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  • Evaluating the Access to Justice Rationale of Third Party Funding in India

    Gautam Mohanty & Arnav Doshi[1] INTRODUCTION In a relief from a catatonic arbitration regime in the context of litigation funding, the recent Delhi High Court decision in Tomorrow Sales v SBS Holdings probed the possibility of recovering adverse costs from arbitral proceedings from third party funders. At the outset, the Delhi High Court in the aforesaid decision has solidified the position for third party funding (“TPF”). A brief version of the facts in the present matter pivoted around a Bespoke Funding Agreement between SBS Transpole (“Transpole”) and Tomorrow Sales Agency (“TSA”) which provided that TSA would, inter alia, provide financial assistance of INR 250 crores to Transpole’s claim against SBS Holdings Inc. (“SBS”) and Global Enterprise Logistics Pte. Ltd., Singapore. Transpole referred its claim by virtue of an alleged breach of contract against SBS to arbitration before the Singapore International Arbitration Centre (“SIAC” or “Tribunal”). However, the SIAC Tribunal rendered an award in favour of SBS, dismissing the claim and awarded costs of the proceedings in favour of SBS. Accordingly, SBS filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (“Act”) before the Delhi Court, praying, inter alia, for interim measures aiming to secure the arbitral award rendered by the SIAC tribunal. Notably, SBS prayed for the disclosure of the assets and related bank accounts of TSA and other respondents and further furnish security to secure the proceeds granted to it under the arbitral award. Pertinently, TSA was not a party to the arbitral proceedings nor an impugned party in the arbitral award rendered by the tribunal but had merely funded the claimant to pursue the arbitral proceedings under a funding agreement. In the first instance, the Single Judge of the Delhi High Court imposed liability on TSA on account of substantial interest and control in relation to the arbitral proceedings. The Single Judge after referring to the decisions rendered in Arkin v. Borchard Line Ltd. & Ors. and Excalibur Ventures LLC v. Texas Keystone Inc and Ors reasoned that TSA had “an exclusive, unfettered right on the damages recovered”, and thus, labelled TSA the real beneficiary of the arbitral proceedings despite being neither a party to the arbitral agreement nor the consequent proceedings. Therefore, TSA was directed to disclose their fixed assets and bank accounts in view of the payment of adverse costs. The single judge of the Delhi High Court further held that a party that undertakes the funding of legal proceedings with a speculative intent for profit cannot evade accountability and that a delicate equilibrium must be struck between ensuring access to justice through funding arrangements and the encumbrance that a respondent might endure in instances where the litigation falters on account of its intrinsic lack of merit. The learned Singular Justice articulated that allocating the financial burden of litigation expenses onto the respondent for the sake of mounting a defense against litigation that is found devoid of merits – and perhaps would not have been instigated but for the financial backing of an external party(funder) – was incongruous. However, on appeal, the Division Bench of the Delhi High Court overturned the decision of the single judge. The Division Bench distinguished that the instant matter was regarding “whether a person who is not a party to the arbitral proceedings or the award, rendered in respect of disputes inter-se parties to the arbitration, can be forced to pay amount awarded against a party to the arbitration” in lieu of whether a non-signatory can be bound by the arbitration agreement (group of companies/ alter ego doctrine). The Bench concluded that- firstly, TPF was disclosed at the start of the dispute, and SBS’s application to the SIAC tribunal for security and for costs was rejected on grounds of want of evidence. The division bench of the Delhi High Court observed that a third-party may be bound by the arbitral award only if was a party to the arbitration proceedings. Thus, the Court by a necessary corollary inferred that a party against whom the arbitration agreement was not invoked and who was not a party to the arbitration proceedings would not be bound by the arbitral award and consequently no question of enforcing an arbitral award against it would arise. Hence, as per the Court, SBS having failed to join TSA as a party to the arbitration cannot seek to add TSA to the enforcement proceedings by seeking interim measures against it. In the words of the Court, “[T]SA is not a party to the Arbitral Award. It cannot be treated as a judgment-debtor under the Arbitral Award if it is enforced as a decree, as required under Section 36(1) of the A&C Act…None of the clauses of the BFA provide any obligation for TSA to fund an adverse award.” Secondly, there existed no rule under SIAC, High Court Rules, the Arbitration and Conciliation Act, 1996, or the Code of Civil Procedure, 1908 that provided for imposing costs on a non-party to an arbitration. Thirdly, and lastly, the Bench laid a keen emphasis on observing a balance between ensuring access to justice through such funding arrangements and the cost borne by the defendant in the event of a meritless case. The Bench expressed that “third party funding is essential to ensure access to justice. In absence of third party funding, a person having a valid claim would be unable to pursue the same for recovery of amounts that may be legitimately due.” In light of the same, this post discusses TPF as a mechanism to ensure and safeguard access to justice for parties in international arbitration (I) and discusses the need to regulate nascent TPF arrangements in India (II). I. Deciphering the access to justice rationale of TPF The pivotal role of TPF in ensuring access to justice warrants careful consideration. It is imperative to delineate between access to justice and access to arbitration. Access to justice, in its broader purview, encompasses not only access to courts but also the availability of diverse judicial mechanisms for dispute resolution. Consequently, the equivalence of access to arbitration with access to justice holds merit only when arbitration represents the singular recourse for the funded party. It is noteworthy that parties may engage TPF not solely due to impecuniosity but as a deliberate strategic choice aimed at preserving their financial equilibrium or circumventing the onerous fiscal encumbrances associated with arbitration proceedings. The empirical research carried out on the behavioural patterns of funders highlights that the claim that TPF promotes access to justice is a little wide off the mark. One research that analyzed the behavioural patterns of funders highlighted that funders are “rational” in their decision-making process and tend to primarily fund high value claims. The abovementioned proposition is further strengthened by the practice of funders wherein some funders disclose that the minimum value of claims they are willing to fund ranges between £15 million to £2 million or from €100,000 to €300,000. Similarly, another research indicates that TPF does not always result in an increase in access to justice and tends to increase the number of frivolous claims. The most extensive research carried out on the litigation funding industry in Australia concluded that TPF in litigation increases frivolous litigation and its impact on access to justice was “ambiguous”. The summation of all empirical research carried out on TPF leads to the unmistakable conclusion that TPF is only available to a limited number of claimants who have a high number of claims and particularly those claims that have a high chance of success. Hence, as a necessary implication, low value claims and claims that are weak on merits are likely to lose out on accessing funding. II. Normative Frameworks Governing TPF in India In addition to the issue of TPF furthering the tenets of access to justice, there exists a regulatory vacuum for such financing transactions in India. It is pertinent to note that the Supreme Court in Bar Council of India v AK Balaji clarified that there appears to be “no restrictions on third parties (non-lawyer) funding the litigation and getting repaid after the outcome of the litigation”. Despite the Apex Court paving the way for TPF, the legal landscape in India is bereft of a legislative instrument, such as the ones introduced in Singapore and Hong Kong, that regulates litigation funding. In a similar vein, the rules of prominent institutional arbitration centres in India like the Delhi International Arbitration Centre Rules, 2023, Mumbai Centre for International Arbitration Rules, 2016, International Arbitration and Mediation Centre Arbitration Rules, and International Centre for Alternative Dispute Resolution Arbitration Rules, 1996, do not contain any provisions for TPF or litigation funding. Barring the residuary powers under institutional rules that allow a Tribunal to take appropriate decisions on all matters which are not specifically provided for. Moreover, both- the Act and institutional rules- are silent regarding the regulation of TPF. Notably, recognizing the significance of litigation funding in Tomorrow Sales v SBS Holdings passes the smoke-test but also poses a a potential minefield, particularly in the absence of a legislation governing third party funders. At the outset, it was the High Level Committee to review the institutionalization of Arbitration Mechanism in India that recognized the need for such legislation to make India an “arbitration-friendly jurisdiction”. A parchment safeguard for TPF exists in the form of amendments made by Maharashtra, Karnataka, Gujarat and Madhya Pradesh to the Code of Civil Procedure, 1908 that acknowledged the possibility of litigation funding and set out the situations when such financier may be made a party to the proceedings. Pursuant to this objective, it is recommended that the legislature borrows guidance from the regulatory framework in other jurisdictions. For instance, the Code of Conduct by the Association of Litigation Funders in the United Kingdom, and the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance, 2017 that implemented the Code of Practice for Third Party Funding of Arbitration demonstrate the regulatory framework enacted to provide measures and safeguards in relation to TPF. Moreover, in view of institutional arbitration, for example, the International Chamber of Commerce Rules of Arbitration 2021 via Article 11(7) provides for TPF and requires parties to disclose TPF arrangements to avoid potential conflicts of interest. In conclusion, a two-fold implication presents itself. The decision by the Delhi High Court highlights the significance and application of TPF arrangements in India, and analogously, opens the scope and extent of such arrangements to obscurity. At the first blush, the recognition of TPF, and the nexus between litigation funding and access to justice is a welcome measure. However, the continuation of a regulatory vacuum in India would result in the measure’s transition into an unruly horse, and thus, a consideration for legislative interference. [1] Gautam Mohanty is an Assistant Professor at Jindal Global Law School (JGLS), India and a Ph.D. student researching on Third-Party Funding at Kozminski University, Warsaw, Poland. He is also a Fellow at JGLS Centre for Alternative Dispute Resolution (CADR) and an advocate enrolled at the bar in India. He can be reached at Arnav Doshi is a fifth-year student currently pursuing the B.B.A LL.B (Hons.) programme at Jindal Global Law School, Sonipat. He is also a Senior Staff Editor for The Arbitration Workshop.

  • Deciphering Counter-indica and Parties’ Intent in Arbitration Clause Designation

    - Prakhar Singh [1] & Manas Rohilla [2] The conundrum of determination amongst seat, venue, and jurisdiction in arbitration disputes has been the subject of discussion for a long time. Indian courts have attempted to answer it by applying the Shashoua principle, as per which the “venue” of the arbitration is in actuality its “seat”, unless there is a contrary indication or counter-indica. While much has been deliberated upon this issue, what amounts to “contrary indication” remains debated. This piece portrays how the Courts have interpreted “counter-indica” while applying the Shashoua principle. Additionally, it also highlights the significance of the intent and conduct of the parties while establishing the seat of arbitration and the jurisdiction of the court in a given circumstance. Distinguishing Seat from Venue: Jurisdictional Complexity The seat of arbitration specifies the curial law or procedural law that governs the arbitration and decides which court(s) will have supervisory authority over it. In contrast, the “venue” of arbitration only describes the geographical location where such arbitration is to be held and is unrelated to either curial law or court jurisdiction. The term “place of arbitration” is used in Section 20 of the Arbitration and Conciliation Act, 1996 (the “Act”) and is used interchangeably for both seat and venue. This would not render the seat of arbitration unlawful, and the relevant court having territorial jurisdiction over the “seat” would have exclusive supervisory jurisdiction over the arbitration proceedings in question. The first instance to differentiate between the concepts of seat and venue of the arbitration arose in the case of Bharat Aluminium Company (BALCO) v. Kaiser Aluminium Technical Service Inc. ("BALCO"), where the Supreme Court examined the notions of seat and venue and determined that they are distinct. While emphasising party autonomy, the Apex Court provided concurrent supervisory authority to two separate courts, namely the court having jurisdiction over the place of arbitration and the court in whose jurisdiction the cause of action originated. This caused confusion and resulted in inconsistent judgements by different High Courts. Resolving the Debate: Determining contrary indica the parties’ intent The Supreme Court eventually put an end to this discrepancy in BGS SGS SOMA JV v. NHPC Ltd. (“BGS SGS SOMA”). The Court noted that once the parties have designated the seat of arbitration, only the courts governing the seat could have exclusive jurisdiction to govern such arbitration proceedings, and the jurisdiction of all other courts stood ousted. The Court in the same case also examined the concept established in Roger Shashoua v. Mukesh Sharma (Shashoua), upholding the reasoning of the England and Wales High Court on this matter, now known as the Shashoua principle. In Shahoua, the parties chose London as the place of arbitration but not as the seat. Cooke, J. propounded that when parties opt for a venue for arbitration without designating a seat of arbitration, it is safe to assume that the venue is the seat of arbitration if the parties chose a supranational body of rules to govern the arbitration and there is no other indication to the contrary. It is apposite to note that the Constitutional Bench in BALCO had also impliedly adopted the Shashoua principle. Consequently, it looked like this viewpoint was firmly established throughout India. According to the Shashoua principle, when an agreement specifically identifies the venue without any express reference to the seat, in conjunction with a supranational body of laws and no major opposing indica, the inevitable inference is that the venue is actually the seat of arbitration. In the case of BGS SGS SOMA, the Apex Court found that when a clause specifies an arbitration venue and says that the arbitration would take place there, it suggests that the place is indeed the seat. This, together with the absence of any robust contradictory indications that the "venue" is only a place of arbitration and not a seat, further proves that such a place is in fact the seat. As a result, unless otherwise specified, the "venue" of arbitration is the actual seat. The idea has not been accepted by all courts in its absolute sense. In Hardy Exploration, a three-judge bench of the Hon'ble Supreme Court decided that a place may become a seat of arbitration only if something else is added to it as a concomitant. As a result, the Apex Court explicitly said that in order for a venue in an arbitration agreement to become a seat, an additional indicator must be included. It is worth noting that the court's decision contradicts the Shashoua Principle, which was recognised by the same court in BALCO. The question of what amounts to a counter-indication has been deliberated by the Apex Court in Mankastu. The court, deviating from what was held in the BGS SOMA SGS and agreeing to the reasoning as laid in Hardy, observed that it is the intent of the parties that determines whether the venue of arbitration is in actuality its seat. It was further held that the intention of the parties as to the seat should be determined from other clauses in the agreement and the conduct of the parties. Therefore, if the other clauses of the agreement or the conduct of the parties showcase that it is not the intention of the parties to consider the venue in the agreement to be the seat of the party, the same would be considered a counter indicator. In one of the instances before the Apex Court, the respondent contended that Kolkata, being the venue of the arbitration, should also be the seat of the arbitration. The Apex Court held that the parties did not intend for Kolkata to serve as the arbitration's location. The Hon’ble Court observed that the respondent himself sought temporary relief under Section 9 of the A&C Act at the District Court in Muzaffarpur, not a court in Kolkata. Thus, the conduct of the respondent itself showcases that there was no intention to make the venue of the arbitration, i.e., Kolkata, the "seat" of the arbitration. In another case where the arbitration agreement conferred exclusive jurisdiction on the courts in Gurugram, Haryana, and also incorporated New Delhi as the venue of the arbitration, the Court held that the parties' decision to provide the Courts in Gurugram, Haryana, exclusive jurisdiction is a sign that they did not intend for New Delhi to serve as the place of arbitration. Therefore, it was concluded that the conferment of exclusive jurisdiction may act as a counter indica in order to distinguish between the venue and the seat of the arbitration. Similarly, in another instance, where the arbitration agreement conferred exclusive jurisdiction upon the civil courts of Guwahati and considered New Delhi to be the venue of the arbitration, it was observed that the inclusion of the exclusive jurisdiction clause made it clear that the intent of the parties was clear that the seat would be in Guwahati and the civil court(s) at Guwahati would have jurisdiction. Precision in Arbitration Agreements: Navigating the Complexities of Jurisdictional Determination The wording of an arbitration agreement is imperative to conclusively determine the seat of the arbitration proceedings, which would further establish the jurisdiction. There exist various possibilities, subject to the wording of the arbitration agreement, that contemplate the determination of specific jurisdiction, and the same have been reflected below. In the case where both jurisdiction and seat are given in the agreement, the rule as established in the BGS SGS would apply. Therefore, the jurisdiction of the Court with respect to the agreement concerning the seat of the arbitration would prevail over other courts. In cases where both jurisdiction and venue are given in the agreement, the jurisdiction would be contingent on the fact that whether the agreement related to the venue is in actuality an agreement related to the "seat" of the arbitration, the same can be evaluated as per an external indicator that may imply the intent and conduct of the parties. Lastly, in cases where both seat and venue are included in the agreement, the principle stated in the BALCO case that the "seat" of arbitration is the centre of gravity of the arbitration would apply and therefore, the jurisdiction of the Court with respect to the agreement concerning the seat of the arbitration would prevail. Conclusion In the context of arbitration, a counter-indica is any indication towards parties’ intention for not keeping "venue" of the arbitration to be its "seat." While this indication doesn't automatically negate the venue's designation as the seat, it does trigger questions and may ultimately affect whether or not this is upheld. It should be noted that how much weight a counter-indica carries in determining whether a venue operates double-duty as a seat remains unsettled in case law. Essentially, this means courts may have different outcomes despite similar circumstances. Nonetheless, recognizing what constitutes a counter-indica is important for any party utilizing an arbitration agreement. By understanding the factors that are being considered by the courts, parties can make informed decisions about how to draft their arbitration agreements and conduct the same in a harmonious manner. [1] 3rd Year Student at Gujarat National Law University, BSW LL.B Hons. [2] 3rd Year Student at Gujarat National Law University B.A LL.B Hons.

