of Sections 9, 27, 37 (1)(a) and 37 (3) shall also apply to international commercial arbitration even if the seat of arbitration is outside India, if an award made, or that which might be made, in such place would be enforceable and recognized under Part II of this Act.
(2A) Notwithstanding any judgment/ decree to the contrary, the amendment to this sub-section (2) shall not apply to applications which are pending before any judicial authority on the date of such amendment, and which have arisen in relation to arbitrations where the date of the arbitration agreement is prior to 06.09.2012.
THE ANTI-ARBITRATION INJUNCTION
▪ Source of power – Section 151 of the Civil Procedure Code,
1908
• Modi Entertainment Network and Anr. v. W.S.G. Cricket PTE.
Ltd., (2003) 4 SCC 341
• PPN Power Generating Company Ltd. v. PPN (Mauritius)
Company and Ors., 2005 (3) Arb. LR 354 (Madras)
▪ Test for grant of anti-arbitration injunction (Modi
Entertainment test)
▪ in personam jurisdiction against Defendant;
▪ if the injunction is declined the ends of justice will be
defeated and injustice will be perpetuated;
▪ the principle of comity.
▪ the principle of forum non-conveniens.
THE ANTI-ARBITRATION INJUNCTION
THE USUAL RECOURSE – AN APPLICATION UNDER SECTION 45
OF THE ACT
Section 45 :-
“Power of judicial authority to refer parties to arbitration.-
Notwithstanding anything contained in Part I or in the Code
of Civil Procedure, 1908 (5 of 1908), a judicial authority,
when seized of an action in a matter in respect of which
the parties have made an agreement referred to in section
44, shall, at the request of one of the parties or any person
claiming through or under him, refer the parties to
arbitration, unless it finds that the said agreement is null
and void, inoperative or incapable of being performed.”
THE LEVEL OF SCRUTINY
▪ What is the level of scrutiny to decide if the arbitration
agreement is “null and void, inoperative or incapable of being
performed”?
• Minority judgement in Shin-Etsu Chemical Co. Ltd. v. Aksh
Optifibre Ltd. and Anr., (2005) 7 SCC 234 (delivered by
Justice Y.K. Sabharwal):
– Test under Section 45 to be a “prima facie” test
– In-depth analysis only if prima facie finding against
arbitration
• Majority judgement :
– Took the same view as Justice Y.K. Sabharwal on facts
– Did not reiterate finding on “prima facie” test
▪ The test in Chloro Controls (I) Pvt. Ltd. v. Severn Trent
Water Purification Inc. and Ors., (2012) 4 Arb LR 1 (SC)
• Incorporates test in National Insurance Co. Ltd. v.
Boghara Polyfab (P) Ltd., (2009) 1 SCC 267
• The Part I test held to be applicable to Section 45
THE LEVEL OF SCRUTINY
PROPOSED REFORMS
• The test under Section 45 to be “prima facie”.
Prima facie is there a valid arbitration
clause?
If yes, final determination to be
made by the tribunal; no appeal except to the Supreme Court.
If no, court to make an in-depth final finding
and an appeal is provided.
Proposed Amendment
Test under Part I modified-
“Explanation 1: If the judicial authority is prima
facie satisfied about the existence of an arbitration
agreement, it shall refer the parties to arbitration
and leave the final determination of the existence
of the arbitration agreement to the arbitral tribunal
in accordance with section 16, which shall decide
the same as a preliminary issue; “
PUBLIC POLICY – THE UNRULY HORSE
Renusagar Power Co. Ltd. v. General Electric Co.,
AIR 1994 SC 860
▪ Public policy includes:
• Fundamental policy of Indian law
• The interests of India
• Justice or Morality
PUBLIC POLICY – THE UNRULY HORSE
Oil & Natural Gas Corporation Ltd. v. SAW Pipes
Ltd., (2003) 5 SCC 705. (Domestic Award)
(“ONGC I”)
▪ Additional grounds:
• Patent illegality
• So unfair and unreasonable that it shocks
the conscience of the Court
Phulchand Exports Ltd. v. OOO Patriot, (2011) 10 SCC 300
(“Phulchand”)
▪ ONGC 1 applied
Shri Lal Mahal Ltd. v. Progetto Grano Spa, (2014) 2 SCC
433 (“Shri Lal Mahal”)
▪ Phulchand overruled
▪ Back to Renusagar
PUBLIC POLICY – THE UNRULY HORSE
MAKING THE HORSE MORE
UNRULY – ONGC II
Oil & Natural Gas Corporation Ltd. v. Western Geco
International Ltd., (2014) 9 SCC 263 (“ONGC II”)
▪ Fundamental policy of Indian law construed very widely
• Includes Wednesbury reasonableness principle.
LAW COMMISSION
RECOMMENDATIONS
▪ Shri Lal Mahal reiterated;
▪ Timeframe set for filing objections (90 days) and
disposing off the same (1 year);
▪ Supplementary Report – ONGC II nullified.
PROPOSED AMENDMENT
S. 48. Conditions for enforcement of foreign awards.—…
2) Enforcement of an arbitral award may also be refused if the Court finds that—
(a) the subject-matter of the difference is not capable of settlement by
arbitration under the law of India; or
(b) the enforcement of the award would be contrary to the public policy of India.
