Arbitration Law

[By Mreganka Kukreja] The author is a final year student of Symbiosis Law Schoole, Pune and can be reached at mreganka.kukreja@symlaw.ac.in. Introduction The seemingly unending saga of the seat versus venue debate seems to have taken an interesting turn in light of the Supreme Court’s recent decision in the case of Brahmani River Pellets Limited v. Kamachi Industries Limited. [i] In this judgment, the Division Bench revisited the applicability of the simple yet intriguing principles surrounding the seat and venue in the context of domestic arbitration, and thus sparked controversy. Through this blog post, the author discusses the background of the case; the key arguments of the parties; the decision of the court and the implications of the judgment on the Indian arbitration regime. Background Brahmani River Pellets Limited (hereinafter “Appellant”) entered into an agreement with Kamachi Industries Limited (hereinafter “Respondent”) for sale of iron ore pellets, which were required to be loaded from Bhubaneshwar, Odisha and were destined for the port in Chennai, Tamil Nadu. A dispute arose between the parties regarding the price and payment terms and the Appellant refused to deliver the goods to the Respondent. Accordingly, the Respondent invoked the arbitration clause under the agreement which provided that the arbitration shall take place under the Arbitration and Conciliation Act, 1996 (hereinafter “Arbitration Act”) and the venue of such arbitration shall be Bhubaneswar. The Appellant did not agree for the appointment of the arbitrator. Hence, the Respondent filed a petition under Section 11(6) of the Arbitration Act before the Madras High Court for appointment of an arbitrator. The Madras High Court vide its order appointed a sole arbitrator by holding that in absence of any express arbitration clause excluding the jurisdiction of other courts, both the Madras High Court and the Orissa High Court would have jurisdiction over the arbitration proceedings. Challenging the impugned order, the Appellant preferred an appeal before Division Bench of the Supreme Court. Issue for determination Whether the Madras High Court could exercise jurisdiction under Section 11(6) of the Arbitration Act even though the agreement contains the clause that the venue of arbitration shall be Bhubaneswar? Key Arguments of the Parties The Appellant contested the impugned order in a two-pronged manner- First, since the parties had agreed with Odisha as the venue for arbitration, it acquired the status of a juridical seat. Second, as observed in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited and others [ii] (hereinafter “Indus Mobile Case”), once the parties agree on the seat of arbitration in domestic arbitration, the said court acquires the exclusive jurisdiction. The Appellant, therefore, submitted that Odisha High Court, being the juridical seat, holds exclusive jurisdiction in the matter and the decision of Madras High Court must be set aside. In response to the assertions of the Appellant, the Respondent argued that- first, since the cause of action arose at both the places i.e. Bhubaneswar and Chennai, both the Madras High Court and the Odisha High Court would have supervisory jurisdiction over the matter. Second, reliance was placed on the decision of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. [iii] (hereinafter “BALCO”) to argue that mere mention of the venue as a place of arbitration would not confer exclusive jurisdiction upon that court. There should be other concomitant circumstances, like the use of words “alone”, “exclusive”, “only” etc. to indicate the exclusive jurisdiction of the court over the matter. The Respondent, therefore, submitted that Madras High Court could also exercise jurisdiction over the matter. Decision [A.] Party autonomy to choose the exclusive jurisdiction of the court The Division Bench observed that Section 2(1)(e) of the Arbitration Act defines the court which would have jurisdiction to decide the questions forming the subject-matter of arbitration, and if such subject-matter is situated within the arbitral jurisdiction of two or more courts, the parties could agree to confine the jurisdiction in one of the competent courts. In this regard, Section 2(1)(e) must be read with Section 20 of the Arbitration Act which gave recognition to the autonomy of the parties as to the place of arbitration. It was noted that such party autonomy has to be construed in the context of parties choosing a court which has jurisdiction out of two or more competent courts having jurisdiction. The Division Bench then discussed the Supreme Court’s decision in Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd. [iv] (“Swastik Gases”) In this case, the arbitration clause provided that the agreement shall be subject to the jurisdiction of the courts at Kolkata. However, the appellant filed an application before the Rajasthan High Court. In holding that Calcutta High Court shall have exclusive jurisdiction, it was observed that words like “alone”, “only”, “exclusive” do not make any material difference as to the intention of the parties to choose exclusive jurisdiction. The same was also not hit by Section 23 of the Indian Contract Act,1882 as it was not forbidden by law nor was it against public policy. Therefore, in the present case, since the parties agreed to Bhubaneshwar as the venue of arbitration, the parties intended to exclude the jurisdiction of all other courts. [B.] Juridical seat designates the exclusive jurisdiction of the court  The court in the instant case discussed the Indus Mobiles case in which it was laid down that under Section 20(1) and 20(2) of the Arbitration Act, where the word “place” is used, it refers to “juridical seat” and the moment the seat is designated, it is akin to an exclusive jurisdiction clause. Therefore, on the designation of Bhubaneshwar as the venue of arbitration, a status of the seat was acquired and thus, the Odisha High Court was vested with the exclusive jurisdiction for regulating the arbitral proceedings. Given above, the Supreme Court held that when the parties had agreed to have the venue of arbitration at Bhubaneswar, the Madras High Court erred in assuming the jurisdiction under Section 11(6) of the Arbitration Act. Therefore, the impugned order was set aside. Concluding Comments [A.] Questionable interpretation of the precedents  