  • Confidentiality in Arbitration: A Fresh Perspective for India in Light of Global Developments

    Dalima Pushkarna[1] Introduction The Singapore International Commercial Court (hereinafter “SICC”) in CZT v CZU, dated 28 June 2023, clarified that an Arbitral Tribunal’s discussions/deliberations were confidential in nature, and the principle of confidentiality allows for the disclosure of these documents solely under highly exceptional circumstances. The exception to this rule of confidentiality is that only in extremely exceptional circumstances can these documents be produced. This landmark decision highlights Singapore’s pro-arbitration approach by marking the inaugural instance in which a Singaporean Court has addressed ordering the disclosure of deliberation records. The judgement strongly upholds the principle of confidentiality concerning tribunal deliberations and establishes that any departure from this confidentiality should only occur if the “interests of justice” substantially outweigh the policy considerations supporting confidentiality. Such an exception would necessitate (a) the presence of very serious allegations that attack the integrity of arbitration at its core and (b) a reasonable prospect of these allegations achieving success. This decision of SICC also aligns with the view adopted by the National Courts of other jurisdictions like the USA, UK, and Australia, where an exception to confidentiality is allowed depending on the circumstances of the case and the nature of the allegations made. With the help of this article, the author tries to analyse the confidentiality regime present in India and how India can follow the approach taken by the arbitration hubs of the world and derive certain exceptions to the confidentiality clauses in India. International Legal Framework on the Issue While it can be said that statutes on arbitration are silent on the issue of limitations to the rule of confidentiality, the courts across various jurisdictions have highlighted and developed exceptions to the confidentiality rule through case law jurisprudence. These exceptions are of limited nature, depend on a case-to-case basis and are made when there are serious or grave allegations and not upholding the principle of confidentiality is in the interest of justice. In the case of Vantage Deepwater Co. v Petrobras Am., Inc., the client, represented by Tai-Heng Cheng, was awarded US$622 million along with 15.2% compound interest. However, a dissenting arbitrator raised allegations of unfairness during the proceedings. Subsequently, the party that lost the arbitration attempted to challenge the majority award and requested access to discovery from the dissenting arbitrator and the American Arbitration Association (the entity that conducted the arbitration). The Fifth Circuit, after reviewing the case, upheld the Lower Court’s decision to dismiss the motions for discovery. The Court emphasised that before granting such discovery, it is crucial to assess the asserted need for previously undisclosed information and its potential impact on the arbitral process. Hence, USA Court focused that depending upon the need and the interest of justice, an exception to the confidentiality regime can be made. Similarly, in the English case of P v Q & Ors., a party made an application to remove two arbitrators on the grounds of misconduct. In support of this application, the party sought access to communications exchanged between the arbitrators and the tribunal secretary. Similar to the approach taken by the SICC, the English Commercial Court determined that disclosure would only be ordered if the allegation of misconduct had a reasonable likelihood of success. Moreover, the court considered whether the requested documents were strictly necessary for the fair adjudication of the application and whether it was appropriate, considering all circumstances, to exercise its discretion and grant the disclosure order. Further, in the case of Ali Shipping Corp v Shipyard Trogir, the UK Court laid down exceptions to confidentiality and cases where disclosure can be made: 1. Where the party who originally produced the material expressly or impliedly consents; 2. Disclosure pursuant to an order of the court or with leave of court; 3. Disclosure to the extent reasonably necessary for the protection of a party’s legitimate interests, in particular in establishing or defending a claim against or from a third party; and 4. Disclosure where the interests of justice require it. Furthermore, Part III of the International Arbitration Act (IAA) also outlines the limitations and exceptions to the confidentiality regime in Australia. Section 23C of the IAA provides that parties to arbitral proceedings commenced in reliance on an arbitration agreement must not disclose confidential information unless: the disclosure falls within one of the circumstances outlined in Sec. 23D of the IAA, including that all parties to the proceedings consent to the disclosure; the disclosure is to a professional or other adviser to any of the parties; or if the disclosure is necessary for the purpose of enforcing an arbitral award, and the disclosure is no more than reasonable for that purpose (Sec. 23D); the arbitral tribunal makes an order allowing the disclosure in certain circumstances (Sec. 23E), and no court has made an order prohibiting a party from disclosing confidential information (Sec. 23F); or a court makes an order allowing disclosure in certain circumstances (sect. 23G). Hence, National Courts all over the world have provided some exceptions to the general rule of confidentiality. When the case involves serious allegations, “is in the interest of justice”, and when the case has real prospects of succeeding, then limitations on confidentiality may be imposed. Indian Legal Framework In 2017, a distinguished High-Level Committee chaired by Justice B. N. Srikrishna was established with the purpose of conducting a comprehensive review of the institutionalisation of arbitration mechanisms in India. The Committee’s significant mandate involved proposing various reforms and amendments to enhance the Arbitration and Conciliation Act, 1996. One crucial recommendation by the Committee pertained to the incorporation of the principle of ‘confidentiality’ in arbitration proceedings. Subsequently, in alignment with these recommendations, the Arbitration and Conciliation (Amendment) Act of 2019 was enacted. This amendment introduced Section 42A, which effectively extended the application of the principle of ‘confidentiality’ to encompass arbitration proceedings. Section 42A of the Act herein follows: “Notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution, and the parties to the arbitration agreement shall maintain the confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.” It is important to note that this provision does not incorporate all the suggestions made by the B.N Srikrishna Committee. The Committee had suggested three exceptions to the issue of confidentiality, namely: Disclosure required by a legal duty; Disclosure to protect or enforce a legal right; To enforce or challenge an award before a court or judicial authority. The legislature, while making the amendments and incorporating the recommendations of the Committee, only included one exception to Section 42A that pertains to the disclosure of arbitral awards to facilitate their implementation. Therefore, it can be inferred without trouble that India’s stance on the exceptions and limitations to confidentiality does not align well with the practice of National Courts of other jurisdictions, according to which if the allegations are serious and there is a reasonable prospect of achieving success, then in those cases the exceptions to the confidentiality of the arbitration proceedings are applicable. Apart from deviating from the approach of other jurisdictions, the Indian provision also fails to consider certain instances where the disclosure of arbitration proceedings may be in the interest of the general public, especially in cases where the state is a party to the arbitration. Hence, in these cases, an exception must be made from the generally followed practice, and imposing restrictions on this via Section 42A might amount to violating the Right to Information of the general public. The High Court of Australia, in the case of Esso Australia Resource Ltd. v Plowman, dealt with an issue of violation of the Right to Information in an arbitration dispute where a state-owned entity was one of the parties. The Court recognized that the resolution of such a dispute has broader implications that affect the interests of the general public. Consequently, the Hon’ble High Court concluded that the public’s right to be informed about the affairs of public authorities was paramount in this context, and therefore, the public had a legitimate interest in knowing the intricacies and details of the arbitration proceedings. Conclusion Taking inspiration from its foreign counterparts, India should involve a comprehensive review and amendment of the current legal provisions to align with international practices and strike a balance between confidentiality and transparency. By incorporating exceptions to confidentiality like those recognized in other jurisdictions, India can ensure that in cases of serious allegations or when the public interest is involved, disclosure of arbitration proceedings can be permitted. This will enhance the transparency and accountability of the arbitral process, which is crucial for maintaining public trust in the legal system. However, providing exceptions to confidentiality in arbitration also comes with potential drawbacks. Care must be taken to define these exceptions precisely to prevent misuse or unwarranted disclosure of sensitive information. The interests of justice should be the guiding principle, and disclosure orders should be granted sparingly and only when necessary to protect legal rights or public interests. Additionally, ensuring that any disclosure is limited to the specific information needed and does not compromise the overall confidentiality of the arbitral process is essential. [1] B.A. LL.B. (Hons.) | Candidate of 2026 Dr. RML National Law University, Lucknow.

  • Bridging the Gap: Enforcing Mediation Settlements as Consent Awards

    - Vaibhav Pratap Singh and Vihaan M.N.[1] Introduction Mediation is a popular and effective method of alternative dispute resolution that can help parties find a mutually satisfactory settlement without resorting to litigation. However, one of the challenges of mediation is how to ensure the enforceability of the settlement agreement in case of non-compliance by one of the parties. One possible solution is to convert the mediation settlement agreement into an arbitral award on agreed terms, enforceable under the Arbitration and Conciliation Act, 1996 [hereinafter “the Act”]. However, this option raises several legal and practical issues that need to be addressed. In this article, we examine whether mediated settlements should be considered as awards on agreed terms under Sections 30 and 74 of the Act. We will analyze the arguments for and against this proposition and compare the Indian position with the international and comparative perspective. We will also discuss the implications of this option for the parties, the mediators, and the courts. The Case for Including a Mediation Settlement as an Award on Agreed Terms The Act provides for the enforcement of settlement agreements arising from conciliation proceedings in Section 74. It states that such agreements have the same status and effect as arbitral awards on agreed terms under Section 30. The Act also equates mediation with conciliation [2], as it follows Article 1 of the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation, which uses the terms ‘Mediation’ and ‘Conciliation’ interchangeably. This is consistent with the American judicial system [3] and the Supreme Court of India’s ruling in Afcons Infrastructure Ltd. v. Cherian Varkey Construction. Therefore, Part III of the Act may apply both to mediation and conciliation, and the settlement agreements reached through mediation may be brought under the ambit of Sections 73 and 74. These sections require that the settlement agreements are drawn up, written, and signed by the parties and that they are final and binding. Some jurisdictions allow parties to convert their settlement agreements into arbitral awards for the purpose of court enforcement. For example, in Italy, under Section 217 of the Mediation Legislation, parties can jointly request the approval of their agreement by a court, which gives it the same effect as a legally binding judgment. In the US, parties can use Article 1 of the New York Convention to enforce their settlement agreements as arbitral awards. The language used by the parties to express their agreement should be given due respect unless it leads to absurdity as observed in cases like M.O.H. Uduman and Abhijith Paul. ADR is a process that empowers the parties to resolve their disputes outside the court, by choice. The court should not interfere with the legislative intent of promoting ADR on technical grounds and should uphold the enforceability of the agreements that the parties have freely consented to. Both arbitration and mediation in real life are very similar. In private arbitration, the parties themselves appoint an arbitrator, and every procedural step is guided by party autonomy. Arbitral proceedings can even happen in a park, outside the rigors of regular procedural codes and laws. Both arbitration and mediation also share the feature of confidentiality, which protects the parties’ privacy and reputation. By recognizing mediated settlements as consent awards, the court would enable the parties to enjoy the benefits of enforceability and finality as arbitration, which would enhance access to justice, encourage the use of ADR methods, and reduce the burden on the judiciary. The Case Against Including a Mediation Settlement as an Award on Agreed Terms While making such a stretched argument, it is pertinent to remember the challenges of such a recognition. Firstly, an issue with such recognition would be the circumvention of the procedure stipulated under the Act for Conciliation. Section 62 focuses on the commencement of conciliation proceedings. It explicitly stipulates that a written invitation to conciliate must be sent by the conciliating party to another and the conciliation proceedings shall commence when the other party accepts the invitation in writing. The Delhi HC dealing with this problem in Shri Ravi Aggarwal v. Shri Anil Jagota held that to cover a settlement agreement under Part III of the Act, settlement agreements had to be drawn with mutual consent by duly constituted conciliation proceedings. The Code of the Act covers consent awards only through the slightly more formal procedures of conciliation. Secondly, as per Section 30, the arbitral tribunal may use mediation, conciliation, or other procedures at any time during the arbitral proceedings to encourage settlement. This settlement shall be recorded in the form of an arbitral award in agreed terms that shall have the same status and effect as any other arbitral award on the issues of dispute. But here it appears that the constitution of an arbitral tribunal first is sine qua non. Third is the issue of formality. Private mediation is not governed by any statute or legal standards whereas conciliation is regulated by the Act. Settlement agreements cannot be interpreted as arbitral awards if the parties have chosen private mediation, whether through a mediation clause or otherwise. They are enforced only as agreements between parties. The US Court of Appeals in Castro v. Tri Marine Fish Co. LLC declined to regard a mediated settlement as an arbitral award due to the absence of formality essential for a procedure to become arbitration. The main issue here would be the probability of misuse of such recognition by parties in whose favor the balance of power tilts. Finally, anything contained in the Act applies to parties only if there is a valid arbitration clause or agreement. Mediation clauses cannot be construed to be Arbitration clauses. In the Act, conciliation as a process is present in the same act as that for arbitration as a secondary option, which can be utilized by parties going for arbitration itself, as enunciated in Section 30. Therefore, any attempt to circumvent this and bring in mediation within the same ambit might be against the intent of the legislature. The Need for Enforcement Rather Than Mere Contractual Obligation. Keeping the technical aspects aside, there is a need to enforce mediated settlements in the current era of fast-moving business. Mediation and Conciliation are both similar in nature insofar as the nature of dispute resolution is concerned. Essentially, the outcome or result of mediation is recorded in an agreement that is enforceable as a contract in the absence of a law regulating mediation. It can be vitiated by any of the elements vitiating a normal contract such as undue influence or fraud. In a consent award, however, there is an adjudication of issues rather than mere settlement of disputes, done by the parties themselves with the help of a conciliator. When agreements reached out of mediation are already legally enforceable contracts, what is the need to clothe them with enforceability? Let us take an instance where 2 parties are engaged in a dispute over the division of property and they engage in mediation to solve the same. During the course of mediation, the parties agree to give up/ take each other’s property as per their wishes and sign a settlement agreement. In the future, one party fails to give up his property as agreed. Now if the settlement is clothed with enforceability, the aggrieved party can directly go to court and get the award executed just like a normal award passed by an arbitral tribunal. In the absence of the same, the aggrieved party should have to sue the other party for breach of contract or specific performance which is a more tedious and less fruitful path to take. Therefore, recognizing a mediated settlement agreement as an arbitral award on agreed terms can provide much-needed enforceability to day-to-day settlements. Conclusion There are both a possibility and various technical challenges for converting mediated settlements into consent awards. On one hand, this option can enhance the enforceability and finality of mediated settlements, encourage the use of alternative dispute resolution methods, and reduce the burden on the judicial system. On the other hand, this option can also raise several legal and practical issues, such as the validity and scope of consent, the role and status of mediators, the compatibility and consistency with the arbitration law and practice, and the impact on the confidentiality and flexibility of mediation. We have also found that there is no clear and uniform position on this issue in India or internationally. There is a need for the legislature to deal with this issue in the current draft Bill on Mediation. While there is no one-size-fits-all solution to this issue, in India, there is a need to provide recognition to mediated settlements under the Arbitration and Conciliation Act, until the Mediation Act is passed. However, there should be some safeguards, such as a standard process or institution for mediation, a need for a written agreement between the parties consenting to convert the settlement into an award and so on to ensure fairness and protect the parties’ interests. We hope that this article has provided some useful insights and perspectives on this complex and evolving issue. We believe that this issue is important and relevant for developing and promoting mediation as an effective alternative dispute resolution method in India. [1] The authors are currently pursuing B.A LLB (Hons). at National Law University, Jodhpur, and are in their Second Year. [2] Sriram Panchu, Mediation Practice and Law, The path to successful dispute resolution, Appendix 3, 483, LexisNexis Butterworths Wadhwa, (2011) [3] Aditi Bhargava, Conciliation: An Effective Mode of Alternative Dispute Resolution System

  • Need for an Arbitration Clause in Settlements executed in supersession of the Original Contract