PROPOSED AMENDMENT
Explanation.— For Without prejudice to the generality of clause (b), it is hereby
declared, for the avoidance of any doubt, it is clarified that an award is in
conflict with the public policy of India only if:
(a) the making of the award was induced or affected by fraud or corruption;
corruption.
(b) it is in contravention with the fundamental policy of Indian law;
(c) it is in conflict with India’s most basic notions of morality or justice.
(3) An objection under the above sub-sections shall not be made after three
months have elapsed from the date on which the party making such objections
has received notice of the application under Section 47 of the Act:
Provided that if the Court is satisfied that the party raising the objection was
prevented by sufficient cause from making the application within the said period
of three months it may entertain the application within a further period of thirty
days, but not thereafter.
PROPOSED AMENDMENT
(4) An objection under this Section shall be disposed off expeditiously and in any
event within a period of one year from the date on which the notice issued pursuant
to an application under Section 47 is served.
(5)(3) If an application for the setting aside or suspension of the award has been
made to a competent authority referred to in clause (e) of sub-section (l) the Court
may, if it considers it proper, adjourn the decision on the enforcement of the award
and may also, on the application of the party claiming enforcement of the award,
order the other party to give suitable security.
(6) The costs regime set out in Section 6A of the Act shall apply to a proceeding in
relation to Sections 47 and 48 of the Act.
PROPOSED AMENDMENT
Section 34(2)(b)(ii)
“For the avoidance of doubt the test as to whether
there is a contravention with the fundamental policy
of Indian law shall not entail a review on the merits of
the dispute.”
(Supplementary Report)
THE PRESENT REGIME- INCENTIVIZES
LITIGATION
▪ Costs rarely imposed
▪ “Costs follow the event” – applicable in theory (Salem
Advocate Bar Association, Tamil Nadu v. Union of India,
(2005) 6 SCC 344)
▪ No timeframes for judicial decisions
▪ Vagueness on what constitutes International Commercial
Arbitration – potential source of litigation
• Gap filled by Supreme Court in TDM Infrastructure
Pvt. Ltd. v. UE Development India Pvt. Ltd., (2008) 14
SCC 271.
LAW COMMISSION AMENDMENT
▪ “Costs follow the event” – made mandatory;
▪ Timeframes fixed;
▪ TDM Infrastructure ruling incorporated into law as a
policy decision.
Proposed Amendment
Section 2 (f) “international commercial arbitration” means an
arbitration relating to disputes arising out of legal relationships,
whether contractual or not, considered as commercial under the law
in force in India and where at least one of the parties is—
(i) an individual who is a national of, or habitually resident in, any
country other than India; or
(ii) a body corporate which is incorporated in any country other than
India; or
(iii) a company or an association or a body of individuals whose
central management and control is exercised in any country other
than India; or
(iv) the Government of a foreign country;
Proposed AmendmentS. 6A- Regime for costs- (1) In relation to any arbitration proceeding or any
proceeding under any of the provisions of this Act pertaining to such an arbitration,
the court or arbitral tribunal, notwithstanding anything contained in the Code of Civil
Procedure,1908, has the discretion as to determine:
(a) whether costs are payable by one party to another;
(b) the amount of those costs; and
(c) when they are to be paid.
Explanation.—For the purpose of clause (a), “costs” means reasonable costs relating
to—
(i) the fees and expenses of the arbitrators, courts and witnesses,;
(ii) legal fees and expenses,;
(iii) any administration fees of the institution supervising the arbitration,; and
(iv) any other expenses incurred in connection with the arbitral or court proceedings
and the arbitral award.
Proposed Amendment(2) If the court or arbitral tribunal decides to make an order about in payment of
costs –
(a) the general rule is that the unsuccessful party will be ordered to pay the costs of
the successful party; but
(b) the court or arbitral tribunal may make a different order for reasons to be
recorded in writing.
(3) In deciding what order, (if any), to make about costs, the court or arbitral tribunal
will have regard to all the circumstances, including –
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of its case, even if that party has not
been wholly successful; and
(c) whether the party had made a frivolous counter claim leading to delay in the
disposal of the arbitral proceedings; and
(cd) whether any reasonable offer to settle is made by a party and unreasonably
refused by the other party.
Proposed Amendment
(4) The orders which the court or arbitral tribunal may make under this provision
include an order that a party must pay:
(a) a proportion of another party’s costs;
(b) a stated amount in respect of another party’s costs;
(c) costs from or until a certain date only;
(d) costs incurred before proceedings have begun;
(e) costs relating to particular steps taken in the proceedings;
(f) costs relating only to a distinct part of the proceedings; and
(g) interest on costs from or until a certain date.
(5) An agreement which has the effect that a party is to pay the whole or part of the
costs of the arbitration in any event is only valid if made after the dispute in
question has arisen.
CONCLUSION
▪ Allied amendments in the form of “Commercial Division and
Commercial Appellate Division of High Courts and
Commercial Courts Bill, 2015” (253rd Report of Law
Commission)
• Creation of fast track dispute resolution processes
▪ Need for change in culture
▪ If not, risk of more awards such as White Industries v.
Government of India.