Beruflich Dokumente
Kultur Dokumente
Nakul Dewan
A. Introduction Jurisdiction
India
In an economically liberalising regime, there is an underlying need to
have a commercial dispute resolution law which brings about cross- Source
border uniformity in dispute resolution procedure. As judicial
Nakul Dewan,
systems in different countries are dissimilar and fraught with their
Arbitration in India: An
own peculiarities, it is a complex matter to imbibe within the judicial Unenjoyable Litigating
system a cross-border uniform procedural code for adjudication of
Jamboree!, Asian
commercial disputes. This impediment can be overcome by
International Arbitration
adopting an alternate forum for commercial dispute resolution and
Journal, (Kluwer Law
enacting a standardised arbitral procedural code is one such International 2007
mechanism whereby a foreign investor is not thrown into unfamiliar
Volume 3 Issue 1 ) pp.
territory when a legal dispute arises. However, the uniformity only
99 - 123
continues so long as the law is interpreted in accordance with its
international meaning and interpretation of the law is in consonance
with accepted international norms and understandings. Since
adroitness is a known devil of advocacy, very often brilliant and
baffling legal defences are taken up to throw the arbitration
mechanism into a tailspin.
The fanfare with which the (Indian) Arbitration and Conciliation Act
1996 (‘the Act’ or ‘the 1996 Act’) was enacted as the legal
supplement to India's liberalisation policy is all but fading away. As
the Indian legal system is virtually chocked and bogged down by the
astronomical number of pending cases, the Act sought to minimise
the role played by the courts in arbitration proceedings and attune
the procedure to the UNCITRAL Model Law. (1) Bereft page
"99" of the various judicial pronouncements, the Act does exactly
that. The Act is divided into two parts: Part I applies to arbitrations
whose situs is in India and Part II applies to arbitrations whose situs
is outside India. (2) Part I limits the intervention of the courts in arbitral
proceedings both before the appointment of the arbitrator and after
rendering the arbitral award. (3) Under Part I, arbitrators are
appointed by the parties and only on their failure to do so are
appointments made by the Chief Justice of the High Court in the
case of domestic arbitrations and by the Chief Justice of the
Supreme Court in the case of international arbitrations. (4) On the
other hand, if one party has initiated legal proceedings in court and
the defence of an arbitration agreement is taken up, the court is
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The initial euphoria about the Act and the judgment of the Supreme
Court in Sundaram Finance Ltd v NEPC India Ltd, (18) holding that
the provisions of the Model Law would serve as a beer interpretative
guide, gave hope that the court would adopt a hands-off policy in
arbitration matters. However, over the years, the court has gradually
stepped back in and increased the scope for its intervention in
arbitral proceedings, in a manner whereby arbitrations have been
caught in the intrinsic web of the delayed and the clogged court
system. The recent Constitution Bench judgment of the Supreme
Court in SBP & Co v Patel Engineering (19) has only further expanded
the scope of the court's role in arbitration.
Apart from the few cases which involve the ingenious application of
the law, the three stages where an arbitration proceeding usually
gets intertwined with litigation in court are:
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page "101"
Unlike the old Arbitration Act 1940, when the 1996 Act was enacted,
the legislature limited court intervention in matters of appointment of
arbitrators and determining challenges to their jurisdictional
competence. Under s 11 of the Act, arbitrators have to be appointed
by the parties in terms of their arbitration agreement, so long as the
agreement is not contrary to statute. (21) Only if parties fail to reach a
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page "108"
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The above interpretation only benefits vigilant parties who are aware
of the judgment and exclude the application of s 9 and Part I in all
future contracts: all existing contracts which provide for arbitration
outside India but do not expressly exclude s 9 and Part I are
however roped in. Therefore, the judgment does not, ipso facto,
make Indian courts competent to grant interim relief in arbitrations
held outside India but lets parties exclude jurisdiction by contract. By
this interpretation, a statute has been subjected to the written
agreement between parties and only on this count makes the
reasoning vulnerable.