    - Gaurav Rai [1] and Rakshita Singh [2] Introduction Dispute resolution clauses in Commercial Contracts provide for the dispute to be resolved by arbitration or in a multi-tier dispute resolution format. However, instead of resolving the disputes through arbitration, the parties may choose to amicably settle the dispute by way of a negotiated settlement between themselves. In some cases, the settlement arrived at may only resolve the ongoing dispute between the parties, while the parties continue to be governed by the contract's original terms, including the arbitration clause for any future dispute. However, certain settlements might change the obligations and nature of the contract to such an extent that the parties may agree to execute an agreement or Memorandum of Understanding (“MoU”) in supersession of the Contract already existing between the parties (“Original Contract”). In this article, the authors discuss the issues that can arise in the aforementioned situation. The article shall also consider the steps that can be taken by the parties to protect themselves from the pitfalls of novating or superseding the Original Contract. The discussion in this article will be founded upon the judgment of the Hon’ble High Court of Delhi (“DHC”) in the case of B.L. Kashyap and Sons Limited v. MIST Avenue Private Limited ([2023] SCC OnLine Del 3518), which dealt with a similar fact situation as stated above. Facts prior to the arising of disputes. The Original Contract signed between the parties pertained to a civil structural project in the model of Bill of Quantities (“BOQ”) approximately worth Rs. 229 crores. The Original Contract contained a dispute resolution clause allowing the parties to settle any disputes by way of arbitration. While certain disputes arose between the parties, they were mutually resolved through an MoU by which the Original Contract was changed to a cost-plus contract from the originally agreed BOQ contract. Consequently, certain agreed payments were made to settle the dispute. It is pertinent to note that the MoU did not contain an arbitration clause. Dispute between the Parties and the Findings of the Arbitral Tribunal A dispute arose between the parties and the same was referred to an arbitral tribunal (“Arbitral Tribunal”) for resolution. In the arbitration proceedings, B.L Kashyap and Sons (“Claimant”) sought to raise the claims under the Original Contract between the parties due to the breach of the terms of the MoU entered into between the parties. MIST Avenue Private Limited (“Respondent”), however, raised a preliminary objection regarding the existence of the arbitration clause. Respondent argued that the MoU had superseded the Original Contract and that the Original Contract along with the arbitration clause no longer exist. Accordingly, the disputes between the parties, if any, cannot be raised before an arbitral tribunal as per the provisions of the Original Contract. The issue before the Arbitral Tribunal was whether the arbitration clause in the Original Contract could be revived even after the execution of the MoU. The Arbitral Tribunal, while interpreting the terms of the Original Contract, came to the conclusion that the Original Contract was indeed superseded by the MoU. The Arbitral Tribunal held that the MoU had in fact novated the Original Contract, and thereby the tribunal does not have jurisdiction to try the present case as per the arbitration clause contained in the Original Contract. While giving the aforesaid finding, the Arbitral Tribunal relied on the judgments of Young Achievers v. IMS learning Resources Pvt. Ltd.[2013] 10 SCC 535. & Ansal Housing and Construction Ltd. v. Samyak Projects Pvt. Ltd.[2018] SCC OnLine Del 1286. It was stated by the Arbitral Tribunal that the language of the MoU made it clear that the Original Contract was forthwith superseded on the execution of the MoU. Further, the supersession was not contingent on successfully fulfilling the terms of the MoU, as sought to be relied on by the Claimant. The Case before the DHC under Section 34 of The Arbitration and Conciliation Act, 1996 Aggrieved by the Award of the Arbitral Tribunal, the Claimant challenged the same under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act, 1996”) before the DHC. B.L Kashyap and Sons (“Petitioner / Claimant”) submitted that the Award passed by the Arbitral Tribunal was arbitrary and perverse and therefore manifestly illegal. It contended that execution of the MoU on a cost-plus basis was a conditional settlement, and the Respondent had breached the same. Therefore, the Petitioner was entitled to settle all dues as per the Original Contract. The Petitioner / Claimant contended before the DHC that the MoU would stand satisfied only if conditions under the MoU were complied with in its entirety. Since the same was not done, the arbitration proceedings were therefore correctly invoked under the Original Contract and the presence of a subsequent MoU could not bar such proceedings. The Petitioner / Claimant further submitted that the Original Contract allowed the Petitioner to file any legal measures for this purpose, and accordingly, the claims of the Petitioner before the Arbitral Tribunal were under the Original Contract and not under the MoU. Basis the aforesaid, the Arbitral Tribunal should not have rejected the Petitioner’s claims for want of jurisdiction. The Claimant relied on the judgments in Union of India v. Kishorilal Gupta & Bros AIR 1959 SC 1362 & Lata Construction v. Rameshchandra Ramniklal Shah (2000) 1 SCC 586 for its arguments. The Respondent, on the other hand, argued that the view taken by the Arbitral Tribunal was a correct and plausible one. The Respondent submitted that upon a proper reading of the MoU, it can be inferred that parties arrived at a mutual settlement by way of the MoU. Therefore, the Original Contract stood ‘cancelled or closed’, and accordingly, the Original Contract only allowed the Claimant to raise claims contained in it and not revive the arbitration clause. Therefore, the Claimant cannot invoke the arbitration proceedings as per the clause contained in the Original Contract for a breach of the MoU. The Respondent relied on the judgments of Nathani Steel Ltd. v. Associated Constructions [1995] Supp (3) SCC 324. & Damodar Valley Corporation v. K.K. Kar [1974] 1 SCC 141. in support of its submissions. Decision of the DHC Before rendering its decision, DHC outlined the several undisputed principles of law formulated on the basis of various authorities cited by the parties. They were as follows: a. An arbitration clause in a contract which is void ab initio cannot be enforced since the contract that contains such a clause itself was never enforceable, or legally came into existence; b. A contract which is validly executed can still be extinguished by a subsequent agreement between the parties; c. If the original contract remains in existence, then to deal with issues such as repudiation, breach, etc. arising in relation to that contract, the arbitration clause would continue to operate for those purposes; and d. In case of a new agreement and wholesale novation of the previous contract, the arbitration clause in such previous agreement will stand extinguished due to the new contract coming into existence. Relying on the aforesaid principles derived from the authorities cited by the parties, the DHC concluded that the arbitration clause would not extend to the subsequent MoU and the non-exercise of jurisdiction by the arbitral tribunal was a plausible interpretation of the contract between the parties. The DHC refused to interfere in the matter. The DHC also underlined the fact that courts’ interference with the tribunal’s award can only be in cases where there seems to be a patent illegality. If the award granted by the arbitrator is not even one of the plausible interpretations and outcomes of the contract, then the award can be challenged on grounds of being arbitrary or patently illegal. In support of the aforesaid finding, the DHC relied on Sangyong Engg. & Construction Co. Ltd. v. NHAI [2019] 15 SCC 13. The arbitral award only has to pass the plausibility test, and consequently, it is upon the arbitrator to proceed on that view and grant the award. In support of the aforesaid finding the DHC relied on UHL Power Co. Ltd. v. State of H.P. [2022] 4 SCC 116. Therefore, the DHC held that the impugned Award was not patently illegal and needed no interference. The petition was accordingly dismissed. The DHC clarified that no observations were being made on the merits of the dispute, as the arbitral tribunal has only stated that it does not have jurisdiction to adjudicate the disputes, and the judgment of the DHC was also limited to this aspect of the award. Analysis and Suggestions - Incorporation of Arbitration Clauses in Subsequent Contracts The Act 1996 provides for what might be called a solution to such situations. However, the same does not come without its fallacies and loopholes. Section 7(5) of the Act,1996 provides for an arbitration clause to be incorporated or extended to subsequent contracts by referring to a contract which initially contains such clause. However, there is a fundamental difference between reference to a contract and incorporation. The former includes a specific part of the contract which the parties must have intended to include in subsequent agreements whereas in the latter case, the subsequent contract is incorporated in its entirety. In such cases, the arbitration clause will also be incorporated and applicable to the new agreement. Then again, the incorporation of the arbitration clause itself is based on the consent of the parties, and in the absence of consent, nothing can be held to be a part of the agreement by virtue of implication. However, in contracts where both parties are the same (single contracts), an arbitration clause can be extended to a new contract given that the parties consented to it on the basis of the reasonability test. Notwithstanding the aforesaid, in cases where even one party is different (double contracts), such incorporation cannot be made, except in cases where a contract is a standard contract and the practice of a party is standard and well known. In the above mentioned solutions, the idea remains the same: if the arbitration clause, is to be extended to the subsequent agreement between the parties, it shall be based on consent of the parties or on the test that a reasonable man would have expected such a term to be part of the contract impliedly. i.e. without having to be written down specifically.[3] However, to avoid the complications of referring to previous arbitration clauses, it is advisable for the parties, who are making an agreement in supersession of the previous agreement, to include a new arbitration clause in the new contract and not rely on the principle of incorporation of contracts. With the growing acceptance of alternate dispute resolution mechanisms such as arbitration, mediation, or negotiated settlement, it is only prudent that any settlement arrived at between the parties be tactfully outlined in a settlement agreement. With some foresight, parties can avoid any complications at a later stage.[4] In the experience of the authors, there have been many cases where the absence of a well-drafted arbitration clause has led to conflicts and complications during dispute settlement, as was in the case of B.L. Kashyap and Sons v. MIST Avenue Private Ltd.. Thus, it is evident that a clear and well-drafted arbitration clause would significantly help in avoiding the situations that occurred in the case as discussed above. [1] Gaurav Rai is an Advocate based in Delhi and a Senior Associate at Legafin Law Associates LLP. He is also the Editor of The Arbitration Workshop Blog. [2] Rakshita Singh is a Second-Year law student, currently pursuing her BA.LLB(Hons.) degree from Institute of Law, Nirma University. [3] See generally Kartikey Sanjeev Bhalotia, ‘“Incorporation by Reference”: A Need to Reconsider Standards?’ (Arbitration Workshop, 7 July 2020) accessed 28 June 2023. [4] See generally Anish Jaipuriar and others, ‘Agreements for Settlement and Release in India: Legal Position and Essential Elements’ AKS Partners - Monthly Newsletter October 2021 .

  • Navigating Legal Uncertainty: Enforceability of Unstamped Arbitration Agreements

    Shaswat Kashyap & Snigdha Dash[1] The noteworthy decision by a three-judge bench of the Supreme Court in N.N. Global 2021, diverted from previous judgments in SMS Tea Estates, Garware Wall Ropes, and Vidya Drolia. It was stated in the earlier judgments that arbitration agreements without the appropriate stamping could not be legally enforced. However, in the 2021 ruling, the Supreme Court adopted a pro-arbitration position and declared that even arbitration agreements that were not stamped nor had insufficient stamping could still be directed to arbitration. In the N.N. Global 2021 case, the Supreme Court paid reliance on the UNCITRAL Model Law and the doctrine of severability, which was introduced in the Heyman v. Darwins case. It dismissed the conclusions reached in the SMS Tea and Garware, and stated that the absence of stamp duty payment does not render the arbitration agreement null and void. The Garware judgment attempted to harmonize the Indian Stamp Act, 1899 with the Arbitration and Conciliation Act, 1996 by prescribing a timeline for resolving issues related to stamping, making a distinction between the “validity” and “existence” of an arbitration agreement, and emphasizing that the Stamp Act applies to the agreement or conveyance as a whole. The court in N.N. Global 2021 dismissed Garware’s perspective as flawed. The court stressed the importance of disassociating the fate of the arbitration agreement that lies underneath the contract. Additionally, it ruled that the non-payment or insufficient payment of stamp duty could be rectified as a ‘correctable error’. However, the court recognized that Vidya Drolia had upheld the decisions made in Garware, and both cases were decided by benches of equal strength. In light of this conflicting situation, the Court decided to refer the matter to a Constitutional Bench comprising five judges in the N.N. Global 2021 case. The purpose of this referral was to resolve the disagreement and reconcile the differing opinions between Vidya Drolia and N.N. Global 2021, which had created a conflict in the interpretation of the law. In the wake of the uncertainty surrounding unstamped arbitration agreements, the Constitution Bench of the Honorable Supreme Court of India delivered a significant judgment in the N.N. Global 2023 case, aiming to bring clarity to the situation. This ruling clarified the enforceability of arbitration agreements that lacked proper stamping or had insufficient stamping. With a majority decision of 3:2, the court established that an arbitration agreement must adhere to the stamping requirements outlined in the Indian Stamp Act, 1899. Failure to meet these requirements renders the agreement legally nonexistent and unenforceable. Foreign Legal Framework Article 23 of the UNCITRAL Arbitration Rules, 2021, states that the invalidity of the main agreement does not automatically render the arbitration clause invalid. This principle is commonly referred to as the "severability or separability of the arbitration clause. Judge Stephen Schwebel from the International Court of Justice explains that the concept of an “arbitration agreement” itself implies the existence of a separate or detachable agreement, which can be separated from the main agreement if necessary. The principle of separability is of great significance and has been acknowledged by the International Chamber of Commerce (ICC) in its arbitration rules. The ICC initially recognized the concept of separability in its 1955 Arbitration Rules and has further reinforced it through the amended ICC Rules of 2012. Notably, Article 6(8) of the ICC Rules explicitly promotes the principle of separability, highlighting its importance in the arbitration process. United Kingdom: The Court of Appeal’s decision in Harbour Assurance v. Kansa General International Insurance supports the notion that the validity of an arbitration agreement can be maintained even if the underlying contract is deemed invalid, as long as the arbitration clause itself is not directly challenged. An arbitration agreement must be in writing to be enforceable and valid, but there is no requirement for the agreement to be signed or stamped. Pakistan: The issue of enforceability of unstamped arbitration agreements has been settled in Pakistan, as established in the Supreme Court judgment of Union Insurance Company of Pakistan v Hafiz Muhammad Siddique. In this case, the Supreme Court through Dorab Patel emphasized the language of Section 35 of the Stamp Act, 1899, and reiterated that expanding the interpretation of the section would go against established principles. Patel further explained that the objective of the Stamp Act is to preserve public revenue, and the absence of a stamp on the document does not affect the validity of any contract it contains. However, it renders the document inadmissible as evidence. This ruling overturned the Lahore High Court’s decision and clarified that while the non-stamping of an arbitration agreement makes it defective per se, it does not render it invalid in the eyes of the law. China: China has a ruling similar to that of Pakistan concerning the validity of unstamped arbitration agreements. This ruling was established in the case of Luck Treat Ltd. v. Shenzhen Zhong Yuan Cheng Commercial Investment Co., Ltd. In this particular case, even though one party failed to sign or stamp the main contract, the court affirmed the legitimacy and enforceability of the arbitration clause. The court emphasized the principle of separability, which ensures that the arbitration agreement is valid and independent of the main contract. Reference was made to Article 10 of the Interpretation of the Supreme People’s Court Concerning Some Issues on the Application of the Arbitration Law, which explicitly states that the absence of a main contract does not impact the validity of the arbitration agreement, relying on the separability clause. Furthermore, Article 19 of the Arbitration Law of the People’s Republic of China underscores that the existence of an arbitration agreement remains unaffected and separate from any modifications, cancellations, terminations, or invalidations of the underlying contract. Other Jurisdictions: Additionally, Section 178(3) of the Swiss Federal Statute on Private International Law (Swiss PIL) affirms that the validity of an arbitration agreement cannot be disputed solely based on the potential invalidity of the underlying contract. Legal Implications & Concluding Remarks Indian courts, through several rulings, have consistently supported the notion that non-payment of stamp duty is considered a “curable defect.” This means that an unstamped document can still be valid and enforceable once the stamp duty is paid. By allowing the defect to be rectified through the payment of a penalty, it is argued that an unstamped instrument cannot be deemed non-existent in the eyes of the law. Moreover, the addition of Section 11(6A) to the 1996 Act in 2015 aimed to simplify the pre-arbitration stage by limiting the court’s role in verifying the continuance of an arbitration agreement. This provision sought to expedite the arbitration process and reduce unnecessary court interference. However, the recent judgment may lead to an increase in disputes over the validity of arbitration agreements. This could result in delays in resolving disputes as parties now have the opportunity to challenge the enforceability of such agreements, leading to additional legal proceedings. The interpretation of this provision is closely tied to crucial arbitration principles such as the doctrine of severability, minimal judicial intervention, and kompetenz-kompetenz. For instance, the interpretation of the seemingly innocuous phrase ‘existence’ in Section 11(6A) of the Arbitration & Conciliation Act, 1996 has sparked intense debates among legal scholars and experts. The debate stems from differing opinions among the Supreme Court benches. Some argue that the court’s examination should be limited to the mere factum of the existence of an arbitration agreement, leaving issues of scope, validity, and enforceability to the arbitral tribunal to decide under Section 16(1) of the Act. This interpretation aims to minimize the court's intervention and aligns with the legislative policy of the 2015 amendment. However, others argue that the term “existence” should be understood in a contextualized manner, taking into account the statutory norms that determine the nature of an arbitration agreement. It emphasized on the existence of an arbitration clause being contingent on enforceability and adherence to statutory requirements. The amendment to Section 11(6A) focuses the court’s inquiry solely on determining whether an arbitration agreement exists, without disregarding the need for appropriate stamping or the enforceability of the entire agreement. The interpretation of the term "existence" in Section 11(6A) plays a crucial role in deciding the enforceability and relevance of an arbitration clause within a broader agreement. Internationally, the principle of separability, recognized by the UNCITRAL Model Law and various arbitration institutions such as the ICC, holds significant importance. It emphasizes that the arbitration agreement is a separate and distinct entity from the parent contract and can be enforced independently, even if the main contract is invalidated. This principle has been acknowledged in different jurisdictions, including China, the United Kingdom, the United States, France, and Switzerland. The Supreme Court ruling has introduced an extra level of scrutiny during the arbitrator appointment process, deviating from the original legislative intent, in order to assess the legality and existence of the arbitration agreement. The decision has the potential to significantly prolong the arbitration process from the very beginning, causing increased delays. [1] Shaswat Kashyap, a 3rd-year B.A., LL.B. (Hons.) student at Gujarat National Law University, and Snigdha Dash, a 3rd-year B.A., LL.B. (Hons.) student at National Law University, Odisha.