[By Arnav Maru] The author is a fourth year student of MNLU Mumbai. Recently in 2019, both houses of the Parliament passed a Bill to amend the Arbitration and Conciliation Act, 1996 (“the Act”). While the Bill is a successor to its 2018 counterpart, it comes with minimal additions and improvements. This blog post focuses on the amendment sought for section 34 of the Act. Section 34 deals with the setting aside of an arbitral award by a court. Sub-section (1) of Section 34 states that an award may only be set aside on an application being made for the same in accordance with sub-sections (2) and (3). Sub-section 2, under its two clauses, creates two categories for proceeding with such an application. Under the first, the court will set aside an award if “the party making the application furnishes proof that ..” Under the second, the inquiry is left up to the court by the use of the phrase “the court finds that …” The amendment changes the phrase under clause (a) from “furnishes proof that” to “establishes on the basis of the record of the arbitral tribunal that”. This change materially alters the scope of the inquiry undertook pursuant to the applications under Section 34. As has been noted by scholars, the arbitral process battles the paradox of seeking help from the same public authorities whose inefficiencies it seeks to escape. Since, section 34 is the sole recourse for seeking judicial intervention in the post-award stage, it needs to strike a fine balance between relying on the judicial system and escaping its various vices. Does the amendment go a step forward in doing so? The change in phrasing of section 34 means that the court will now have to decide the challenge to the enforcement of the award, solely based on the record of the arbitral tribunal. This would drastically reduce the time taken to dispose a suit, since the judge need only go over the material already available, and not wait for a lengthy evidence production phase of a civil suit. It would also ensure that delaying tactics, which are often employed by advocates in India, do not impede the arbitral process by guaranteeing a summary proceeding. However, the rigid wording of the amended section may also prevent a legitimate claim in succeeding. The grounds listed under sub section 2 of clause 34 might require extrinsic evidence to be produced to prove certain facts that could not have formed a part of the record of the tribunal. Incapacity of a party, inability of a party to suitably present its case, or the impartiality of an arbitrator may not always be apparent on the face of the record of the tribunal. An absolute embargo on the production of evidence would prove detrimental to genuine claims, based on wholly external facts. The amendment slightly deviates from a uniform line of judicial reasoning. Starting with the 2004 cases of the Delhi High Court in Sandeep Kumar v. Dr. Ashok Hans [i] and Sial Bioenergie v. SBEC Systems, [ii] the judicial position was that there was no rigid requirement of allowing parties to lead oral evidence in section 34 cases. In 2009, Fiza Developers & Inter-trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr.[iii] laid down that the proceedings under section 34 are non-adversarial, summary proceedings, and need not follow the procedure of a civil suit, as under the Code of Civil Procedure. The court noted that the parties can file evidence by way of affidavit, and that cross-examination of such evidence may be permitted if the court deems it desirable. In deciding that issues need not be framed by a court, the judgement laid down that the procedure may be varied depending on the facts of a particular case. The same position was restated and resounded in the landmark 2018 case of M/s Emkay Global Financial Services Ltd. v. Girdhar Sondhi [iv]. The Supreme Court concluded, while interpreting the phrase “furnishes proof”, that the proceedings will ordinarily be conducted based on the record of the tribunal, save the cases that demand the appreciation of certain other evidence. While, the amendment is pursuant to the recommendations of the Shrikriashna Committee Report, and in tandem with the general scheme of the Act, inviting minimal judicial intervention to the arbitral process, it has disturbed a rather stable area of the Act and introduced a change not completely warranted in the present situation. The amendment would give the overburdened courts an easy way out of re-appreciating significant and relevant evidence. The prevailing judicial position struck the perfect balance between doing justice to a legitimate applicant and ensuring speedy disposal of cases. This insignificant looking amendment may lead to a significant change in the jurisprudence underlying section 34 and reduce the essential flexibility of procedure required in these cases. Endnotes [i] 2004 SCC OnLine Del 106. [ii] 2004 SCC OnLine Del 863. [iii] (2009) 17 SCC 796. [iv] Civil Appeal No. 8367 of 2018.

