To­wards a Bet­ter Ar­bi­tra­tion Regime

RE­CENT CASES IN­DI­CATE THAT IN­DIAN COURTS ARE TAK­ING AN IN­CREAS­INGLY PRO-AR­BI­TRA­TION STANCE BY RE­FUS­ING TO IN­TER­FERE IN AR­BI­TRAL AWARDS ON MER­ITS.

Business Today - - THE BUZZ - BY MANOJ K. SINGH

The year 2018 has been quite event­ful as far as the ar­bi­tra­tion scene is con­cerned with sev­eral land­mark ju­di­cial pro­nounce­ments com­ing on var­i­ous is­sues gov­erned by the Ar­bi­tra­tion and Con­cil­i­a­tion Act 1996 (to be re­ferred as the Ar­bi­tra­tion Act here­after). The ar­bi­tra­tion laws in In­dia have been made more and more flex­i­ble with time to at­tract in­ter­na­tional par­ties to choose In­dia as their pre­ferred seat for in­ter­na­tional ar­bi­tra­tion. Let us take a look at some of the re­cent and sig­nif­i­cant judge­ments, which had a pos­i­tive im­pact on the ar­bi­tra­tion regime in the coun­try. Most of these cases show that more and more In­dian courts have re­fused to in­ter­vene with the en­force­ment of the ar­bi­tral awards, in­clud­ing those in in­ter­na­tional ar­bi­tra­tions. Such a stand is slowly but surely push­ing the ar­bi­tra­tion regime to­wards a pro-ar­bi­tra­tion en­vi­ron­ment by im­bib­ing the prin­ci­ple of non-in­ter­ven­tion of the courts in the ar­bi­tra­tion pro­ce­dure.

In the re­cent case of Kandla Ex­port Cor­po­ra­tion ver­sus OCI Cor­po­ra­tion, the court had to deal with the is­sue of whether the right to ap­peal un­der Sec­tion 13(1) of the Com­mer­cial Court Act ap­plied to Sec­tion 50 of the Ar­bi­tra­tion Act or not. The Supreme Court ruled that Sec­tion 13(1) of the Com­mer­cial Courts Act was a gen­eral pro­vi­sion vis-à-vis ar­bi­tra­tion re­lat­ing to ap­peals aris­ing out of com­mer­cial dis­putes, and thereby, it would not ap­ply to cases un­less they are ex­pressly cov­ered un­der Sec­tion 50 of the Ar­bi­tra­tion Act. The apex court re­lied on its ear­lier de­ci­sion in Fuerst Day Law­son v Jin­dal Ex­ports (2011) 8 SCC 333 wherein it had laid down cer­tain broad prin­ci­ples clar­i­fy­ing that in case a spe­cial statute is a self-con­tained code, the ap­pli­ca­bil­ity of the gen­eral law pro­ce­dure would be im­pliedly ex­cluded.

With the com­ing of the Amend­ment Act, the most de­bated topic was whether the new amend­ments were to ap­ply ret­ro­spec­tively or prospec­tively. The con­tro­versy was fi­nally put to rest by the Supreme Court with its judge­ment on the Board of Con­trol for Cricket in In­dia ver­sus Kochi Cricket, pro­nounced on March 15, 2018. In this case, the court held that the law, as amended by the Amend­ment Act, would ap­ply to those ar­bi­tral pro­ceed­ings which com­menced on or af­ter Oc­to­ber 23, 2015, and would ap­ply to those court pro­ceed­ings (re­lated to ar­bi­tra­tion), which com­menced on or af­ter Oc­to­ber 23, 2015. The Supreme Court also said that the amended Sec­tion 36 of the Act would ap­ply even in cases where an ap­pli­ca­tion for set­ting aside the award was filed be­fore and was pend­ing on Oc­to­ber 23, 2015, the date of com­mence­ment of the Amend­ment Act. It ob­served that ex­e­cu­tion was a pro­ce­dural (not sub­stan­tive) mat­ter and, there­fore, the 2015 amend­ment could ap­ply to ex­tant chal­lenges.