  • Treading the Meandering Path Paved by Section 11(6A)

    Dhanya Jha[1] 1. Introduction The ordeal of the judiciary while adjudicating proceedings under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”) are conspicuous, courtesy of the perplexing disparity in the interpretations given by the courts over the past years. Judicial overreach while passing an Order under Section 11 of the Act has always been a matter of interminable scrutiny as it creates an impediment in the arbitration proceeding, marking a diversion from the pro-arbitration approach. Section 11 deals with the appointment of an arbitrator and Clause 2 of the same empowers the parties to agree upon a procedure for appointment of an arbitrator. In a scenario wherein the parties are unable to choose an arbitrator or any disagreement on such an aspect arises, either one of the parties may approach the appropriate Court for such an appointment. However, an interesting question that arises at this stage is whether the Court, while appointing the arbitrator, will delve into examining the validity of an arbitration agreement, or limit itself to the mere existence of an arbitration agreement. Herein, Section 11(6A) comes into play which envisages that the courts while appointing an arbitrator should confine their examination to the “existence of an arbitration agreement.” Sub-section 6A was added to Section 11 through the Arbitration and Conciliation (Amendment) Act, 2015. Prior to the insertion of Section 11(6A), a far-reaching authority was exercised by the courts while appointing an arbitrator as preliminary aspects such as jurisdiction, maintainability, stale claims, etc. were adjudicated upon by the courts. To constrict and define the court’s jurisdiction while appointing an arbitrator, the 246th Law Commission Report recommended the insertion of Section 11(6A). Now the issue at hand is whether the legislation has laid down a succinct phraseology for an examination under Section 11 (6A) or should the judicial examination encompass aspects beyond the mere existence of the arbitration agreement. This article analyses the trajectory of interpretations imparted to Section 11 by the courts to answer the above question. The article, while acknowledging the necessity of a preliminary examination which extends beyond the examination mere existence of an arbitration agreement, proposes an adequate balance between judicial inquiry and the doctrine of Kompetenz-Kompetenz to preserve the integrity of the process of arbitration and not stifle it at the very beginning. 2. Tracing the Varied Interpretations: The Judicial Dissection of Section 11 While interpreting Section 11(6A), one might construe that the provision envisages that the courts must examine the arbitration agreement solely with respect to the bare factum of its existence. The case of Duro Felguera, S.A. v. Gangavaram Port Ltd. validates such an understanding as in this case, the apex Court ruled that post the 2015 amendment, the courts only need to see “whether an arbitration agreement exists - nothing more, nothingless”. However, such an understanding is flawed which is why the Duro Felguera ratio was overruled in United India Insurance Co. Ltd. v. Hyundai Engineering, on the grounds that it was a “general observation about the effect of the amended provision and not specific to the issue”. Therefore, we observe that the mere factum of the existence of an arbitration clause, as construed from the bare reading of Section 11(6A), is not a sufficient condition for appointing an arbitrator. The same is done for the simple reason that for the appointment of an arbitrator, it is essential for the dispute to be ‘arbitrable’ i.e., to fall under the ambit of arbitrability. Before appointing an arbitrator under Section 11, it is crucial for the courts to determine if the parties have submitted their dispute to arbitration or if the arbitration clause in the contract in actuality covers the particular dispute which has arisen between the parties. Therefore, the determination of arbitrability would implicit an inquiry into the scope of the arbitration clause. Thus, examining the scope of the arbitration clause falls within the extent of examination as intended by the provision. Now that it is undisputed that an inquiry under Section 11 extends beyond the mere fact of the existence of an arbitration agreement to the scope, we look into whether it encompasses a determination of enforceability too. The discourse on the enforceability of an arbitration agreement was sparked by the judgments of SMS Tea Estates Pvt. Ltd v. M/s Chandmari Tea Co Pvt. Ltd (“SMS”) and Garware Wall Ropes Ltd. v. Coastal Marine Constructions (“Garware”) wherein courts determined the fate of the arbitration clause in an unstamped contract. In SMS and Garware, the court held that since an unstamped and unregistered contract was inadmissible and unenforceable, “an arbitration clause in (such) an agreement is not enforceable by law”. These rulings were further strengthened by a three-judge bench in the landmark judgment of Vidya Drolia v. Durga Trading Corporation (“Drolia”) and the recent N.N. Global Mercantile judgment. The N.N. Global Mercantile judgement not only dealt with the issue of enforceability of an arbitration clause in an allegedly non-enforceable contract but also the conflict surrounding the extent of inquiry by the courts at a pre-arbitral stage. Our analysis does not deal with the former rather it focuses on whether the court under Section 11 should extend its examination to look into a claim of enforceability. In view of the extensive analysis of the enforceability of an arbitration agreement under Section 11 done by the apex court, we observe that the mere existence or scope of an arbitration agreement is not enough if it is found to be unenforceable at the outset. Therefore, it is crucial to determine the enforceability of the arbitration agreement and not leave such a determination to the arbitral tribunal. 3. Exploring the Extent of Court Inquiry under Section 11 Through the above precedents, we deduce that it is important for the courts to look into the existence, scope and enforceability of the arbitration agreement and the same would not be an encroachment into the jurisdictional territory of the arbitration tribunal or a violation of the doctrine of Kompetenz-Kompetenz. As analyzed through the above precedents an examination of the existence of an arbitration agreement under Section 11(6A) would encompass the following three limbs: a. The bare factum of the existence of an arbitration agreement; b. The scope of the arbitration agreement with respect to the dispute which has arisen between the parties and; c. The validity or enforceability of the arbitration agreement. To further substantiate the above delineation, the legislative intent can be looked into. The Law Commission Report which recommended the insertion of sub-section 6A stated that an appointment “shall not be made only if the High Court finds that the arbitration agreement does not exist or is null and void.” Even though the amended section does not contain “null and void”, the intent of the legislation is clear i.e., to empower the court to conduct a preliminary inquiry. This preliminary inquiry is inclusive of the above three ambits as analyzed through the above precedents. The courts cannot function mechanically and appoint an arbitrator on the mere factum of the existence of an arbitration agreement especially when the party refusing to appoint an arbitrator raises a concern regarding the non-arbitrability of a dispute. Hence, it becomes important for the court to deal with such an issue at the primary stage itself so that the procedure under Section 11 is in accordance with the principle of Audi Alteram Partem. Moreover, the appointment of an arbitrator in a case where the arbitration agreement is disputed on its validity would not be legally sound. The courts ought to adhere to the fundamentals of the Law of Contracts i.e., Section 2(g) and 2(h) while passing an order under Section 11 of the Act. In a scenario wherein the arbitration agreement is found to be void, it would not be enforceable, and the appointment of an arbitrator would be unsound. Therefore, to avoid this the courts must conduct a prima facie examination which is not solely limited to the mere existence of an arbitration agreement. Additionally, the report envisioned the same standard for determining the extent and type of judicial intervention for Section 11 of the Act as applies in the context of Sections 8 and 45 of the Act. The scope and nature of judicial intervention should not change when a party approaches the court for the appointment of an arbitrator or moves a proceeding before a judicial authority in the face of such an arbitration agreement. Therefore, confining the inquiry of the court to mere existence would be inconsistent with Sections 8 and 45 of the Act which empowers the court to go beyond the existence of an arbitration agreement and find whether the arbitration agreement is valid or if it is ‘null and void, inoperative or incapable of being performed.’ Thus, pre-arbitrability of a dispute is a condition for passing an order under Section 11 and the existence inquiry under Section 11(6A) should not be limited to a blind confirmation of the factual existence of the agreement but also issues of enforceability i.e., validity, capacity, and the existence of any grounds for setting aside the agreement etc. While the amended section states that an examination of the ‘existence’ of an arbitration agreement is to be done, the courts nonetheless, have looked beyond the mere factum of existence to determine the arbitrability of disputes and the enforceability of arbitration clauses. 4. Building Boundaries: Preserving the Institution of Arbitration in India Section 11(6A) is important as it serves as a gatekeeping mechanism to ensure that only disputes that are covered by a valid arbitration agreement are referred to arbitration. Although a prima facie examination of arbitrability is mandatory while appointing an arbitrator, it is also important to define and limit the boundaries of judicial intervention so that the courts do not intrude on the jurisdiction of arbitral tribunals and violate the doctrine of Kompetenz-Kompetenz. The legislature can analyze the precedents to delineate the aspects which the courts are required to examine before passing an Order under Section 11. Such formalization by defining the ambit of judicial intervention of courts will not only ensure that the courts do not exceed their jurisdiction but also empower the arbitral tribunal to adjudicate on the issues over which it has the rightful jurisdiction. The author proposes that these limitations must be encoded unambiguously in the provision itself so that there is little room for diverse, conflicting interpretations that the court peruses to stampede on the authority of the arbitral tribunals. For the purpose of the same, Section 11(6A) can be amended insofar as to add an explanation to the phrase “examination of the existence of an arbitration agreement”. This explanation should lay down the criteria which are covered within the purview of the existence of an arbitration agreement. This would promote the doctrine of Kometenz-Kompetenz which would lead to the ultimate preservation of the institute of arbitration. It is crucial to create such a balance so that the courts do not transcend back to the pre-2015 amendment era wherein the courts overstepped their judicial limits. With that being said, the author disapproves the prospective revocation of Section 11(6A) by the 2019 Amendment Act and the changes brought about by it to Section 11(6). This introduces a completely different dimension to the already perplexing Section 11. The newly amended provision allows arbitrators to be appointed by an “arbitral institution designated by the Supreme Court...or by the High Court”. This is an extreme legislative step as it outrightly terminates the role of the judiciary thus, creating an imbalance of jurisdictional power. Judicial supervision is very crucial as it ensures that the arbitration process is conducted in accordance with the law. Additionally, the amended Act does not prescribe the scope of inquiry required to be done by arbitral tribunals while appointing an arbitrator. Even though the amendment has not yet been effectuated, concerns have been raised about the intricacies of such an appointment by the tribunals. This is because there are no comprehensive rules laid down in the newly amended act for the procedure of such an appointment. Therefore, there is a need to amend the current provision for more clarity and direction to the court rather than what is proposed by the 2019 Amendment Act. 5. Conclusion The author proposes that instead of eliminating the role of the judiciary altogether, the boundaries of jurisdiction of the courts should be defined and a comprehensive layout must be given to the judiciary so that a consistent and uniform approach towards the interpretation of Section 11(6A) is formed. The same, as suggested above, can be done by adding an explanation to the provision for providing the requisite clarity to the courts. The same will resultantly make the Indian judiciary follow a consistent and pro-arbitration approach. Further, in a scenario where the courts in a prima facie examination are unable to reach a conclusion, the final determination should be left to the arbitral tribunal. By allowing the final determination to be made by the arbitral tribunal in cases where the courts are unable to reach a conclusion, judicial oversight will be counter-balanced. The legislators ought to step in and resolve the interpretational conundrum and succinctly enlist the scope of judicial intervention in order to aid the courts and pave a pro-arbitration path. [1] 2nd Year, B.A. LL.B.(Hons.) Rajiv Gandhi National University of Law, Punjab.