[By Anshritha Rai] The author is a fifth year student at ILS Law College Pune. In a recent landmark decision of Supreme Court in the case of Gammon Engineers and Contractors Pvt. Ltd. v. NHAI [i], it was held that where the arbitrators’ fee is already fixed by agreement, section 31(8) of the Arbitration and Conciliation Act, 1996 (hereinafter “the Act”) is inapplicable. Section 31(8) of the Act provides power to the arbitral tribunal to fix costs of arbitration in accordance with Section 31A of the same Act.   Facts of the case In the instant case, an arbitration clause was invoked by Gammon Engineers and Contractors Pvt. Ltd. (“Appellant”) pursuant to a contract entered into between the Appellant and NHAI (“Respondent”). Vide the contract, the parties had agreed on the fee payable to the arbitral tribunal (“Tribunal”). The fee structure was fixed as per the Respondent’s policy circulars. The Tribunal, however, passed an order stating that the fees shall be governed by the Fourth Schedule (“Fourth Schedule”) of the Arbitration and Conciliation Act, 1996. The Respondent, against this order, filed an application before the Tribunal to review its decision. In National Highways Authority of India v. Gayatri Jhansi Roadways Limited [ii], the Delhi High Court had held that the arbitral tribunal is competent to fix the fees notwithstanding the agreement between the parties. Relying on this judgment, the Tribunal dismissed the Respondent’s application. Aggrieved by this, the Respondent sought to terminate the mandate of the Tribunal. Accordingly, an application under section 14 of the Act was filed before the Delhi High Court (“Court”). The Court allowed the appeal, finding that the Fourth Schedule was not required to be mandatorily followed. Further, the dictum laid down in Gayatri Jhansi Roadways Limited was declared to be per incuriam. Thereafter, the Appellant challenged this decision before the Supreme Court by way of a Special Leave Petition. Issues framed by the Court (i) Whether the fee structure stipulated in the Fourth Schedule supersedes the fee fixed by agreement? (ii) Whether the termination ordered by the Delhi High Court is sustainable? Judgment Issue (i) The Supreme Court noted that the fee structure was mutually agreed between the parties. It was further observed that considering the time gap between the date of the agreement and the date of the disputes, the fee schedule was naturally bound to be updated. Section 31(8) of the Arbitration Act [iii] originally stated that “unless otherwise agreed by the parties”, the arbitral tribunal is competent to fix the costs of an arbitration. The Arbitration and Conciliation (Amendment) Act, 2015 omitted the expression “unless otherwise agreed by the parties” appearing in Section 31(8). The deletion of this expression was understood in Gayatri Jhansi Roadways Limited case to mean that the rates specified in the Fourth Schedule takes primacy over any agreement between the parties. However, the Court disagreed with the decision in Gayatri Jhansi Roadways Limited. The reason for this was that the judgment in that case had not taken the 246th Law Commission Report and relevant earlier decisions into due consideration. The apex court too found that the ratio laid down in Gayatri Jhansi Roadways Limited is not a correct view of the law. Accordingly, the Supreme Court overruled the judgment in the case of Gayatri Jhansi Roadways Limited. The Court had also observed that section 31(8) of the Arbitration Act governs costs, of which the arbitrators’ fee is only a component. In other words, section 31(8) deals with costs in general, and not the fee payable to the arbitrators. It was noted that section 31(8) will not apply if the fee is already fixed by agreement. The Supreme Court concurred with these findings. The rates stipulated in the Respondent’s circular dated 01.06.2017 was ultimately held to govern the fee schedule. Consequently, the apex court clarified that the arbitrators are entitled to charge their fees in accordance with the Respondent’s circular, and not the Fourth Schedule. Issue (ii) The division bench of the Supreme Court found that the Delhi High Court had erroneously terminated the mandate of the tribunal. The apex court affirmed that the tribunal was required to comply with the Gayatri Jhansi Roadways Limited decision which mandated that not the agreement, but the Fourth Schedule would apply. In light of this, the Supreme Court noted that the arbitrators cannot be said to have done anything wrong. The court reasoned that an arbitrator does not become de jure unable to perform his/her