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page "114"
Dispelling the notion that Indian courts favour Indian parties is best
done by other examples where courts have either refused or granted
interim injunctions in favour of the foreign companies and against
the interests of government companies or undertakings in matters
which were referable to arbitration. In the case of National
Agricultural Coop Mktg Federation of India (NAFED) v Alimenta SA,
(61)
two contracts were signed between the parties for supply of 5,000
MTS of Indian HPS Groundnut Kernel Javas. On a dispute having
arisen, arbitration proceedings were initiated by Alimenta SA (a
Swiss company) under the Federation of Oil Seeds and Fats
Association (‘FOSFA’). NAFED challenged the initiation of arbitration
proceedings in the High Court of Delhi, which upheld the arbitration
agreement qua the first contract but came to take the view that qua
the second contract there was no arbitration agreement in existence.
NAFED then approached the Supreme Court, which, on the
submission of Alimenta SA passed an interim order permitting
Alimenta SA to also initiate parallel proceedings in the form of
money suits for both the contracts against NAFED in view of the
period of limitation expiring. The court observed that ‘such suit shall
not constitute abandonment of the pending arbitrations
instituted/commenced by Alimenta S. A. against NAFED or in any
manner prejudice the said arbitrations or any awards made therein
or the enforcement thereof and shall not prejudice Alimenta's
contention in any of the cases’. (62) While Alimenta SA filed civil suits
in India, qua the first contract, it also started arbitration proceedings
under FOSFA. On arbitration proceedings having been initiated, an
application was filed in the High Court of Bombay by NAFED
seeking an injunction against the arbitration proceedings. However,
both the single Judge and the Division Bench of the High Court of
Bombay refused to grant the injunction and NAFED approached the
Supreme Court. But even the Supreme Court did not grant NAFED
the injunction that was prayed for and observed as follows: (63)
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Despite the contract being governed by English law and the place of
arbitration being England, by relying upon the judgment of the
Supreme Court in Bhatia International, Gerald Metals SA invoked
the jurisdiction of Indian courts to grant interim relief. On 8 January
2004, Gerald Metals SA filed a petition before the Principal District
Judge at Visakhapatnam, Andhra Pradesh, under s 9 of the 1996
Act and pleaded that NALCO be directed to load the 33,000mt of
alumina on the ship, which was incurring a demurrage of
USD$25,000 per day. After issuing notice to NALCO, within 15 days,
on 23 January 2004, the district judge directed NALCO to load the
goods and also directed Gerald Metals SA to pay NALCO the
contracted price and create a bank guarantee in favour of NALCO
for the differential amount between the contracted price and the
international market value of the goods. The court directed the bank
guarantee to be furnished in the court, making its release subject to
the outcome of arbitration. Aggrieved, on 27 January 2004, NALCO
filed an appeal in the High Court of Andhra Pradesh, challenging the
said order. Realising the urgency of the matter, the High Court took
up the matter immediately and after hearing the parties, by an order
dated 3 February 2004, affirmed the order of the Principal District
Judge directing NALCO to load the goods. However, the High Court
slightly modified the order of the district judge by fixing the price
differential for which Gerald Metals SA was required to create a
bank guarantee. Continuing to be aggrieved, NALCO challenged the
order of the High Court in the Supreme Court under its discretionary
page "116" jurisdiction under Art 136 of the Constitution of India.
(64)
In the Supreme Court, in the normal course of events, a matter
takes at least two weeks to be placed for hearing from the date it is
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page "117"
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award under Part I. The limited grounds of challenge have been laid
down under s 34 (66) and can broadly be classified under two heads:
(1) where the party challenging the award furnished proof that:
(a) it was incapacitated in some way;
(b) the arbitration agreement is not valid;
(c) proper notice of arbitration was not given or there was no
proper opportunity to present its case;
(d) the award deals with a dispute not contemplated by or
falling within the terms of the submission to the arbitrator;
(e) the composition of the tribunal is not in accordance with the
arbitral agreement;
(2) the court finds that:
(a) the subject matter of the dispute is not capable of
settlement by arbitration under the law for the time being in
force; page "118"
(b) the arbitral award is in conflict with the public policy of
India, including if it was induced or affected by fraud or
corruption.