  • The Conundrum of Anti-Arbitration Injunction and its Current Scenario

    Kushagra Tolambia[1] A court may issue an Anti-Arbitration Injunction ("AAI") to prevent parties or an arbitral panel from initiating or continuing arbitration proceedings. An AAI is typically requested prior to the start of an arbitration, during the arbitration proceeding, or following the conclusion of the substantive proceeding but before the judge issues the final award.[2] Arguments against anti-arbitration injunctions As a fundamental arbitral premise, "competence-competence" is attacked from the ground up. This concept is used by arbitral tribunals to establish their own jurisdiction. Thus, a tribunal is empowered by the principle of "competence-competence" to draw the conclusion that the arbitration agreement is not legally valid or ineffective and to declare that the tribunal does not have jurisdiction. The tribunal loses this power when an injunction prohibits arbitration. It does not follow the generally acknowledged legal guidelines for conducting international arbitration. In this system, the tribunal first determines its jurisdiction before allowing courts to intervene and review the decision of the tribunal (on specific grounds). The clauses listed below support this long-standing system: Article 23 of the UNCITRAL Arbitration Rules (2010)[3]: o In accordance with Article 23(1), the authority to determine its own jurisdiction, includes any disputes regarding the arbitration agreement's legitimacy or existence, belongs to the arbitral tribunal. o In accordance with Article 23(3), "The arbitral tribunal can decide on a plea [that the tribunal does not have jurisdiction] either in an award on the merit or as a preliminary matter. Despite any ongoing legal challenges to its jurisdiction, the arbitral tribunal, if it wants to, proceed with the arbitration proceedings and issue an award. In accordance with Article 16(3) of the UNCITRAL Model Law[4], If the tribunal finds that it has jurisdiction on a preliminary question, any party may request that the case be remanded to the courts in the arbitration site. The tribunal can proceed to issue an award given in the Article 34 of the UNCITRAL Model Law[5], but a court may thereafter order the award to be vacated if the arbitration agreement is void or the dispute cannot be resolved through arbitration proceedings. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards allows the arbitral tribunal to issue such award, but it also allows a court to decline to uphold that award for reasons akin which are stated in Article 34 of the Model Law, such as the illegality of the arbitration agreement. The level of unnecessary court interference rises as a result of the arbitral proceedings. There should be as minimal disruption as possible. It encourages the exploitation of the arbitral procedure. For instance, Gary Born stated that "antiarbitration injunctions are often used as part of deliberate obstructionist strategies that are typically pursued in local courts with a favourable disposition in order to obstruct the parties' agreed-upon arbitral process." Even if the right to enjoin arbitration procedures were inherently recognised to be a possibility, the author writes, "that authority should be exercised with the greatest caution and only in exceptional circumstances."[6] Arguments which go in favour of anti-arbitration injunctions There are exceptions to the competence-competence principle. Sometimes used in support of this claim is the following statement made by Lord Collins in the UK Supreme Court case of Dallah: "So also, the principle that a tribunal in an international commercial arbitration has the power to consider its own jurisdiction is no doubt a general principle of law. It is a principle which is connected with, but not dependent upon, the principle that the arbitration agreement is separate from the contract of which it normally forms a part. But it does not follow that the tribunal has the exclusive power to determine its own jurisdiction, nor does it follow that the court of the seat may not determine whether the tribunal has jurisdiction before the tribunal has ruled on it."[7] According to Article 8 of the Model Law, courts must send parties to arbitration "unless it determines that the contract is invalid, ineffective, or unable to be carried out" if a matter involving an arbitration agreement is the subject of legal action. The New York Convention's Article II contains a similar clause. These provisions assume that a party may file a lawsuit even for a claim which is purportedly related to arbitration, and that the court, not an arbitral tribunal, will determine whether the arbitration agreement is invalid, ineffective, or unable to be carried out. It is intrinsically unreasonable for an arbitration panel to have the authority to decide any matter if the arbitration agreement was never made. To put it another way, it is irrational for an arbitral tribunal to rule that it lacks jurisdiction if the decision's result is that the tribunal lacked jurisdiction to begin with. A party who challenges the jurisdiction of the tribunal will eventually find themselves in court. It is preferable to "front end" the review process and avoid spending time and money on the arbitral proceeding by having courts decide the jurisdictional question right away. Statutory Framework regarding AAI. AAIs are evolving into a potent tool in the hands of arbitration parties. However, neither the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, nor the UNCITRAL Model Law 1985, which serve as the foundation for the Arbitration and Conciliation Act, 1996 (the "Act"), include a specific clause that allows courts to grant AAIs. The Act does not specifically forbid it either. AAI critics contend that courts must compel arbitration referrals without previously taking into account any objections to the jurisdiction of an arbitral tribunal. They rely on the explicit clauses in Section 16 when read in conjunction with Section 5 of the Act to support this. The power of the arbitral tribunal to decide on its own jurisdiction, including any questions regarding the existence and legitimacy of the agreement, is established by Section 16 of our national laws, which enshrine the idea of Kompetenz-Kompetenz. Additionally, the non-obstructive clause in Section 5 states that no judicial authority should intervene unless specifically authorised by the Act, "notwithstanding anything contained in any other law for the time being in force." Such critics do not, however, take into account the possibility that an arbitration reference may not be definitive. Section 8 of the Act gives the power for courts to "refer the parties to arbitration" while bringing substantive cases before a civil court, "unless it finds that prima facie no valid arbitration agreement exists." In a similar vein, Section 45 of the Arbitration and Conciliation Act gives courts the authority to include arbitration in foreign-seated arbitrations unless they determine "that the said agreement is null and void, inoperative, or incapable of being performed." Additionally, Section 45 is a non-obstructive clause, therefore it is not constrained by Section 5 or the Kompetenz-Kompetenz principle as mentioned in Section 16. However, it is important to know that a court can only consider something under these principles during substantive hearings in front of a civil court. These two clauses make it apparent that the Act's statutory framework enables courts to grant AAIs, even though for a few particular grounds., such as the presumption that the arbitration agreement is invalid or that an arbitration agreement is ineffective, or unable to be performed, or if the court finds it to be fair and practical. Regarding the arbitrability of disputes, the rules established by the Hon. Supreme Court in the cases of Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius) Limited and Ors.[8], N. Radhakrishnan v. Maestro Engineers and Ors.[9], and A. Ayyaswamy v. A. Paramasivam[10] are pertinent. In accordance with them, if a case involves significant and serious charges of fraud, courts may opt not to refer it to arbitration as that calls for a careful analysis of the evidence. In these cases, courts governed by the stringent guidelines of the Indian Evidence Act and the Codes of Civil and Criminal Procedure can be a more appropriate venue than an arbitral tribunal. Complexities in the decisions of courts. The famous and widely regarded decision in the case of Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr ("Kvaerner Judgement")[11], which involved a bench of three judges, made the Indian Supreme Court's support for arbitration apparent in this regard in 2001. While affirming that no dispute may be submitted to arbitration if there is no particular arbitration provision, the Supreme Court of India held in this two-page decision that the existence and validity of an arbitration agreement, as a preliminary question, may be determined by the arbitral tribunal and that the arbitral tribunal shall have the power to determine its own jurisdiction. The anti-arbitration injunction lawsuit was rejected by the Supreme Court on this basis. But for whatever reasons, this verdict was not made public until 2012. As a result, conflicting verdicts were issued by Indian courts till the year 2012 since the problem could not be resolved. The seven-judge bench of the Supreme Court in the well-known case of SBP & Co v. Patel Engineering Limited[12] that it is not possible to argue that the arbitrator alone has the authority to determine its own jurisdiction without considering the jurisdiction of the civil courts. The Civil Procedure Code of 1908, Section 9, grants the Civil Courts the authority to issue injunctions, according to the Supreme Court's observation. The Supreme Court reiterated this stance in its ruling in the case of World Sport Group v. MSM Satellite Singapore Ltd.[13], in which it dealt with the topic of issuing an anti-arbitration injunction with respect to a part II arbitration, also known as international commercial arbitration. The Supreme Court specifically addressed Section 45 of the Act in this regard and ruled that the Civil Court cannot assess the legitimacy or legality of the substantive contract and must limit its inquiry whether the arbitration agreement is void, ineffective, or incapable to be carried out. In contrast to the reasoning used in the Kvaerner Judgement, which made the Civil Courts to refer disputes to arbitrators for decision-making in their respective jurisdictions, this convinced the Civil Court to accept these anti-arbitration suits and to at least analyse the arbitration agreement. Two Indian High Courts, the Delhi High Court in McDonald's India Private Limited v. Vikram Bakshi and Ors.[14] and the Calcutta High Court in The Board of Trustees of Port of Kolkata v. Louis Dreyfus Armatures SAS and Ors.[15], both consistently held that the Civil Courts have the jurisdiction to grant anti-arbitration injunctive relief, distinctly disregarding the observations in the Kvaerner Judgement. In McDonald's, the two-judge bench of the Delhi High Court changed the fundamental assumptions underlying the established rules of the Act by ruling that Indian courts would have the authority to decide on the legality of an arbitration agreement. This observation was nevertheless constrained by the guidelines established by the Supreme Court in Sasan Power Limited vs. North American Coal Corporation (India) Limited[16], which made it clear that the arbitration agreement is the only subject of the examination required by Section 45 of the Act; the validity of the substantive contract is not taken into consideration. The courts of India abruptly and suddenly returned to the guidelines outlined in the Kvaerner Judgement, despite the consistent observations in the many judgements given below. The High Court of Delhi in Ravi Arya v. Palmview Investments Overseas[17], the High Court of Calcutta in Lafarge India Pvt Ltd v. Emami Realty and Anr.[18] and the Supreme Court in National Aluminium Company Ltd v. Subhash Infra Engineering Pvt. Ltd.[19] and A. Ayyasamy v. A. Paramasivam and Ors.[20], denied granting anti-arbitration injunctions, stating that the arbitral tribunal may choose its own jurisdiction in determining whether the arbitration agreement is valid and enforceable. The Supreme Court of India made a significant point regarding the standards to be considered into account when determining whether the dispute could be arbitrated, stating that generally and traditionally, all disputes which involve rights in personam are thought to be amenable with arbitration, while all disputes which involve rights in rem must be decided by courts and public tribunals and are not suitable for private arbitration. However, the Court makes it clear that this is not a fixed or unbending norm and that arbitration has traditionally been considered a viable option for resolving disputes about lesser rights in personam arising from superior rights in rem. In the case of Himachal Sarang Power Pvt Ltd v. NCC Infrastructure[21] which is an international arbitration case, the Delhi High Court declined to issue an anti-arbitration injunction, retracing the path and stating that if the procedures are not vexatious and/or oppressive, such injunctions may not be obtained. This has now opened the door for yet another factor that the Civil Court could take into account in a lawsuit seeking an anti-arbitration order. The Bina Modi judgement[22] followed, winning the support of everyone who is in favour of arbitration. The decision on McDonald's was per in curium because it did not refer to or take into consideration the Kvaerner verdict, according to the Bina Modi Judgement, which went one step further in removing the authority of Civil Court to issue an anti-arbitration injunction. The Bina Modi ruling, which rejected the anti-arbitration injunction, also took into account the restriction outlined in clause 41(h) of the Specific Relief Act, 1963 and determined that an anti-arbitration injunction cannot be granted by a civil court since the Act provides an equally effective alternative remedy. Many people who were keeping an eye on the appeal—possibly more so than the parties themselves—had their hearts broken when this judgement was reversed by the Delhi High Court's Appellate Bench[23]. The Appellate Bench ruled that the Court must consider the facts and circumstances of the case when determining whether an arbitration agreement is valid. Since foreign arbitration involves significant costs and efforts, the legislature, in its wisdom, decided that the Court should determine whether an arbitration agreement is valid, as well as whether it is cooperative and capable of being carried out. Surprisingly, this decision makes no attempt to address the non obstante language in section 45 or the fact that this provision, which adopts Article II of the New York Convention on the execution of arbitral judgements, does not give civil courts the authority to issue an injunction against arbitration. In reality, unless the court finds that the arbitration agreement is prima facie invalid, inoperative, or incapable of being carried out, the clause makes it mandatory for the courts to refer an action filed in arbitration at one of the parties' request when they are seized of it. The criteria stated under this provision do not include the arbitrability of the case or the complicated nature of the arbitration process. Therefore, it may be said that the restrictions specified in section 45 are rigid and do not allow for the Civil Courts to consider any factors that are not clearly included there. However, Lalit Modi may still have hope given that a petition for special permission to appeal against the decision made by the Appellate Bench of the Delhi High Court has been filed before the Supreme Court[24]. Searching for the middle ground The fundamental rule continues to be that, if there is a valid arbitration agreement between the parties, that dispute must be settled by arbitration. Party autonomy is recognised by the courts. As a result, a court of law can only award AAIs in exceptional circumstances. It is still the responsibility of the party asking for an AAI to argue and show that it has no alternative or suitable solution and that postponing the arbitration process is fair and in everyone's best interests. In the Indian arbitral context, the vagueness, inconsistencies and ambiguity about the requirements to be satisfied when approving or rejecting anti-arbitration injunctions prevents us from reaching a judgement. The Indian Courts appear to agree on one thing, though: the Civil Court should exercise its authority to issue injunctions in anti-arbitration lawsuits extremely sparingly. The Indian Courts' decision to tip the balances in favour of arbitrations is a welcome reprieve. According to public opinion, there is an urgent need for the Indian judicial system to adopt a pro-arbitration stance given the backlog of cases in the Civil & Commercial Courts of India. The intent behind the Act may be defeated if such anti-arbitration lawsuits are entertained for an extended period. This problem and conundrum could be resolved in large part by restricting the scope of the investigation of Civil Court into potential interference in anti-arbitration injunction lawsuits. [1] Kushagra Tolambia is a third-year B.A. LL.B (Hons.) student at National Law University, Lucknow. [2] Julian Lew, Control of Jurisdiction by Injunctions Issued by National Courts in International Arbitration 2006: Back to Basics? (Albert Jan van den Berg ed, Kluwer, 2007) 185–220. [3] UNCITRAL Arbitration Rules (2010) art. XXIII. [4] UNCITRAL Model Law art. XVI § 3. [5] UNCITRAL Model Law art. XXXIV. [6] Gary B. Born, International Commercial Arbitration (Vol I, Kluwer 2009)1049-1054. [7] Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] 3 WLR 1472, at para. 84. [8] Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius) Limited and Ors., (2020) 6 MLJ 544. [9] N. Radhakrishnan v. Maestro Engineers and Ors., 2009 (13) SCALE 403. [10] A. Ayyaswamy v. A. Paramasivam, AIR 2016 SC 4675. [11] Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr, (2012) 5 SCC 214. [12] SBP & Co v. Patel Engineering Limited, 2005 (8) SCC 618. [13] World Sport Group v. MSM Satellite Singapore Ltd, AIR 2014 SC 968. [14] McDonald’s India Private Limited v. Vikram Bakshi and Ors, 2016 (4) ARbLR 250. [15] The Board of Trustees of Port of Kolkata v. Louis Dreyfus Armatures SAS and Ors., 2019 SCC OnLine Bom 251. [16] Sasan Power Limited vs. North American Coal Corporation (India) Limited, (2016) 10 SCC 813. [17] Ravi Arya v. Palmview Investments Overseas, 2019 SCC OnLine Bom 251. [18] Lafarge India Pvt Ltd v. Emami Realty and Anr, (2016) SCC OnLine Cal 4964. [19] National Aluminium Company Ltd v. Subhash Infra Engineering Pvt. Ltd., 2019 SCC OnLine SC 1091. [20] A. Ayyasamy v. A. Paramasivam and Ors., (2016) 10 SCC 386. [21] Himachal Sarang Power Pvt Ltd v. NCC Infrastructure, 2019 SCC OnLine DEL 7575. [22] Bina Modi v. Lalit Modi, 2020 SCC OnLine Del 90. [23] Bina Modi v. Lalit Kumar Modi, 2020 SCC OnLine Del 1678. [24] Bina Modi v. Lalit Kumar Modi, (2021) 3 SCC 1134.

  • Enforceability of an Arbitration Clause Contained in an Unstamped Contract

    *Sparsh Srivastava[1] Introduction Over the years, several legal proceedings have focused on the question of whether an arbitration clause in an unstamped or inadequately stamped agreement can be enforced. Conflicting decisions have been delivered by various High Courts, and even the Supreme Court has not taken a firm stance on the matter. On April 25, 2023, the issue was finally laid to rest by a constitutional bench of the apex court, through its judgment in N.N. Global Mercantile Private Limited v. Indo Unique Flame Ltd. (II) (“N.N. Global Mercantile Pvt Ltd II”), wherein the Court declared that, “an unstamped document is unenforceable and consequently, the arbitration clause contained therein is also equally unenforceable under law.” Background One of the foremost decisions on the issue of enforceability of such arbitration clauses was delivered in the case of SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P.) Ltd. (“SMS Tea Estates”) where the Division Bench of the Supreme Court had held that, “if a document is found to be unstamped/ insufficiently stamped, then even the arbitration clause embedded in it cannot be acted upon as per Section 35 of the Indian Stamp Act, 1899.” The two-judge bench decision in SMS Tea Estates was followed by the Supreme Court in Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Limited (“Garware Wall Ropes”), which held that, “since an unstamped agreement is unenforceable, the arbitration clause contained in it would not exist as a matter of law until the agreement was duly stamped.” This view, taken in Garware Wall Ropes, was again, approved by a three-judge Bench of the Supreme Court in Vidya Drolia v. Durga Trading Corp. (“Vidya Drolia”), wherein the Court held that, “the existence and validity being intertwined with each other, an arbitration agreement would not exist if it is illegal or does not satisfy the mandatory legal requirements for it to be enforceable, one of which is the payment of stamp duty.” In complete contravention with the reasoning in the above judgements, a three-judge bench of the apex court, in N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited (I) (“N.N. Global Mercantile Pvt Ltd I”), departed from such a view and consequently, overruled the SMS Tea Estates. The Court, came to this conclusion while relying on the principle of Competenz-Competenz, enshrined under Section 16 of the Arbitration and Conciliation Act, 1996 (“Act, 1996”) which provides that the arbitral tribunal is competent to rule its own jurisdiction and the doctrine of separability, which views the arbitration agreement as a separate and autonomous arrangement from the underlying contract and allows its legal enforcement even if the latter is unenforceable. These are two foundational principles of arbitration law and are fundamental to preventing judicial intervention in the initial judicial proceedings. The Supreme Court further delved into the same question and revisited onto the correctness of the ratio in the Garware Wall Ropes case, which was approved in the Vidya Drolia case by a coordinate Bench. The presence of such conflicting opinions led to the matter being referred in N.N. Global Mercantile Pvt Ltd I to a bigger bench of five judges, which resulted in the decision at hand. To critically appraise the decision of the Court, let us examine the reasoning of both the concurring and dissenting opinions of the judges. Decision of the Supreme Court The latest judgement was delivered by a 3:2 majority, wherein the majority held that an unstamped or inadequately stamped instrument is “bereft of life,” i.e., it is incapable of existing in law, and is therefore void. The bench also observed that the decision in SMS Tea Estates, as reiterated in the Garware and approved in the Vidya Drolia case, is legally valid while that taken in N. N. Global (I) case is bad law. The majority held that ‘ an instrument, which is exigible to stamp duty, may contain Arbitration Clause and which is not stamped, cannot be said to be a contract, which is enforceable in law.’ The majority declined the doctrine of separability and relied on the fundamental argument of “Nothing can arouse from nothing.” In contrast, the dissenting opinion delivered by Justice Ajay Rastogi and Justice Hrishikesh Roy stated that such flaws do not render any document permanently void and that failure to pay stamp duty is unquestionably a defect that could be easily resolved. Furthermore, they also noted that the Act, 1996 is a special law and cannot be invalidated by a general law, such as the Stamp Act. In addition to this, interestingly, they also observed is no provision in the Indian Stamp Act, 1899 which provides that an arbitration agreement would be void when not stamped as the Act specifically does not provide for arbitration agreement and would only get covered into the residuary entry. Moreover, the dissenting judges observed that while making use of the doctrine of Competenz-Competenz stipulated under Section 16 of the Act, 1996, the Arbitral Tribunal possesses the sole competence to rule on its own jurisdiction, address any challenges posed to the existence, legality, and applicability of the arbitration agreement. Thus, declaring the decision in the Garware case to be inconsistent with both the legislation and the decision in the Vidya Drolia case, to be incorrect. Analysis With the resolution of this long-debated topic, a clear decision has been provided by this judgement regarding agreements and contracts with arbitration clauses. But the verdict seems to on both its pros and cons as it has raised several questions that will undoubtedly have an impact on the practice of arbitration in India. While the judgment provides much clarity on the long prevailing issue of admissibility of unstamped documents for adjudication of arbitral disputes, it may not bode well for India’s pro-arbitration stance as by permitting courts to dwell upon the validity of an arbitration agreement, the Court has expanded the range of judicial action because they are no longer limited to making a prima-facie finding that an arbitration agreement exists, overshadowing the two doctrinal pillars of the Arbitration (i.e. Doctrine of Separability and Competenz-Competenz). Consequently, the apex court has missed a golden opportunity to boost the image of India as an arbitration-friendly jurisdiction. Furthermore, some of the key concerns of the judgement, in the view of the author, are as follows: (1) In the future, the disputing party may use this as a tool to delay the procedure of the constitution of an arbitral tribunal citing the issue of insufficiency of stamps which will then have to be adjudicated by the Courts as a preliminary issue thereby delaying the entire arbitration process, making the purpose of opting Arbitration as infructuous. (2) The decision further lacks certain guidelines that would permit the courts to not engage in a mini-trial for determining the sufficiency of stamping prior to referring the matter to arbitration. Although there appears to be some respite in the judgment as it also mentions therein that where a claim of insufficiency of stamping appears to be wholly without foundation, a reference may be made to the arbitration leaving it open for the Arbitral Tribunal to exercise powers under the Stamp Act, if necessary. The judgement leaves a scope of being misused by one of the disrupting parties to indulge in the nominal or procedural issues, in contrast to the objective of the Act, 1996 and arbitration, as a whole. The purpose of the Arbitration is to provide for a speedy process of dispute resolution but the same is jeopardized by allowing the disruptive parties to take advantage of the procedural delays that are expected to arise by this judgement. (3) The Act, 1996 is a special legislation, that should have been given primacy over Indian Stamp Act, 1899. The Latin maxim, Generalis Specialibus Non-Derogant, which means that the erstwhile special law is given superiority over the general law, is in direct conflict with this decision. (4) The Indian Stamp Act, 1899 is a legislation primarily intended to provide revenue to the Government and as per the present judgement, it is being allowed to come in the way of judicial remedies, in lieu of safeguard that ought to be provided in the name of the veracity of an agreement. Conclusion In conclusion, India’s ambition to become a global arbitration hub requires careful consideration of the concerns arising from the recent decision, as it undermines the arbitration’s basis of a pro-arbitration approach. It is essential to take appropriate steps purpose, and spirit of the Act, 1996, ensuring they remain unaffected by the complexities introduced by stamping requirements in the arbitration agreement. The Supreme Court, thus, in the author’s opinion, missed an opportunity to reinforce and foster arbitration in India as a flexible and user-friendly process, instead introducing an additional layer of scrutiny. [1] This paper is written by Sparsh Srivastava, a 2nd-year law student at National Law University Odisha. His areas of interest include Commercial Dispute Resolution (particularly, Arbitration) and International Law. The author can be reached out at-

  • The Tale of Unilaterally Appointed Arbitrators under Indian Law — Can their Mandate be Resurrected?