functions on account of having followed the law laid down by a court. On this account, the Supreme Court quashed the termination order. Analysis In the past, there have been instances of placing reliance on the fee structure mentioned in the Fourth Schedule notwithstanding that the parties have agreed otherwise. Vide its judgment, the Supreme Court has provided much-needed clarity on whether the rates specified in the Fourth Schedule overrides the fee structure mutually agreed between the parties. The agreement entered into between the parties has been given utmost importance under the judgment. This decision underpins the principle of party autonomy and sanctity of the contract entered into between the parties. In Gayatri Jhansi Roadways Limited, the Delhi High Court essentially permitted an arbitral tribunal to determine its fees irrespective of an agreement between the parties. By overruling this decision, the Supreme Court has given immense weightage to freedom of the parties. The apex court has set a precedent that the Fourth Schedule of the Act is not mandatory, but merely suggestive in nature. Arbitrators cannot demand that the Fourth Schedule shall be applicable unless the parties have mutually agreed to invoke the provision. Needless to say, the pro-arbitration approach adopted by the Supreme Court will be hailed by prospective litigants. It is now necessary for courts to set out guidelines applicable to parties when determining the fee structure. However, a matter of concern is when the agreed fee schedule is unacceptable to the arbitrator. In such a situation, the mandate is likely to be rejected by the arbitrators,

[By Saumitra Shrivastava] The author is a fifth year student of NLU Raipur. Introduction The issue of arbitrability of intellectual property rights (hereinafter “IPR”) disputes has always been a subject of great speculation and interest. This is partially because of the massive role of IPR in the world of commerce which eventually leads to a significant number of disputes. For a healthy functioning economy, it is imperative to resolve these disputes as soon as possible. This has necessitated the Indian courts, over the time, to acknowledge the arbitrability of a class of these disputes and reject the blanket ban on arbitration of same. This post analyses the position of Indian law and proposes certain amendments to Indian laws in order to clear the air on the issue of arbitrability of IPR disputes. Indian legal position on arbitrability of IPR disputes The first time the Indian courts dealt with this question was in Booz Allen & Hamilton Inc. v SBI Home Finance Ltd.(2011) where the Supreme Court gave a framework popularly known as “Booz Allen Framework” to determine the arbitrability of any dispute. It states, when the dispute is based on assertion of rights in personam, it is arbitrable. Otherwise, it is not. It further held: ‘Every civil or commercial dispute, either contractual or non-contractual, and which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless it is excluded either expressly or by necessary implication.’ Though the arbitrability of IPR disputes was not in issue, the Supreme Court included ‘disputes of patent, trademarks and copyright’ in category of ‘generally non-arbitrable disputes’. Since the question was not an issue of the case, it is argued that the above conclusion was an obiter dicta and not ratio decidendi. In Mundipharma AG Vs. Wockhardt Ltd., the Delhi HC categorically held that where copyright in any work is infringed, the remedies by way of injunction damages, account and otherwise as are or may be conferred by law for the infringement of such a right, cannot be subject-matter of arbitration. In IPRS v. Entertainment Network , the Bombay High Court set aside that part of award in which the arbitrator decided upon validity of copyright subsisting in one of the parties. Later, in Vikas Sales Corp, the Supreme Court held that these rights can be included in definition of movable property and are rights in rem. This reasoning would essentially make the Booz Allen Framework conclude that all IPR disputes are inarbitrable. However, in the landmark Eros v. Telemax (which has been followed in many subsequent cases), the Bombay HC allowed the arbitration of IPR disputes given they are contractual. It is to be noted that although Booz Allen Framework provided for adjudication of both ‘contractual as well as non-contractual disputes, of commercial/civil nature or those which are not barred by express or implied provision,’ yet in this case, the HC added a qualifier ‘contractual’ for adjudication of IPR disputes, thus contradicting the Supreme Court’s stance. These judgments show that the judiciary has been quite unable to provide a clear position of law on the issue. Coming to the statutory position of law in India, section 2(3) of the Arbitration and Conciliation Act, 1996 provides that: ‘This part (which deals with domestic arbitration) shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.’ Since Indian laws (including IPR laws) do not provide for any exhaustive list as to which disputes are arbitrable and which are not, it depends significantly upon the courts to decide upon arbitrability of the matter, giving courts discretionary power to adjudicate upon the same. Different Courts are either giving contradictory decisions or they are giving the same decisions with different reasoning, thus rendering the law not just unclear but also ambiguous. How do foreign jurisdictions approach the afore-said issue? The issue of arbitrability of these disputes has been dealt by different countries in different ways. Some countries almost put a blanket ban on it while some allow full arbitrability subject to a very small set of conditions. But most of the countries remain somewhere in the middle. For instance, Spain allows arbitration of disputes involving registration of trademarks with exceptions. Akin to India, several national legal systems like Germany and France traditionally reject the arbitrability of disputes concerning the validity of registered IP rights but have been moving towards arbitrability of contractual IPR disputes in the last few decades. Hong Kong (Amendment) Ordinance 2017 The government of Hong Kong brought the Hong Kong (Amendment) Ordinance in 2017, which adds a whole part (Part 11A) namely ‘Arbitration Relating to Intellectual Property Rights’. Part 11A provides that an IPR disputes are capable of settlement by arbitration as between the parties to the IPR dispute [i]. It further provides that the subject matter of a dispute is not incapable of settlement by arbitration under the law of Hong Kong, nor the award out of arbitration is against the public policy of Hong Kong only because the subject matter/award relates to an IPR disputes [ii]. Similar developments have been seen in countries like Switzerland, United States and Israel. Unnecessary litigation due to unsettled law on the issue According to a noted international scholar, Francis Russell, the question of arbitrability can arise at three stages of arbitration. In India, these are akin to the following sections of Arbitration and Conciliation Act, 1996 (“the Act“): (i) Application to stay arbitration (Section 8); (ii) Application to question the authority of the tribunal to entertain the subject matter of arbitration (Section 16); and (iii) Application to set aside the award (Section 34). In absence of a clear law and multiple opinions of the Supreme Court and various High Courts of India, Section 8 of the Act rarely bars all arbitral proceedings on the ground of non-arbitrability of the subject matter (which are later proved not arbitrable after lengthy litigation proceedings). The arbitral tribunal under Section 16 of the

[By Rahul Kanoujia and Venkata Supreeth Kesapragada] The authors are third year students of Gujarat National Law University, Gandhinagar. Introduction In the present case [i], the appellants, Ssangyong Construction Co. a construction company registered under the laws of the Republic of Korea, entered into a contract with the respondent National Highways Authority of India (“NHAI”) a government undertaking overseeing the construction of highways across the territory of India. Under the contract, the parties had agreed to payments for base materials such as cement, bitumen, petrol, chemicals and tar based on a formula decided mutually, involving the Wholesale Price Index (“WPI”) as published by the Ministry of Industries. At the time of entering into the contract, the parties had agreed to the old WPI series of 1994, however, the contract permitted for change in the formula, subject to the contractor’s approval. The NHAI had issued a subsequent circular in 2013 making a unilateral change in the WPI series from the 1994 version to 2007 version and raised invoices of pending dues under the new series starting from 2007. Aggrieved, the appellants referred the matter to arbitration for a three-member tribunal where the majority decided the matter in favor of the respondents, while the dissenting arbitrator awarded in the favor of the appellants, basing his reasoning on the ground that the new WPI series was de hors to the contract. Upon reaching