In the case of NHAI ver­sus Bsc-Rbm-Pati Joint Ven­ture, the court, in a very pro-ar­bi­tra­tion stance, noted that the tri­bunal was the fi­nal ar­biter on fac­tual and le­gal is­sues and that er­rors “which stop short of per­ver­sity” must not be in­ter­fered with by the courts. As long as the tri­bunal’s view was “plau­si­ble, and not merely pos­si­ble”, the court would not in­ter­vene. The court fi­nally ob­served that there had been many cases where awards were chal­lenged just be­cause the award debtor had the fi­nan­cial power to do so. It was con­cerned that a ma­jor­ity of these chal­lenges were made by pub­lic cor­po­ra­tions and con­trib­uted to a “docket ex­plo­sion” at the court and wasted valu­able ju­di­cial time. The court also ob­served that ar­bi­tra­tion had been ef­fec­tively re­duced to a civil trial, with par­ties chal­leng­ing awards as a mat­ter of course.

A very im­por­tant case that es­tab­lished the pro-ar­bi­tra­tion cre­den­tials of the In­dian courts was the case of Delhi Metro Rail Cor­po­ra­tion ver­sus

Delhi Air­port Metro Ex­press wherein the dis­pute arose between DMRC, a state-owned cor­po­ra­tion, and DAMEPL, which had en­tered into a pub­lic-pri­vate part­ner­ship for the con­struc­tion and op­er­a­tion of the metro rail­way. DAMEPL, how­ever, ter­mi­nated the agree­ment when DMRC al­legedly failed to cure de­fects in the civil works within the no­tice pe­riod. DMRC dis­puted the va­lid­ity of the ter­mi­na­tion, and the ad­justed eq­uity and ter­mi­na­tion pay­ment costs de­manded. The tri­bunal passed an award, up­hold­ing DAMEPL’s ter­mi­na­tion and award­ing it dam­ages. DMRC made an ap­pli­ca­tion to set aside the award un­der Sec­tion 34 of the Act in March 2018. The court ob­served that it “does not sit as a court of ap­peal and is not ex­pected to re-ap­pre­ci­ate the en­tire ev­i­dence and re­assess the case of the par­ties”. The court also noted that its duty was to see whether the view of the tri­bunal was a plau­si­ble view on the facts, plead­ings and ev­i­dence placed be­fore it. If it found that there were two pos­si­ble views and the tri­bunal had taken one of them, the court could not sub­sti­tute its judge­ment for the judge­ment of the tri­bunal.

In the case of Dai­ichi Sankyo Com­pany (pe­ti­tioner) ver­sus Malvin­der Mohan Singh, the Delhi High Court, once again in a pro-ar­bi­tra­tion move, re­fused to in­ter­vene in the en­force­ment of the for­eign ar­bi­tral award and up­held its en­force­ment by ob­serv­ing that Sec­tion 48 of the Ar­bi­tra­tion Act does not al­low the court to re­assess the cor­rect­ness of an award on mer­its or re-ap­pre­ci­a­tion of the ev­i­dence. The high court held that it could not go into the find­ing of fact recorded by the ar­bi­tral tri­bunal. It also con­tin­ued its pro-ar­bi­tra­tion stance in the case of NTPC ver­sus Jin­dal ITF and Ors wherein it held for the first time that the in­terim re­lief pe­ti­tion be listed as an en­force­ment pe­ti­tion it­self and ac­cord­ingly, the court di­rected the other party to pay ` 197.81 crore, the amount passed by the tri­bunal as in­terim re­lief. The ap­proach of the Ju­di­ciary in in­ter­pret­ing Sec­tion 17 of the Act has been ap­pre­cia­tive and sup­port­ive of par­ties and ADR mech­a­nisms.

These cases in­di­cate that In­dian courts have now taken an in­creas­ingly pro-ar­bi­tra­tion stance by re­fus­ing to in­ter­fere in ar­bi­tral awards on mer­its. It is es­pe­cially re­quired since In­dia has not al­ways kept up with in­ter­na­tional best prac­tices. How­ever, the last cou­ple of years have wit­nessed a huge pos­i­tive change in the ar­bi­tra­tion regime. With the pro-ar­bi­tra­tion ap­proach of the courts and the Amend­ment Act in place, there is cause to look for­ward to the best prac­tices be­ing adopted here very soon. Ex­cit­ing times are ahead of the In­dian ar­bi­tra­tion ju­rispru­dence as our courts are ready to take on mat­ters deal­ing with the in­ter­pre­ta­tion of the Amend­ment Act.

THE TRI­BUNAL IS THE FI­NAL AR­BITER ON FAC­TUAL AND LE­GAL IS­SUES AND THAT ER­RORS “WHICH STOP SHORT OF PER­VER­SITY” MUST NOT BE IN­TER­FERED WITH BY THE COURTS

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