    Priyanshu Shrivastava[1] Background Giving one party the right to appoint an arbitrator of their choice, directly or indirectly, goes against one of the cardinal principles of arbitration of ensuring an impartial and independent arbitrator. In India, such arbitration agreements providing one party the option to unilaterally appoint the arbitrator(s) were common. This is particularly in situations where the parties’ underlying contract involved a state entity, for example a Public Sector Undertaking. Due to asymmetrical bargaining powers, the other party has no option but to accept the standard form contract, often referred to as the General Conditions of Contract (“GCC”), including such unilateral appointment clauses (See GCC (BHEL), Clause 32.1; GCC (BPCL), Clause 108.1). In response to this practice, the Arbitration and Conciliation Act, 1996 (“Act”) was amended through the Arbitration and Conciliation (Amendment) Act, 2015. Through this amendment, the Indian parliament incorporated the Red List and the Orange List of the IBA Guidelines on the Conflicts of Interest in International Arbitration (“IBA Guidelines”) in Schedule 5 and Schedule 7 of the Act, respectively. Section 12(5) of the Act gave effect to Schedule 7 (i.e., the Red List) by stating that such relationships mentioned on this list would entail ‘ineligibility’ of an arbitrator “[n]otwithstanding any prior agreement to the contrary”. Because of this non-obstante clause, such unilateral appointment arbitration clauses do not survive. In fact, the parties cannot even consensually agree to such an arbitration clause. For instance, one standard-form contract has an arbitration clause with the heading “[a]ppointment of Arbitrator where applicability of section 12 (5) of Arbitration and Conciliation Act has been waived off ” (GCC (Indian Railways), Clause 64.(3)). Even this does not survive the impact of Section 12(5) of the Act. That being said, it is trite law in India that such clauses lead to a de jure ineligibility of an arbitrator. This is separate from circumstances which give rise to ‘justifiable doubts’ under Section 12(1) of the Act; this can be addressed through a disclosure made by the arbitrator (See also HRD Corporation v. GAIL). In this regard, the Indian legislation goes a step ahead vis-à-vis Article 12 of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) as the latter does not include any de jure disqualifications. The discussions on the nature and implications of unilateral appointments (or unequal arbitrator appointments) under Indian law and their concomitant aspects have taken place on this blog and on other platforms as well (here, here, and here). This legal position is no longer res integra (See TRF v. Energo Engineering, para. 54). Ordinarily, parties choose to appoint their arbitrators via courts under Section 11 of the Act to cure the ineligibility which will be caused if they follow the unilateral appointment procedure in their contracts. In Indure v. JMC Projects India, the Delhi High Court even referred the dispute to the Delhi International Arbitration Centre, thereby promoting institutional arbitration. There is, yet, another way to cure this defect. In that light, it seems pertinent to point out that the present discussion relates to a separate branch of Section 12(5) of the Act. The Proviso to Section 12(5) of the Act states that the “parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing” (emphasis supplied). This proviso is modelled after General Standard (4)(c) of the IBA Guidelines. This waiver is another way to cure the ineligibility caused by unilateral appointments, to resurrect the mandate of an ineligible arbitrator. Apex Court’s Construction — Bereft of Practicalities? The Supreme Court of India (“SC”), in Bharat Broadbank v. United Telecoms, ruled on the nature of waiver present in proviso to Section 12(5) of the Act. The parties’ contract contained a unilateral appointment clause as appointment of the sole arbitrator was to be made by one of the parties’ Chairman/Managing Director. Three important points of discussion arise from this decision. First, the SC discussed the difference of this provision with Section 4 of the Act, which is on a party’s waiver of its right to object to any non-compliance under the Act’s non-derogable provisions. Unlike Section 4 of the Act, the waiver under Section 12(5) of the Act does not come into operation by conduct. Rather, there is a requirement of an “express agreement in writing” vis-à-vis the waiver. It follows that this provision contains a specific procedure for the waiver and the general procedure mentioned in Section 4 of the Act has no bearing on it. Second, the SC did not clarify the form in which such a waiver has to be made. The Apex Court merely reiterated that such a waiver has to be made expressly in words. The court also refused to take guidance from Section 7 of the Act which states that an arbitration agreement can be contained in “an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement ”. In the absence of any jurisprudence on this waiver, this provision can certainly provide some much-needed guidance. The wording of Section 7 of the Act indicates that an arbitration agreement is not confined to any specific form, but can be derived from parties’ letters, correspondences, or any other means of communication. This provision gives an indication that there is no rigid form for the parties’ “express agreement” vis-à-vis waiver under Section 12(5). This opens up a multitude of possible forms in which such a waiver can be made. This angle is further explored below in this piece. Third, while rejecting the lower court’s consideration of the arbitrator’s appointment letter to be an express agreement of waiver, the SC opined that the party must be fully aware of the arbitrator’s ineligibility; that there must be “full knowledge”. It is argued that this specific requirement cannot form a part of the threshold for such waivers. This is because, in these given facts and circumstances, the appointment of the arbitrator took place before the decision in TRF v. Energo Engineering was delivered. In fact, in the words of the apex court, the arbitrator’s “invalid appointment only became clear after the declaration of the law by the Supreme Court in TRF Ltd. which, as we have seen hereinabove, was only [after the appointment was made]”. Currently, the law on unilateral appointments is settled. If a party engages in the process laid down in a unilateral appointment clause, constructive knowledge can very well be imputed on such a party. This is also in consonance with the travaux préparatoires of the Model Law. Possible Forms of Waiver — Cannot Put the Same Shoe on Every Foot The lower courts in India have blindly followed the rigid, linear approach laid down by the Apex Court. However, the applicability of this waiver cannot be in black and white. Quite the opposite, considering the dynamic environment arbitration functions in, there are multiple possible forms of waiver. These forms are discussed by taking on alternative perspectives vis-à-vis the judicial application of this waiver by lower courts. In furtherance of this, two fictional scenarios are pertinent. For this purpose, it is assumed that there is a unilateral appointment clause in the arbitration agreement entered between ‘A’ and ‘B’, where B’s managing director has the right to unilaterally appoint the sole arbitrator. Scenario 1: This is where, after a dispute has arisen between the parties, A invokes the arbitration agreement either through a request made and/or through a notice (under Section 21 of the Act). In response to A’s request/notice, B’s managing director appoints a sole arbitrator. The appointment is acknowledged and accepted by A through a correspondence. It is argued that these series of letters/correspondence between A and B can be construed as an ‘express agreement’ amounting to a waiver. However, these facts were overlooked by the Delhi High Court in at least two decisions (Delhi Integrated Multi Modal Transit Systems v. Delhi Jal Board; AK Builders v. Delhi State Industrial Infrastructure Development Corporation). Scenario 2: This is where the arbitral proceedings, with a unilaterally appointed sole arbitrator, between A and B have been going on for around twelve months. Now, the parties successfully sought a court order extending the time limit under Section 29A of the Act, thereby mutually extending the mandate of the sole arbitrator. This means that both A and B consented to continuation of the sole arbitrator’s mandate. It is well settled that a court order containing statements made by the parties can be regarded as an “an agreement in writing” (See Brahm Singh v. Nisha Rani; Mahabir v. Manohar Singh). Therefore, it is argued that such an extension of the sole arbitrator’s mandate can be construed as a waiver under Section 12(5) of the Act. At the same time, it is admitted that not every extension can be construed as a waiver. For instance, in Naresh Kanayalal Rajwani v. Kotak Mahindra Bank, the Bombay High Court terminated the mandate of a sole arbitrator who had unilaterally extended his mandate. There was no consent to extend the arbitrator’s mandate. These scenarios showcase the need for a relatively flexible approach while applying the waiver under Section 12(5) of the Act. While doing this, the courts must keep in mind the objectives of the Act. It would defeat the purpose of the Act, and the underlying Model Law, if the mandate of arbitrator(s) is terminated on the basis of rigid and impractical thresholds, evoking the need to restart the whole process of arbitration leading to significant increase in both cost and time. Fairness and efficiency are two sides of the same coin. Both of them need to be balanced. [1] B.A. LL.B. (Hons.), National Law University, Jodhpur. His interests lie in commercial dispute resolution (including arbitration) and international trade law. The author can be reached at

  • The Intersection of Arbitration & Insolvency Laws in India: A Jurisdictional Conundrum