Apart from challenges on the ground that the arbitral award deals
with a dispute not contemplated by or falling within the terms of the
submission to the arbitrators and that the award is in conflict with
public policy or induced by fraud or corruption, the remaining
grounds of challenge do not require the merits of the award to be
scrutinised. These are challenges based on equal opportunity and/or
jurisdiction. The ground for challenging the merits of the award does
not include a challenge on facts or law like in an appeal from an
original decree. The grounds to challenge the merits of an award
under Part I are limited and if there is no procedural or jurisdictional
lapse by the arbitrator, an award is usually challenged on the ground
that it violates public policy. Challenges to New York Convention
awards under s 48 and a Geneva Convention award under s 57 are
similar to s 34, albeit factoring their page "119" international
context. However, notably, unlike an award under ss 34 and 48, a
party can challenge a Geneva Convention award under s 57 on
merits by taking the plea that the award is contrary to the law of
India.
Losing parties usually challenge the award and the most common
ground of challenge adopted is that the award conflicts with public
policy. In the regime under the 1996 Act, the definition of the words
‘public policy of India’ came up for adjudication before the Supreme
Court in Oil and Natural Gas Commission v Saw Pipes (67) and the
court proceeded to expand the meaning of ‘public policy’, from the
earlier meaning which had been accorded in an earlier judgment in
Renusagar Power Co Ltd v General Electric Co Ltd (68) delivered
under the 1940 Act. The court opined that:
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E. Conclusion
page "121"
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*
Advocate, Supreme Court of India. Founding President of
‘Students for the Promotion of International Law’ (SPIL) and former
Law Assistant to the Honourable Mr Justice AM Ahmadi (former
Chief Justice of India).
1
Ie the United Nations Commission on International Trade Law
Model Law on International Commercial Arbitration, General
Assembly Resolution 40/72, adopted on 11 December 1985 (‘Model
Law’).
2
The 1996 Act, s 2(2).
3
Id, s 5.
4
Id, s 11.
5
Id, s 8.
6
Id, ss 16 and 34.
7
Id, s 9.
8
Id, s 17.
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9
Id, s 19.
10
Id, s 31.
11
Id, s 36.
12
Id, s 34.
13
Ie the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (New York, 10 June 1958) (‘New York Convention’).
14
Ie the Convention on the Execution of Foreign Arbitral Awards
(Geneva, 26 September 1927) (‘Geneva Convention’).
15
The 1996 Act, ss 45 and 54.
16
Id, ss 49 and 58.
17
Id, ss 48 and 57.
18
(1999) 2 SCC 479 (‘Sundaram Finance’).
19
(2005) 8 SCC 618.
20
In his speech entitled ‘International Arbitration in India: Issues and
Pit-Falls’ delivered at Malaysia (30 March 2006–1 April 2006).
21
Section 11 of the Arbitration Act 1996 states as follows:
Appointment of arbitrators
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22
Under the Arbitration Act 1940, the arbitrator had no power to
decide questions related to jurisdiction. See Justice RS Bachawat,
Law of Arbitration and Conciliation (4th Ed, 2005), Wadhwa & Co,
Nagpur, India, p 678.
23
Basf Styrentes Pvt Ltd v Offshore Industrial Construction Pvt Ltd
AIR 2002 Bom 289: ‘In our considered opinion, therefore, the
scheme of the Act is clear, and it is that if the arbitral Tribunal holds
that it has jurisdiction, such an order cannot be said to be illegal or
without jurisdiction at that stage, inasmuch as the competent
Legislature has conferred the power on arbitral Tribunal “to rule on
its own jurisdiction”. Hence, such an order can be challenged only in
the manner laid down in sub-sections (5) and (6) of s. 16, viz., after
the arbitration proceedings are over and the award is made. If, on
the other hand, it holds that it has no jurisdiction, an order can be
challenged under sub-section (2) of section 37 of the Act.’