arbitration, the appellant moved to the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter “Act”) to set aside the award on the ground of “patent illegality”. The learned judge did not find a reason to interfere with the award as the view of the majority was drawn on a plausible interpretation lying within the contract. The court opined that unless patent illegality has been established the court shall not interfere with the substantive decision of the tribunal. Hence the application was dismissed, leading to an appeal before the Supreme Court. Examination of the grounds of judicial interference as laid down under section 34 of the Arbitration Act, 1996 The Supreme Court took upon to examine the applicability of section 34 of the Act and to decide if in the present case, such a unilateral novation is permissible. In the case of Associate Builders v. Delhi Development Authority [ii], relying upon the case of Renusagar Power Co. Ltd. v. General Electric Co. [iii], interpreted the term “public policy “as comprising three elements: Fundamental Policy of Indian Law Interests of India Justice or Morality Though reliance was placed on Renusagar judgment, the interpretation was made in the context of the term “public policy” as provided in Section 48 of the Act for the enforcement of foreign judgments. A fourth element, “patent illegality” had been constructed by the court for the application of Section 34 of the Act in the case of ONGC v. Saw Pipes Ltd. [iv]. The Court further elaborated its position in the case of Associate Builders v. Delhi Development Authority wherein it was held that a quasi-judicial authority must adhere to the most basic tenets of justice such as principles of natural justice and fairness. Infraction of these principles attracts the court’s attention to the defects apparent on the face of the decision of the arbitral tribunal. However the court has, by policy, not adopted an expansive construction of the permissible grounds of judicial intervention as laid out under Section 34 of the Arbitration Act. In the instant case, the court invoked its plenary powers under Article 142 of the Constitution to set aside the arbitral award and elevate a minority judgment of a sole dissenting arbitrator to the status of the award so as to bind the parties, in order to avoid a fresh set of arbitration proceedings, which would defeat the provisions for speedy resolution as envisioned under the Arbitration and Conciliation (Amendment) Act, of 2015 (“2015 Amendment Act”). In the instant case, the court opined that the decision to implement the new WPI series had been taken unilaterally by the NHAI. The respondents placed reliance on documents and material, which were not accessible to the appellant company. In doing so the court felt that the principle of Audi Alteram Partem was violated. Further the court did not place the said infraction as a violation of the basic notion of justice. The award delivered was within the competence of the arbitral tribunal. The Court gave an extreme caution in the handling of applications under Section 34 of the Act wherein if the appellant alleges a violation of the basic notion of justice, the violation should be such that the conscience of the court must be shaken at the infraction of any of the basic tenets of justice or fairness, in line with the Supreme Court’s holdings in the Associate Builders’ case. The court also relied on the 246th Law Commission report [v] which highlighted the necessity for independent, faster dispute resolution mechanism free from excessive judicial intervention to ensure the protection of money claims. Hence, in providing for applications under Section 34 of the Act, the courts must bear in mind the delay factor that is likely to cause irreparable losses to the parties. The 2015 Amendment has effectively overruled the widened scope of intervention as provided by the Saw Pipes & Western Geco [vi] judgment, where ‘Interests of India’ is no longer recognized as a possible sub-category of a public policy violation. Further an erroneous application of law by the arbitral tribunal is not recognized as a valid ground for setting aside the arbitral award, so long as such an application is within the tribunal’s competence. Analysis In the light of the court’s judgment in BCCI v. Kochi Cricket Pvt. Ltd. and Ors.[vii], the application of the provisions of the 2015 Amendment Act was held to be prospective. However in the instant case, the Supreme Court has provided that the application of the provisions of the amendment shall be made only in those cases where the arbitration proceedings have