    Gautam Mohanty[1] & Shivam Hargunani[2] INTRODUCTION The distinct nature of arbitration and insolvency regimes is apparent. While the fundamental foundation of arbitration lies in party autonomy, an insolvency regime is often comprised of mandatory rules safeguarding the interests of various stakeholders. The lack of guidance or limited guidance on the impact of insolvency proceedings on arbitration has put the spotlight on finding clarity to specific issues through case law. Be that as it may, new inconsistencies come to the forefront when dealing with insolvency questions in arbitration, especially in light of the repercussions of the Covid-19 pandemic. As described by the American Courts, this phenomenon is a “conflict of near polar extremes”.[3] A cursory glance over various international legal systems indicates a significant level of divergence in the context of regulating the intersection of arbitration and insolvency. Some jurisdictions prohibit individual proceedings, including arbitration; some jurisdictions prohibit arbitration only in some circumstances subject to certain limitations and procedural adaptations, while some jurisdictions stipulate that insolvency proceedings have no impact on arbitration proceedings. Additionally, there is no international convention or instrument that harmonizes the various national approaches to insolvency. The existing judicial precedents in India and regulatory guidance provide little guidance to issues such as the continuation of arbitration proceedings, the impact of foreign seated arbitration, the ability to participate in the insolvency resolution process and the enforcement of arbitral awards vis-à-vis insolvency proceedings.[4] The law on bankruptcy and insolvency in India underwent a complete change with the enactment of the Insolvency and Bankruptcy Code 2016 (“IBC”). Notably, apart from the imposition of a moratorium, the IBC did not stipulate any other provisions pertaining to the impact of insolvency on arbitration proceedings. Such being the case, guidance from case law has helped tackle issues that are not covered by the IBC but which lie at the intersection between arbitration and insolvency. The consequences of the above intersection, although unclear, are slowly emerging. The Supreme Court of India in Indus Biotech Pvt. Ltd v. Kotak India Venture (Offshore) Fund and Ors.[5] was presented with the opportunity to place itself at the intersection between insolvency and arbitration. In the above context, the Hon’ble Supreme Court has in clear and explicit terms postulated that if an insolvency application is admitted, then an arbitration proceeding is not maintainable. The court has further observed that an insolvency action concerning a right in rem cannot be overridden by an arbitration action that involves a right in personal. In relation to the only provision in IBC dealing with arbitration, i.e., imposition of a moratorium, it is to be noted that Section 14 of the IBC specifically bars “the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority”.[6] Pertinently the above provision of law is an all-encompassing one, thereby implying that the imposition of moratorium does not differentiate between pending arbitration proceedings and those commenced after the institution of insolvency proceedings. The law in this regard is clear and has been stated by the Hon’ble Supreme Court of India in the case of Alchemist Asset Reconstruction Co.[7] wherein it was held that arbitration proceedings commenced after the initiation of a ‘corporate insolvency resolution process’ (“CIRP”) are considered non-est in law. Notwithstanding the above, in the absence of statutory exceptions, judicial exceptions have allowed for the continuation of arbitration proceedings in a situation where: (1) the arbitration proceedings maximize the value of the assets of the corporate debtor; (2) the proceedings are beneficial to the corporate debtor and do not adversely impact its assets,[8] or (3) if proceedings are allowed to continue no recovery can be pursued against the corporate debtor during the operative period of the moratorium.[9] Further, in some instances, Courts have refused to issue an injunction on claims and counterclaims advanced by a creditor where it was found that the corporate debtor, in case of an order to pay, would not be in an adverse financial situation.[10] Recently, the Hon’ble Bombay High Court in Nahar Builders Ltd. v. Housing Development and Infrastructure Ltd.[11] was presented with the question of whether security obtained pursuant to interim measures in an arbitration prior to the initiation of insolvency proceedings could be encashed despite the moratorium order? Interestingly, the Hon’ble Bombay High Court allowed for encashing the security and disbursement of the amounts and observed that the moratorium order would have no effect on the security. Similarly, the Hon’ble Delhi High Court when faced with the exact question of law, has observed that a moratorium prohibits encashing of security and disbursement of any amounts.[12] The above is just an example to highlight the importance of case law jurisprudence in developing the understanding of issues pertaining to arbitration that are not explicitly dealt with by IBC. THE CASE OF INDUS BIOTECH PVT. LTD v. KOTAK INDIA VENTURE(OFFSHORE) FUND & ORS A. Facts and procedural history In the case, an arbitration petition was filed by Indus Biotech Private Limited (“Petitioner”) under Section 11(3) read with Section 11(4)(a) and 11(12)(a) of the Act, 1996 seeking the appointment of an Arbitrator on behalf of Respondents Nos. 1 to 4 in order to adjudicate upon certain disputes between the parties. The genesis of the dispute can be traced back to the Share Subscription and Shareholders’ Agreements (“SS and SA”) dated 20.07.2007, 12.07.2007, 09.01.2008 and the Supplemental Agreements dated 22.03.2013 and 19.07.2017 whereby the Respondents had subscribed to equity shares and Optionally Convertible Redeemable Preference Shares (“OCRPS”) in the Petitioner company. Subsequently, it was decided by the Petitioner company to make a Qualified Initial Public Offering (“QIPO”). However, under Regulation 5(2) of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements), Regulations 2018 (“SEBI Regulations”), a company with any outstanding convertible securities or any other right which would entitle any person with an option to receive equity shares of the issues was not entitled to make QIPO. Therefore, to facilitate the QIPO, Petitioner proposed converting the OCRPS invested by Respondent into equity shares. During the negotiations, a dispute arose with regard to the calculation and conversion formula to be applied in converting the preference shares of the Respondents into equity shares. The stance of Respondent was that it was entitled to 30% of the total paid-up share capital in equity shares. Per contra, the stance of Petitioner was that Respondents Nos. 1 to 4 were entitled to receive 10% of the total paid-up share capital. Accordingly, Respondents Nos. 1 to 4, relying on their estimation, contended that on redemption of OCRPS, a sum of Rs. 367,08,56,503/- became due and payable. Consequently, as Petitioner company did not pay the aforesaid sum, Respondent approached the National Company Law Tribunal (“NCLT”) to invoke the jurisdiction of the Adjudicating Authority by initiating the Corporate Insolvency Resolution Process (“CIRP”) as provided for under the IBC. Respondent No.2 filed a petition under Section 7 of IBC before the NCLT in IBC No. 3077/2019 dated 16.08.2019 seeking appointment of Resolution Professional. In the above petition, Petitioner filed a Miscellaneous Application No. 3597/2019 under Section 8 of the Act, 1996, seeking a direction to refer the parties to arbitration. The NCLT, Mumbai Bench-IV, through its order dated 09.06.2020 after considering all contentions of the parties, allowed the application filed by the Petitioner under Section 8 of the Act, 1996. The relevant extracts of the order of NCLT that illustrate that there was no default under the meaning of Section 3(12) while considering the petition under Section 7 of IBC is as below: “5.13 Therefore, in a Section 7 petition, there has to be a judicial determination by the Adjudicating Authority as to whether there has been a ‘default’ within the meaning of Section 3(12) of the IBC. 5.14 In the present case, the dispute centres around three things-(1) The valuation of the Respondent/Financial Creditor’s OCRPS; (2) The right of the Respondent/Financial Creditor to redeem such OCRPS when it had participated in the process to convert its OCRPS into equity shares of the Applicant/Corporate Debtor; and (3) Fixing of the QIPO date. All of these things are important determinants in coming to a judicial conclusion that a default has occurred. The invocation of arbitration in a case like this seems to be justified. 5.15 Looking at the contention raised, and that the facts are not in dispute, we are not satisfied that a default has occurred. We note Mr. Mustafa Doctor’s statements that the Applicant/Corporate Debtor is a solvent, debt free and profitable company. It will unnecessarily push an otherwise solvent, debt-free company into insolvency, which is not a very desirable result at this stage. The disputes that form the subject matter of the underlying Company Petition, viz., valuation of shares, calculation and conversion formula and fixing of QIPO date are all arbitrable, since they involve valuation of the shares and fixing of the QIPO date. Therefore, we feel that an attempt must be made to reconcile the difference between the parties and their respective perceptions. Also, no meaningful purpose will be served by pushing the Applicant/Corporate Debtor into CIRP at this stage.” (emphasis supplied) On being aggrieved by the above order of the NCLT, the Respondents approached the Hon’ble Supreme Court by filing a Special Leave Petition (“SLP”). At the outset, the Court clarified that in the ordinary course, the appropriate legal remedy against the NCLT order dated 09.06.2020 was to file an appeal in the NCLAT as stipulated under Section 61 of IBC. However, the Court noted that as the NCLT order was passed in the backdrop of a petition under Section 7 of IBC, in the context of Petitioners seeking for resolution of the dispute through arbitration and the fact that the Arbitration Petition was already pending before the Hon’ble Supreme Court as on the date the order was passed by the NCLT, under exceptional circumstances it would entertain the petition filed and examine the matter on merits. B. Scope of Proceedings under Section 7 of the IBC The Hon’ble Supreme Court of India, before commencing its analysis, deemed it appropriate to analyze the ambit of Section 7 of the IBC. To that extent, the Court observed that Section 7 of IBC postulates for the ‘financial creditor’ to file an application for initiating Corporate Insolvency Resolution Process against a corporate debtor before the Adjudicating Authority when a default has occurred. Further, the Court also observed that the provision categorically stipulates four factors which are necessary to trigger an application under Section 7 of the IBC viz., (i) there should be a ‘debt’ (ii) ‘default’ should have occurred (iii) debt should be due to ‘financial creditor’ and (iv) such default which has occurred should be by a ‘corporate debtor’: on such application being filed with the compliance required under sub-section (1) to (3) of Section 7 of IBC, a duty is cast on the Adjudicating Authority to ascertain the existence of a default if shown from the records or based on other evidence furnished by the financial creditor, as contemplated under sub-section (4) to Section 7 of IBC. The Court further referred and relied on the case of Innoventive Industries Limited v. ICICI Bank and another[13] to explain the scheme and working of proceedings under Section 7 of the IBC. The germane portions which are relevant for the present purposes are as below: “28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor--it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made Under Sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the “debt”, which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under Sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be…” C. Action in rem v. Action in personal An essential facet of the judgment was determining whether a proceeding under Section 7 of IBC was an action in rem or action in personam. The Respondents argued that it is an action in rem, implying that insolvency and winding-up matters were non-arbitrable. Additionally, the Respondents also argued that when the petition is filed under Section 7 of the IBC, the adjudicating authority ought to have looked into that aspect alone and not considered an application filed under Section 8 of the Act, 1996. With regard to the above contentions, the Hon’ble Supreme Court opined that a proceeding under Section 7 of the IBC becomes an action in rem on the date of admission and from that point onwards, the matter would not be arbitrable as the only course of action to be followed thereafter, according to the court, is the resolution process under IBC. Thereafter, as per the Court, the crucial facet of determining whether an insolvency matter is arbitrable or not is ascertaining whether the Adjudicating Authority has concluded that there has been a default or not. The Court also clarified that mere filing of an application under Section 7 of IBC does not trigger a bar on arbitration. In light of the evidence placed before it coupled with the fact that the conversion formula was still in dispute, the Court held that it would be inappropriate to hold that there was a default and admit the petition of Respondents merely based on the petition filed under Section 7 of IBC. The Apex Court observed that if a default is assumed automatically in an application under Section 7 of IBC, then it may so happen that a company which is running its administration ably and discharging its debts in a planned manner may also be pushed to the CIRP and get entangled in a proceeding with no point of return. With a view to concretising its aforesaid observation, the Court relied upon the case of Vidya Drolia and Ors. v. Durga Trading Corporation[14] wherein the tests to be applied to determine when the subject matter is not arbitrable or not was laid down. Notably, the tests formulated by the Apex Court in the above case are as below: “76. In view of the above discussion, we would like to propound a fourfold test for determining when the subject matter of a dispute in an arbitration agreement is not arbitrable: 76.1(1) when cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem. 76.2(2) when cause of action and subject matter of the dispute affects third party rights; have ergaomnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable; 76.3(3) when cause of action and subject matter of the dispute relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and 76.4(4) when the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s)… 77. Applying the above principles to determine non-arbitrability, it is apparent that insolvency or intracompany disputes have to be addressed by a centralised forum, be the court or a special forum, which would be more efficient and has complete jurisdiction to efficaciously and fully dispose of the entire matter. They are also actions in rem…” Accordingly, the Court observed that since the petition under Section 7 of IBC was not yet admitted, it had not assumed the status of proceedings in rem. D. Finding of the Court The Court ultimately held that it would be premature to conclude that there was a default in payment of any debt as the conversion formula was still in dispute. Therefore, the amount repayable by the Petitioner company to Respondents was still to be determined. However, the Court also stated that after the amount had been determined and not paid by the Petitioner company, then the same will amount to a default. INTERNATIONAL ASPECTS OF THE TUSSLE BETWEEN INSOLVENCY AND ARBITRATION The intersection of Insolvency laws and arbitration laws and their tussle in respect of the international framework requires to be studied in two different aspects. In this section, the authors shall attempt to conduct a comparative analysis of the Indian regime with other legal regimes prevailing in countries, like the USA, England and France where the insolvency regime is more developed. Further, this section will also examine the practice of enforcement of foreign arbitral awards under the insolvency law regime of India. 1. Intersection of insolvency and arbitration proceedings: The international scenario The Hon’ble Supreme Court of India in the year 2021 in its landmark judgment of Indus Biotech Private Limited v. Kotak India Venture[15] held that in case a petition has already been admitted under Section 7 of the IBC[16] thereafter any application that has been made under Section 8 of the Arbitration Act[17] shall not be maintainable. The Hon’ble Court further held that in case the application under Section 8 of the Arbitration Act was filed first and the petition under Section 7 of IBC was not admitted by then in that scenario the adjudicating authority will be required to decide the petition under Section of the IBC first and thereby ascertain whether a default had taken place or not and only then take note of the application of Section 8 of the Arbitration Act.[18] Now, let’s take a look at the legal regime of some other countries and how the intersection between the jurisprudence of insolvency laws and arbitration laws unfolds in those jurisdictions: A. USA B. England C. France A. United States of America (USA) As per the United States Bankruptcy Code, when a bankruptcy petition is filed, it leads to the automatic triggering of stay[19] against most civil actions and proceedings against the debtor due to which the property of the debtor can also not be proceeded against. [20]This implies that even arbitration proceedings are automatically stayed upon the filing of the bankruptcy petition.[21] This stay covers any potential claim against the debtor as well as claims that may be made in existing arbitration proceedings, and in order to further proceed against the debtor, such claimants/parties are required to then obtain special permission by making a motion in the court overseeing the particular bankruptcy proceedings because the said court itself has the power to annul, modify, or terminate the stay.[22] It is pertinent to note that under the US Bankruptcy Code, the debtor is not required to take any active action or send any notice to any claimant to give effect to the stay on claims[23] mentioned above. Notably, the stay on claims is not only triggered by filing a petition under Chapter 11 of the Bankruptcy Code for a reorganization of the debtor but also when a petition under Chapter 7 of the Code for liquidation of the debtor, or when an involuntary petition against a debtor under section 303 of the Code is registered.[24] B. England and Wales The jurisprudence of laws prevalent in England and Wales under the Insolvency Act 1986 provides that when an individual or a corporation has become a subject of insolvency proceedings, an automatic stay is given against any legal proceedings against that individual or corporation. The said individual or corporation may become subject to insolvency proceedings and thereby immediately trigger the automatic stay/ moratorium in the following ways: 1. A bankruptcy order being made against an individual[25] 2. The court making a winding-up order against the company[26] 3. The company entering into administration[27] The legal proceedings against which this moratorium applies also include arbitration proceedings as well.[28] As per the English Insolvency Act, 1986, in order to be able to proceed in the arbitration matter against the individual or the corporation against which the legal moratorium is triggered, the following methods may be adopted: 1. By the permission of the insolvency court 2. by the permission of the administrator appointed to the company 3. By the permission of the individual’s trustee in bankruptcy It should be noted here that in case the court does not grant permission to continue the arbitration proceedings against the insolvent debtor, the claimant will have to file a proof of debt in the insolvency process, and later in case the claimant feels that the concerned insolvency officer’s decision is not satisfactory in respect of the debt amount, the claimant will have two options. It can either challenge such a decision using the insolvency process or it can try to negotiate a settlement of the claims with the concerned insolvency officer.[29] C. France The Insolvency regime in France lays down three significant types of insolvency proceedings, namely safeguard (“sauvegarde”), receivership (“redressementjudiciaire”), and liquidation (“liquidation judiciaire”). The significant differences between these three kinds of insolvency proceedings boils down to the fact that safeguard proceedings are voluntary in nature and in such a scenario the debtor before it reaches a state of insolvency, is the one who files the application to open these proceedings. On the other hand, receivership insolvency proceedings and liquidation insolvency proceedings are mandatory in nature and are required to be commenced within 45 days of the date when the debtor became insolvent. If there is a possibility that the debtor will recover from the insolvency, the receivership proceedings are commenced. And if it is apparent that there is no such possibility, liquidation proceedings are opened either directly at the time the debtor becomes insolvent or when the recovery plan adopted in the context of the receivership is not successful.[30] It should be noted that even though the legal regime under the laws of France do not provide for any provision which specifically ascertains what the effect of the opening of insolvency proceedings will be on arbitration proceedings, however, the French Commercial Code addresses the impact of insolvency proceedings on pending judicial proceedings and the possibility to bring new proceedings against the debtor.[31] This inevitably leads to these provisions being applicable to arbitration.[32] As per the said provisions, when the insolvency court orders for the insolvency proceedings to be commenced, the pending judicial or enforcement proceedings relating to both moveable and immoveable property are stayed up until the point when the claimant files with the insolvency practitioner, which is appointed by the insolvency court, its submission of claim. Another important thing to note is that when the insolvency proceedings are ordered by the insolvency court, the claimants/ creditors are not allowed to start any new judicial or enforcement proceedings and new judicial proceedings against the debtor for payment of a sum of money or termination of a contract on the grounds of non-payment of a sum of money.[33] Hence, if the arbitration proceedings did not commence before the initiation of the insolvency proceedings, new proceedings cannot be initiated before the arbitral tribunal. The claimant in such a case can only submit its claims to the insolvency practitioner and wait for the claim to be verified.[34] 2. Enforcement of Foreign arbitral awards under the Indian legal framework India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards,[35] also known as the “New York Arbitration Convention” or the “New York Convention” which follows the principle of refusal to enforce an award on the ground of public policy if the award is against the notion of justice and morality of the jurisdiction of the court in which enforcement is sought. Further, the New York Convention also lays down that the contracting parties should recognize foreign arbitral awards under their respective national insolvency frameworks. Binding nature of arbitral awards against corporate debtors The moratorium passed by the NCLT effectively leads to the prohibition of continuing any pending suits against the corporate debtor as well as the institution of new suits against it. Under the Code of Civil Procedure, 1908, a ‘reciprocating territory’ implies a foreign country that the Central Government of India may notify in its Official Gazette declare it to be a reciprocating territory having 'Superior Courts' in relation to such country.[36] When a creditor, who is the holder of a decree from a foreign court in a reciprocating country and is desirous of enforcing the said decree, it shall be required to file execution proceedings in India before a District Court. However, if the decree is rendered in a non-reciprocating country, a fresh suit must be filed in India. Hence, when a creditor has obtained a foreign arbitral award against a certain corporate debtor and the said arbitral award is accepted by the NCLT against a corporate debtor, the principles under Section 44A of CPC are borrowed in the interest of justice.[37] Hence, this provision confers a right on the creditor/decree holder of the foreign arbitral award regarding its enforcement in India.[38] In the case of Agrocorp International Private (PTE) Ltd. v. National Steel and Agro Indus,[39] the corporate debtor, against whom the insolvency petition was filed by the operational creditor, raised the objection that foreign arbitral awards should not be considered as having a binding nature unless they are declared as enforceable the Arbitration and Conciliation Act, 1996. However, the NCLT took note of the fact that England is a reciprocating country and thereby rejected this objection of the corporate debtor. In this regard, it is essential to mention that Explanation 2 of Section 44A of CPC provides that the term “decree” shall not include an arbitration award, even if such an award is enforceable as a decree or judgment. This was not taken note of in the Agrocorp judgment. Further, it should be noted that when the foreign arbitral award is passed, it can be used as the basis for initiating insolvency proceedings against the party against whom the foreign arbitral award was passed. However, it should also be given due attention that the credit amount in respect of which the award was passed should be undisputed in nature. The Hon’ble Supreme Court in K. Kishan v. M/s Vijay Nirman Company Pvt. Ltd.[40] categorically stated that it is true that the arbitral awards can be used as proof of existence of operational debts however, such debts have to be undisputed in nature for the corporate insolvency resolution process to be initiated by the operational creditor under IBC. On this basis the Hon’ble Supreme Court in the abovementioned case noted that since the claim amount is currently under challenge before the Court, the corporate insolvency resolution process cannot be entertained at this stage. In the case of Fuerst Day Lawson Ltd v. Jindal Exports Ltd.,[41] the Hon’ble Supreme Court has shed light on the different stages through which the foreign arbitral award goes through in respect of the scheme prescribed under the Act, 1996. The Hon’ble Supreme Court held that first the enforceability of the foreign arbitral award has to be determined, and only then the concerned party can proceed to take the necessary steps in respect of execution of the said foreign arbitral award.[42] However, in the abovementioned recent judgment of Agrocorp International Private (PTE) Limited v. National Steel and Agro Industries Limited[43]it was stated by the Hon’ble NCLT Mumbai bench that enforcement of a foreign award is not a requirement in order to establish an insolvency claim against the corporate debtor. The Hon’ble NCLT in this case held that the foreign arbitral award was not under challenge and had attained finality and therefore, it can be treated as a valid proof of debt thereby enabling a foreign creditor to initiate insolvency proceedings in India. Further, the Vedanta[44] decision of the Hon’ble Supreme Court is also a welcome step in the right direction as it clarified two significant issues: (i) the limitation period of enforcement of arbitral awards and (ii) the interpretation of public policy in the context of enforcement of awards. This decision came in the same year i.e., 2020 after NAFED v. Alimenta[45]wherein the Hon’ble Supreme Court took a broad approach to interpreting ‘public policy’ and refused enforcement of a foreign arbitral award; stating it to be in violation of public policy. However, the authors are of the opinion that the narrow interpretation of the Hon’ble Supreme Court in Vendanta[46] would not only help in the enforcement of foreign arbitral awards but also help in bringing Indian legal framework in tandem with international jurisprudence. Decree/Award without merits It is also worth noting in this regard that earlier in 2001, the Hon’ble Supreme Court had noted in its decision in International Woolen Mills v. Standard Wool (UK) Ltd.[47]which was later affirmed in 2014 in the Bombay High Court case of Marine Geotechnic LLC v. Costal Marine Construction & Engineering Ltd.[48] that if a decree follows a judgment that is not on merits then whether the decree is from reciprocating or non-reciprocating territory, it cannot be enforced in India. Hence, if such a decree was passed ex-parte and devoid of any merits, it shall not be enforceable in India. Status of foreign arbitral awards under the Arbitration and Conciliation Act, 1996 The Hon’ble Supreme Court in 2020 in the case of Govt. of India vs. Vedanta Limited &Ors.[49] examined the issue of the enforceability of foreign arbitral awards under the legal framework established under the Arbitration Act and asserted that a foreign award does not become a “foreign decree” at any stage of the proceedings. The germane portions of the judgment are as below: “The foreign award is enforced as a deemed decree of the Indian Court which has adjudicated upon the petition filed under Section 47, and the objections raised under Section 48 by the party which is resisting enforcement of the award. A foreign award is not a decree by itself, which is executable as such under Section 49 of the Act. The enforcement of the foreign award takes place only after the court is satisfied that the foreign award is enforceable under Chapter 1 in Part II of the 1996 Act. After the stages of Sections 47 and 48 are completed, the award becomes enforceable as a deemed decree, as provided by Section 49. The phrase “that court” refers to the Indian court which has adjudicated on the petition filed under Section 47, and the application under Section 48. In contrast, the procedure for enforcement of a foreign decree is not covered by the 1996 Act, but is governed by the provisions of Section 44A read with Section 13 of the CPC.” It is also necessary to note here that the Supreme Court also clarified the position regarding the period of limitation for enforcement of a foreign arbitral award. The Hon’ble Supreme Court taking into consideration its decision in Bank of Baroda v. Kotak Mahindra Bank[50] noted that such enforcement shall be dealt with under Article 137 of the Limitation Act, which prescribes a limitation period of three years starting from the time when the right to apply for enforcement is accrued. Further, it was also clarified that Article 136 of the Limitation Act, 1963 applies only to decrees of a civil court in India and therefore, the period of limitation under Article 137 of the Limitation Act should apply. CONCLUSION In light of the above, the authors are of the opinion that different jurisdictions across the world take different approaches in respect of their insolvency law regimes; however, there is one common aspect to be observed in this regard i.e., every regime discussed above has incorporated a system wherein if the debtor has become insolvent or is unable to pay its debts, then the arbitration proceedings are put on hold. After this, some countries provide an option to the claimants for approaching the insolvency court and obtaining special permission to proceed with the arbitration proceedings. The authors are of the view that this is the best approach for resolving the tussle between the framework under the two laws and this should be the next step that needs to be taken in the context of the Indian policy framework. Finally, the authors are of the opinion that ideally it would be a better exercise that an international guidance note is introduced that would serve to ensure coherency and clarity in international practice in the context of invoking insolvency proceedings by using a foreign arbitral award. The above guidance note will not only ensure clarity of procedure but will also aid in avoiding conflicts with domestic procedural and substantive laws of the country in which the arbitral award is relied to initiate insolvency proceedings. Furthermore, it would also be helpful for the smooth functioning of international trade and commerce if a clear framework is established by the nations through treaties. The authors are further of the opinion that the enforcement of foreign arbitral awards under the domestic legal framework especially under the Insolvency law framework would further help in the betterment of commerce in the country as opposed to just having a mechanism under the Arbitration law framework. Countries such as USA, France and England have already successfully proceeded in this direction and put in place the necessary framework under their insolvency laws.[51] If we look at the Indian Insolvency framework enshrined under the IBC, the law is silent in this regard as of now. The authors believe that amendments are thus required in IBC so as to include the concept of enforcement of foreign arbitral awards so that NCLT when presented when the opportunity to align Indian legal framework with the international jurisprudence is able to exercise rightful jurisdiction in a procedurally correct manner from time to time. [1] Gautam Mohanty is currently a doctoral student at Kozminski University, Warsaw, Poland researching on Third Party Funders in Investment Arbitration. He is also an advocate enrolled at the bar in India and an Assistant Professor (on leave) at Jindal Global Law School India (JGLS) and an arbitration consultant with Arbitrator Justice Deepak Verma, Former Judge of Supreme Court of India. He can be reached at [2]Shivam Hargunani is an independently practicing advocate before courts and tribunals in the state of Madhya Pradesh. He completed his graduation in B.B.A. LL.B. with Honors in Corporate Laws from National Law University Odisha in 2015 and later also completed LL.M. in Commercial Laws from the University of Edinburgh in 2017. [3] Société Nationale Algerienne v. Distrigas Corporation, 80 B.R. 606 (D. Mass. 1987). [4] Alipak Banerjee and Payel Chatterjee, ‘Arbitration and Insolvency: Co-relation or Collision?’ (2021) 23(3) Asian Dispute Review 117-121. [5] Indus Biotech Pvt. Ltd v. Kotak India Venture (Offshore) Fund and Ors., AIR 2021 SC 1638. [6] Insolvency and Bankruptcy Code 2016, s 14. [7] Alchemist Asset Reconstruction Co. Ltd. v. Hotel Gaudayan Pvt. Ltd., AIR 2017 SC 5124. [8] Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd., 2017 SCC Online Del 12729. [9] Jharkhand Bijli Vitran Nigam Ltd. v. IVRCL Ltd. (Corporate Debtor) and another, 2018 SCC Online NCLAT 296. [10] SSMP Industries Ltd. v. Perkan Food Processors Pvt. Ltd., 2019 SCC Online Del 9339. [11] Nahar Builders Ltd v. Housing Development and Infrastructure Limited, 2020 SCC OnLine Bom 1044. [12] Morgan Securities and Credits Pvt. Ltd. v. Videocon Industries Ltd., FAO(OS) 96 of 2019. [13] Innoventive Industries Ltd. v. ICICI Bank and another, (2018) 1 SCC 407. [14] Vidya Drolia and others v. Durga Trading Corporation, (2021) 2 SCC 1. [15] Indus Biotech Private Ltd. v. Kotak India Venture, 2021 SCC OnLine SC 268 (Indus Biotech). [16] Insolvency and Bankruptcy Code 2016, s 7. [17] Arbitration and Conciliation Act 1996, s 8. [18] Indus Biotech (n 15). [19] United States Bankruptcy Code, 11 U.S.C. § 362, s 362(a)(1). [20] United States Code, Title 11 (United States Bankruptcy Code). [21] In re US Lines Inc., 197 F.3d. 631, 640 (2d Cir 1999). [22] In re Edwin A. Epstein Jr. Operating Co., 314 B.R. 591 (Bankr. S.D. Tex. 2004). [23] ACandS Inc. v. Travelers Casualty and Surety Co., 435 F.3d. 252, 259 (3d Cir 2006). [24] Hon. Allan L. Gropper and Thomas W. Walsh, IBA Toolkit On Insolvency And Arbitration: National Report of United States of America (January 2021) [25] United Kingdom Insolvency Act 1986, s 285. [26] United Kingdom Insolvency Act 1986, s 130(2). [27] United Kingdom Insolvency Act 1986, Schedule B1, para 43. [28] Bristol Airport plc and another v. Powdrill and others, [1990] 2 All ER 493. [29] Patrick Taylor and Gavin Chesney, IBA Toolkit on Insolvency and Arbitration: National Report of England and Wales (January 2021) [30] Flore Poloni and Nicolas Partouche, IBA Toolkit on Insolvency And Arbitration: National Report of France (January 2021) [31] French Commercial Code, arts L. 622-21, L.631-14, L.641-3. [32] Appeal no. 02-13.940, Commercial Division, French Cour de Cassation (2 June 2004). [33] French Commercial Code, arts L.622-21 and L.631-14. [34] Appeal no. 95/80373, Paris Court of Appeals (8 September 1998). [35] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (signed 10 June 1958, entered into force 7 June 1959) [36] Code of Civil Procedure 1908, s 44A, explanation 1. [37] Gurpartap Singh and another v. Vista Hospitality Pvt. Ltd. and others, [2014] 186 Comp Cas 202 (Delhi). [38] Manoj Moolekkudi Subramanyan v. Rajesh Palliparambil Ravi, OP(C). No. 950 OF 2020 (Kerala). [39] Agrocorp International Private (PTE) Ltd. v. National Steel and Agro Indus. Ltd., CP(IB) no. 798/MB/C-IV/2019 (Agrocorp). [40] K. Kishan v. M/s Vijay Nirman Company Pvt. Ltd., Civil Appeal No. 21825 OF 2017 (Supreme Court). [41] Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2001) 6 SCC 356. [42] ibid; Government of India v. Vedanta Ltd. and others, 2020 SCC Online SC 749 (Vedanta). [43] Agrocorp (n 39). [44] Vedanta (n 42). [45] NAFED v. Alimenta, 2020 SCC OnLine SC 381. [46] Vedanta (n 42). [47] AIR 2001 SC 2134. [48] Company Petition No. 69 of 2013 (Bombay). [49] Vedanta (n 42). [50] Bank of Baroda v. Kotak Mahindra Bank, AIR 2020 SC 1474. [51] Alexis Mourre, ‘Arbitrability of Antitrust Law from the European and US Perspectives’ in Gordon Blanke & Philip Landolt (eds.), EU and US Antitrust Arbitration: a Handbook of Practitioners (Kluwer Law International 2011) at 1, 161.