24
See Shin-Etsu Chemical Co Ltd v Aksh Optifibre Ltd (2005) 7
SCC 234 wherein there was a divergence of views in the three-
judge bench. The dissenting judgment by YK Sabharwal J (as he
then was) states:
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25
See Yves Derains and Eric A Schwartz, A Guide to the New ICC
Rules of Arbitration (1998), Kluwer Law International, p 79: The ICC
Rules were one of the first to amend and enlarge the powers of the
arbitrator for determining the jurisdictional question. The ICC
brought about a change in 1931 by taking the view that ‘the
arbitration process could be undermined if the parties were required
to refer to and await the final decision of a court of law whenever the
existence or validity of an ICC arbitration clause might be called into
question, irrespective of the good or bad faith of such a contention’
and decided to empower the ICC Court to determine questions of
jurisdiction. See also Derains and Schwartz, ibid at p 80: ‘The
principle that the arbitrators have jurisdiction to determine their own
jurisdiction (“competence-competence”) has been accepted in
international conventions (eg Article 5(3) of the Geneva Convention
of 1961 on International Commercial Arbitration and Article 41(1) of
the Washington Convention of 1965 on the Settlement of Investment
Disputes Between States and Nationals of Other States) as well as
modern international arbitration legislation, such as, e.g. Article 16 of
the UNCITRAL Model Law, Article 1458 of the French Code of Civil
Procedure, Article 186 of the Swiss Private International Law Act
and section 30 of the English Arbitration Act 1996. … Ultimately, the
Arbitral Tribunal's determination will usually be the subject of judicial
control once the tribunal rendered its Award, although in some
jurisdictions the power of the arbitrators to decide upon their own
competence does not necessarily preclude the matter being decided
by the courts before the arbitrators have done so. See eg, section
32 of the English Arbitration Act 1996. …’
26
Ibid.
27
Harold Crowter in a paper presented to ARBIX, November 1996.
See D Mark Cato, Arbitration Practice and Procedure: Interlocutory
and Hearing Problems (2nd Ed, 1997), LLP Ltd, London, p 139.
28
The DAC Report at [139] states that ‘This clause (section) and
the following clause (section) are based on article 16 of the Model
Law, but unlike that model we have not made this provision
mandatory so that parties, if they wish, can agree that the tribunal
shall not have this power. We have also spelt out what we mean by
‘substantive jurisdiction.’
29
Id at [138]. See also id at [142] where even the English law, which
otherwise departed from the UNCITRAL Model Law, recognised the
importance of the doctrine in their DAC Report on the Draft Bill. The
DAC Report gives the reasons for providing an alternative option in
cases ‘where a party starts an arbitration but the other party, without
taking part, raises an objection to the jurisdiction of the tribunal. In
such circumstance, it might well be cheaper and quicker for a party
wishing to arbitrate to go directly to court to seek a favourable ruling
on jurisdiction rather than seeking an award from the tribunal.’ In
fact, Saville LJ stated that: ‘Kompetenze-Kompetenze is also
expressly recognised. This reflects the common law, but the
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common law has only recently embraced this concept and rejected
previous authorities to the opposite effect; and had not worked out
all the implications e.g. whether the arbitrators were entitled to
continue when a court challenge to their jurisdiction was threatened
or mounted. What we have tried to do is to deal with these matters,
by setting up a system whereby challenges to jurisdiction can be
made along the lines of the UNCITRAL Model Law but with further
safeguards to ensure that challenges to jurisdiction (today a fertile
ground on which recalcitrant respondents can sow the seeds of
delay) do not allow this to happen.’
30
See Narayan Prasad Lohia v Nikunj Kumar Lohia (2002) 3 SCC
572, for the ‘hands-off’ approach where the Supreme Court
observed that: ‘One of the objects of the said Act is to minimise the
role of Courts in the arbitration process. It is with this object in mind
that Section 5 has been provided. Judicial authorities should not
interfere except where so provided in the Act.’ See SBP & Co v
Patel Engineering Ltd (2005) 8 SCC 618 for the ‘hands-on’ approach
where in matters of appointment of an arbitrator(s) and
determination of jurisdiction, the Supreme Court held that: ‘[t]he
ground of ensuring minimum judicial intervention by itself is not a
ground to hold that the power exercised by the Chief Justice is only
an administrative function’. This judgment has been dealt with
through the course of this section.
31
Supra, n 18.
32
(1999) 8 SCC 572.
33
Supra, n 18.
34
(2000) 4 SCC 272; decided on 4 April 2000 (‘Wellington’).