  • Enforcement of Arbitral Awards – Hong Kong & China

    *Ritika Gupta & Dakshita Dubey I. INTRODUCTION With the transactions of the global economy shifting to Asia, it is inevitably leading to disputes, which as is standard usually get referred Developing into a hub of arbitration, the Hong Kong Special Administrative Region (“HKSAR”) was ranked as the third most preferred arbitral seat in the world and is also home of the Hong Kong International Arbitration Centre. While the HKSAR region is an integral part of China, from the currency to the way the people live is distinct. The laws applicable to HKSAR are not as stringent as the laws applicable to the provinces of China, the same applies to the law governing the Dispute Resolution mechanisms, including Arbitration. Section 84 of the Hong Kong Arbitration Ordinance (“HKAO”), deals with the enforcement of Awards before the Courts in Hong Kong and specifies that the Award once recognized shall be treated and enforced as a judgment of the Court. The People’s Republic of China (“PRC”) and the HKSAR signed the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (“the Arrangement”), in 1999, in order to facilitate the smooth enforcement of Arbitral Awards. In recent years, PRC and HKSAR have passed various other Agreements enhancing the pro-arbitration stance of the region. The present article intends to highlight the laws governing the enforcement of an award in the region, by explaining the kinds of awards that can be enforced, the procedure adopted, and what the Courts of PRC and HKSAR have held regarding the same. II. KINDS OF AWARDS As given in Section 2 of HKAO, there are essentially the following four types of Awards that parties can enforce: a. Convention Awards – As defined in Section 2(1)(g) of the HKAO, a Convention Award means an arbitral award made in a State or the territory of a State, other than China or any part of China, which is a party to the New York Convention. b. Mainland Awards – As defined in Section 2(1)(o) of the HKAO, a Mainland Award means an arbitral award made in accordance with the Arbitration Law of the People’s Republic of China. c. Macao Awards – As defined in Section 2(1)(m) of the HKAO, a Macao Award means an arbitral award made in Macao in accordance with the arbitration law of Macao. d. Other Awards – The other awards include the awards which can not be defined as the above-mentioned definitions. III. PROCEDURE UNDER HKAO FOR ENFORCEMENT Division 1 of Part 10 (Sections 82-98D) of the HKAO deal with the Enforcement of Awards. In matters of enforcement, it is the position of the Courts of Hong Kong that the enforcement of arbitral awards should be "almost a matter of administrative procedure" and the courts should be "as mechanistic as possible". There are two major requirements for the enforcement of an arbitral award in HKSAR- an Application for Enforcement coupled with the required documents, as mandated by the HKAO. There are two stages in the enforcement of an arbitral award in HKSAR: a. Recognition stage – an award is converted into a HKSAR judgment; b. Execution stage – the judgment can be enforced using an acceptable method of enforcement. At the recognition stage, the court has to decide whether to grant permission to enforce the award. An application to the High Court for leave to enforce an award may be made ex-parte by affidavit. Additionally, the applicant must make full and frank disclosure of relevant information to the court in support of the application. If the award is in order, and the court grants permission, it will give a judgment “in terms of” the award. A party may then enforce the arbitral award by pursuing the same enforcement methods for court judgments, such as statutory demand, charging order, or writ of execution. An application seeking leave to enforce an arbitral award under Section 84 of the HKAO is governed by Order 73, Rule 10 of the Rules of High Court (“RHC”), as amended by Section 13 of Schedule 4 of the HKAO. The application is made ex parte, supported by an affidavit. The Court may direct a summons to be issued if it considers it appropriate to give the other party an opportunity to be heard in an inter partes hearing. Once leave to enforce is granted, the Court's order must be drawn up by, or on behalf of, the applicant and personally served on the respondent, delivered to his or her last known or usual place of business or abode, or in such other manner as the Court may direct. The award may be enforced 14 days after the date of service of the Court's order on the respondent or, under Order 73, Rule 10(6) of the RHC, the respondent may apply by way of summons and affidavit to set aside the order granting enforcement of the award within 14 days of being served. Failure to make a prompt objection to the Tribunal or the supervisory court may constitute estoppel. The party opposing enforcement has to show a real risk of prejudice and that its rights are shown to have been violated in a material way. Notwithstanding the 14-day time limit to apply for leave to set aside the enforcement order, the Court has power the to grant an extension of time under Order 3, Rule 5 of the RHC. In Astro Nusantara International BV and Others v. PT First Media TBK, the Court of Final Appeal granted an extension of time for the award debtor to challenge the enforcement orders notwithstanding a 14-month delay, taking into account that the award debtor had a strong case that the relevant awards had been made without jurisdiction over certain parties and that the delay had not caused the award creditor any uncompensatable prejudice. Along with the above-mentioned Application for Enforcement, the award creditor also needs to submit the documents as mandated in the HKAO. Furthermore, the time limit to apply for enforcement is six years. Section 85 of the HKAO deals with the enforcement of “Other Awards”, and lists out the following documents to be submitted for the same: a. the duly authenticated original award or a duly certified copy of it, b. the original arbitration agreement or a duly certified copy of it, c. if the award or agreement is not in either or both of the official languages, a translation of it in either official language certified by an official or sworn translator or by a diplomatic or consular agent. The above criteria also need to be met for the enforcement of the Convention Award under Section 88, Mainland Award under Section 92, and Macao Award under Section 98C. Apart from this, for these awards, the parties may also bring an action in Court but this procedure is rarely followed as it is procedurally cumbersome. IV. PRC ARBITRATION LAW – LAW ON ENFORCEMENT OF AWARD PRC Arbitration Law is not as extensive or elaborate as the HKAO. Chapter VI deals with the Enforcement of Awards and gives the power to the party in favour of whom the award has been made to approach the Court in case of non-enforcement of the same. The following instruments govern the recognition and enforcement of domestic awards in China: a. Arbitration Law. b. Civil Procedure Law (“CPL”). c. Supreme People’s Court (“SPC”) interpretations on and related to the Arbitration Law. d. SPC interpretations on and related to the CPL. For the purposes of recognition and enforcement, the law governing PRC divides arbitral awards into the following four main types, depending on a number of factors, including the place of the arbitration institution, the place of arbitration, and/or the presence/absence of foreign elements in the dispute: a. Local awards: which are rendered in mainland China by Chinese arbitration institutions over disputes without a foreign element. b. Foreign-related awards: which are rendered in mainland China by Chinese arbitration institutions and arguably foreign arbitration institutions over disputes with foreign element(s). c. Hong Kong, Macau, and Taiwan awards: which are rendered in Hong Kong, Macau (by arbitration institutions and arbitrators in Macau), or in Taiwan (by arbitration institutions and ad hoc arbitral tribunals in Taiwan). d. Foreign awards: which are rendered in jurisdictions other than mainland China, Hong Kong, Macau, and Taiwan. Depending on whether a foreign award is subject to the New York Convention, foreign awards are further divided into New York Convention awards and non-New York Convention awards. There are no "recognition" proceedings for a domestic award. Once a domestic award is rendered, the award creditor can apply for its enforcement before the competent court directly. For foreign awards, recognition and enforcement proceedings can be applied together or only recognition proceedings can be started. In the case of the first scenario, if once the trial division of the court recognizes the award, which gives the award effect in mainland China, the enforcement division can enforce the award as if it were a domestic award. In the latter case, the court will only rule on the recognition issue. V. ENFORCEMENT LAW AS UNDER THE 1999 ARRANGEMENT In the 1999 Arrangement between the PRC and the HKSAR, the main agenda was to allow the awards of both jurisdictions to be enforceable at each place. For this purpose, the Arrangement came into being. It attempted to broaden the scope of arbitral awards under the mutual enforcement regime and to align the position with the international approach under the New York Convention. Most of the laws followed the UNICTRAL Model Law with certain adjustments. However, there were places of ambiguity in the Arrangement which led to differences in interpretation in Mainland and Hong Kong. For example, it was a matter of dispute if recognition of an award as a procedural requirement is a pre-requisite for its enforcement, considering that the Arrangement did not mention the recognition of an award. Similarly, Parallel Proceedings for enforcement were not allowed, which were not commercially viable for parties who had assets in multiple jurisdictions. The Courts of Hong Kong had held that until proceedings for the enforcement of award at Mainland are concluded, the same proceeding cannot be instituted in Hong Kong, causing losses to the Award Creditor. Therefore, there was a need for a uniform set of rules to fill this void of uncertainty created by the rules. VI. SUPPLEMENTAL ARRANGEMENT 2020 On 27 November 2020, the Chinese Supreme People’s Court and the Hong Kong Department of Justice signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (“Supplemental Arrangement”). The Supplemental Arrangement modified the existing Arrangement of 1999. The main content of the Supplemental Arrangement is as follows: a. Article 1 clarifies the position of the two stages of enforcement, i.e., recognition and enforcement. Since the 1999 Arrangement does not expressly state the recognition procedure for arbitration awards, debates had been going on in the Mainland Courts about whether it is a pre-requirement for enforcing arbitral awards made in Hong Kong against an award debtor’s assets. The Supplement Arrangement clarified this position of law by clearly stating that the enforcement of arbitral awards specified under the 1999 Arrangement shall be interpreted to cover both procedures for the “recognition” and “enforcement” of the arbitration awards. b. Article 2 clarifies the types of arbitral awards under the 1999 Arrangement. It specifies that all arbitral awards made pursuant to the Arbitration Ordinance of Hong Kong can be enforced in the Mainland pursuant to the Supplemental Arrangement. That includes all awards rendered in Hong Kong-seated arbitrations, whether institutional or ad hoc. This aligns with the usual international approach to the seat of arbitration under the New York Convention. c. Article 3 allows for parallel enforcement of awards both in Hong Kong and China simultaneously, which was earlier barred by the HKAO, under Section 93. This amendment is particularly helpful for enforcement against parties who have assets in multiple jurisdictions, as it facilitates timely enforcement and helps to prevent asset dissipation. d. Article 4 recognizes that before or after the enforcement of an award, the courts may order preservation measures in accordance with the applicable law. The Supplemental Arrangement fills the void and ensures that interim measures are available throughout the entire lifespan of an arbitration, including prior to the commencement of the proceedings (under the Interim Measures Arrangement), during the arbitral proceedings (under the Interim Measures Arrangement), and after the conclusion of the proceedings at the enforcement stage of the award (under the Supplemental Arrangement). The Supplemental Agreement is a progressive step towards creating a pro-arbitration region, allowing parties to move with the least hassle if the award is rendered in their favour. VII. EXCEPTIONS TO ENFORCEMENT OF AN AWARD The exceptions to the Enforcement of an Award against an Award Debtor, as given in Section 86 of HKAO, are the following: a. Incapacity of Parties; b. Void arbitration agreement; c. Violation of audi alteram partem; d. Deals with matters beyond the scope of arbitration; e. Wrong arbitral procedure used; f. If the award has already been set aside or is not yet binding on the parties; g. Contrary to the public policy of Hong Kong; h. Can not be dealt under the law of Hong Kong. In considering whether or not to refuse the enforcement of the award, the court does not look into the merits or at the underlying transaction. In dealing with applications to set aside an arbitral award, or to refuse enforcement of an award, whether, on the ground of not having been given notice of the arbitral proceedings, inability to present one's case, or that the composition of the tribunal or the arbitral procedure was not in accordance with the parties' agreement, the court is concerned with the structural integrity of the arbitration proceedings. In this regard, the conduct complained of "must be serious, even egregious", before the court would find that there was an error sufficiently serious so as to have undermined the due process. Another ground on which the awards are not enforced against the corporate debtor, is through the exception of crown immunity. Crown Immunity is a common law doctrine based on the principle that the Crown enjoys immunity from being sued in its own courts. Crown immunity is not limited to immunity from suit, but also extends to immunity from execution. Any assertion of Crown immunity must come from the “Crown”, which in Hong Kong now means the PRC Central People’s Government (“CPG”). The Hong Kong Court has also considered the assertion of Crown Immunity by reference to: a. The laws of the country of incorporation - The laws of the country of the company establish whether the entity is treated as an agent or instrumentality of the Crown. b. The Common Law Control test - The common law control test operates on a case-by-case basis, which looks for the nature and degree of control exercised by the Crown. An enjoyment of independent discretion in a company’s operation has consistently been held to be a powerful indicator of a company’s independence from the Crown. VIII. CONCLUSION The HKSAR is a pro-arbitration region and Courts generally have very limited intervention while enforcing awards, making HKSAR a popular destination for dispute resolution by giving parties the assurance that arbitral awards in their favor can be executed in HKSAR. With the recent Ordinances, the region is aiming to be a commercial arbitration hub, keeping in mind that in commercial disputes, time is of the essence and hassle-free legal procedures are needed the most. In a comparison, HKSAR procedures are more direct and elaborative than the procedures in PRC, which is why, an active attempt is taken to constantly bring in amendments that will further help in shaping the pro-arbitration stance of HKSAR. *Students at Chanakya National Law University, Patna, Bihar.

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