35
Ibid, where M Jagannadha Rao J stated that: ‘Section 16 does
not declare that except the Arbitral Tribunal, none else can
determine such a question. Merely because the new Act permits the
arbitrator to decide the question, it does not necessarily follow that
at the stage of Section 11 the Chief Justice or his designate cannot
decide a question as to the existence of the arbitration clause.’
36
He was later appointed Chief Justice of India.
37
(2000) 7 SCC 497; decided on 19 October 2000 (‘Nimit’).
38
In terms of s 7 of the Act, which states that an arbitration
agreement shall be in writing.
39
Supra, n 37 at 500.
40
Supra, n 34.
41
(2000) 7 SCC 201; decided on 21 August 2000.
42
Id at 206.
43
See Grid Corp of Orissa Ltd v AES Corp & Ors (2002) 7 SCC 736
(‘Grid Corp’), at 748.
44
The Supreme Court had in Ador Samia (P) Ltd v Peekay Holdings
Ltd (1999) 8 SCC 772 taken the view that the Chief Justice of a High
Court exercises an administrative function under s 11(6) and an
order passed thereunder is not passed by the court exercising any
judicial function.
45
(2002) 2 SCC 388 (‘Konkan II’).
46
Id at 405.
47
(2003) 6 SCC 503.
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48
Hythro Power Corp Ltd v Delhi Transco Ltd (2003) 8 SCC 35.
49
Supra, n 43.
50
(2003) 5 SCC 531.
51
The court opined that if the judicial proceedings initiated
encompassed ‘a matter’ which was only partially referable to
arbitration, the court would not be required to render the partial
matter to arbitration. The court held that ‘[i]f bifurcation of the subject
-matter of a suit was contemplated, the legislature would have used
appropriate language to permit such a course. Since there is no
such indication in the language, it follows that bifurcation of the
subject-matter of an action brought before a judicial authority is not
allowed’: id at 536, para 16.
52
(2005) 8 SCC 618 (‘Patel Engineering’).
53
M/s Ram Gopal Hariram v M/s Reliance Industries Ltd FAO (OS)
261 of 2003, pending before the High Court of Delhi. In this case
M/s Ram Gopal Hariram, a wholesale textile trader in Delhi sought
to invoke arbitration proceedings against the conglomerate Reliance
Industries under the jurisdiction of a local Mercantile Arbitral
Association on the ground that the rules of the local Mercantile
Arbitral Association permitted arbitration between members and non
-members. Reliance moved the High Court of Delhi and under the
court's inherent powers got an injunction against further arbitration
proceedings. M/s Ram Gopal Hariram has filed an appeal against
the order, which is pending.
54
Supra, n 24.
55
Ibid.
56
Since this article is concerned with interim injunctions granted by
the court under s 9, the section is reproduced below for ready
reference:
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57
Supra, n 18.
58
(2002) 4 SCC 105 (‘Bhatia International’).
59
Id at para 15.
60
Ie the Maharashtra State Electricty Board and the Maharashtra
Electricity Regulatory Commission.
61
1989 Supp (1) SCC 308.
62
Id at 310.
63
Id at 314.
64
See National Aluminium Co Ltd v Gerald Metals SA (2004) 9
SCC 307.
65
Subject to the matter being without any filing defect.
66
Section 34 states as follows:
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67
(2003) 5 SCC 705 (‘Saw Pipes’).
68
1994 Supp (1) SCC 644.
69
Supra, n 20.
70
(2005) 12 SCC 77.
71
688 F 2d 883 at 898.
72
See also Tumey v Ohio 273 US 510 (1927); Gary B Born,
International Commercial Arbitration in the United States:
Commentary and Materials (1994), Kluwer Law International, p 184.
73
See The Economist, 29 June 2006.
74
Ibid.
75
The backlog in the Supreme Court in July 2006 was 37,045
cases, which included 16,313 cases listed for regular hearing and
20,732 cases listed as admission matters, ie matters where the
Supreme Court had to determine whether Special Leave under Art
136 of the Constitution ought to be granted. In the month of July
2006, 5,533 cases were registered with the Supreme Court. For
further details, log on to
<http://www.supremecourtofindia.nic.in/new_s/pendingstat.htm>
(accessed 16 February 2007).
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