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- Navigating Uncharted Territories: ICSID Tribunals’ Power to Remove Counsel
This article was originally published on the HNLU CCLS Blog on November 23, 2023 (find here). Aarya Parihar* The role of a lawyer is extremely crucial in an arbitration proceeding. The right to effective legal representation of one’s own choice is specifically recognized in various international instruments, like Article 14 of International Covenant on Civil and Political Rights and Article 6 European Convention on Human Rights. Such a right is equally important in investor-State arbitration proceedings, where it may form part of the due process expectations of the parties to the proceedings with serious transgressions from the principle even may potentially constituting a ground to challenge the award itself. The ICSID Convention, Rules, and Regulations do not expressly address the authority of ICSID Tribunals to permit the withdrawal of legal counsel or to compel their continued participation in the proceedings (against their wishes). This post discusses the authority of ICSID Tribunals to exclude or require the presence of particular counsel in a dispute. The post then discusses the existing arbitral decisions on this issue to examine the contours of ICSID Tribunals’ powers in relation to these matters. Do ICSID Tribunals Have the Power to Remove/Exclude Counsel? ICSID Tribunals are formed to resolve treaty disputes between contracting parties. Every dispute has its own separate Tribunal with separate procedural rules agreed by the disputing parties. Arbitration’s inherent nature of being party-centric, where the autonomy of parties is given primacy leads to divergent procedural practices. Additionally, the non-binding nature or lack of precedential character of ICSID awards over other ICSID Tribunals leads to differing awards. Thus, it is essential that before moving to ICSID Tribunals, assistance shall be taken from the federal courts of the United States who have often used their power to decide upon the issue of counsel resignation. Generally, the US Courts look for a good cause, which depends upon the facts and circumstances of every case. Simply put, there is no straitjacket formula to when a counsel can legally stop their representation. It, hugely and majorly, depends upon the peculiar factual matrix of every case and the application of mind by the judge presiding over it. In the realm of ICSID, only a few Tribunals were called upon to decide upon the issue of counsel resignation or removal of counsel. Five of the publicly available awards are from Hrvatska Tribunal, Rompetrol Tribunal, Edmond Khudyan Tribunal, Fraport Tribunal, and Theodore David Einarsson Tribunal. These five orders from five different Tribunals delve into the issue of removal of counsel. In all these five decisions, the Tribunal found its power to remove counsel under Article 44 of the ICSID Convention, which provides for residuary power to the Tribunals. It empowers the Tribunals to decide upon any question of procedure which is not explicitly covered under the ICSID Convention, Rules, and Regulations. Due to the heavy amount of cross-referencing/quoting done in these decisions, it is important to discuss all of them separately and conjointly. The post attempts to cull out only the important dictum from these decisions, which is required to facilitate analysis in the present article. Hrvatska Tribunal In the Hrvatska award, the removal of counsel was warranted because of his apparent connection with one of the arbitrators, which might have caused bias. The Tribunal found that the right to effective representation is pitted against the right to effective and unbiased proceedings. After due deliberation, the Tribunal found itself empowered to rule on this issue by virtue of Article 44 of the ICSID Convention. Rompetrol Tribunal The Respondent in the Rompetrol decision cited the Hrvatska decision as the sole authority to buttress their argument regarding ICSID Tribunals’ authority to exclude counsel from the proceedings. The Tribunal found that it has inherent power to exclude counsels under Article 44 of the ICSID Convention but refused to exercise the same in the present dispute. According to this Tribunal, this power should only be used in exceptionally uncommon circumstances, where the integrity of the whole proceeding is in question/dispute. Edmond and Fraport Tribunals In the decision rendered in Edmond dispute also the Tribunal reiterated that it has the power to exclude participation of counsel under Article 44 of the ICSID Convention. In this case, both parties agreed to this power of the Tribunal without any disagreements. The Tribunal emphasised once again on the requirement of using this power sparingly and only in certain circumstances. It should be used only to protect the integrity and fairness of the proceedings, and to ensure equality of the parties. The Tribunal heavily quoted from the Fraport decision, which also reached similar conclusion. The Fraport Tribunal also imposed the necessary contours of “ensuring fair conduct of the proceedings” while exercising its power under Article 44 of the ICSID Convention. Theodre Einarsson Tribunal Another important decision in this aspect is of the Theodore Einarsson Tribunal, where the Tribunal while deliberating on removal of a counsel outlined that the ICSID Tribunals do not have the power to police the compliance of counsels with their deontological or ethical mandates imposed by any local code/rule. It reasoned that since the issue of removal attacks the core of the fairness of proceedings and thereby a mandate of ICSID Tribunal. The Contours of the Power of ICSID Tribunals to Control Representation of Counsels The Tribunals in all the above-quoted disputes have reasoned that the power to remove counsel is exercised to ensure the fairness and integrity of the proceedings. In both of the decisions in Fraport and Theodore, the Tribunals refused to look into the counsel’s deontological or ethical mandate. They found it outside the purview of their authority, and a question that is to be decided by local or regional courts. It can be understood that the ICSID Tribunals have been reluctant to rule on anything else apart from simply the participation of a counsel. The Author believes that the power to exclude also includes the power to include counsel by overriding the choice of the parties. One important aspect to highlight is the conditions or situations where a counsel can be removed from the ongoing proceedings. Ruling on Counsel’s request for removal The five above-referenced awards did not concern any situation where the Tribunal was required to address a counsel’s request to resign. In almost all of them, there was some kind of bias or conflict between the challenged counsel and an arbitrator. There may arise a situation where the counsel wishes to resign, whether on a voluntary basis or per the desire of an either party that wants their counsel to discontinue representation. In these scenarios, as already stated, the courts generally use their wisdom to decide based on the peculiar facts and circumstances of every case. Generally, counsels decide to withdraw their representation when there is a breakdown of any attorney-client relationship. In simpler words, it is when the attorney has lost faith in his client and their case or vice versa. It is breakdown to such an extent where the representation would only harm the case of the client. Also, it is important to note that the withdrawal should not cause undue or unreasonable delay to the proceeding. This also means that there should be no prejudice caused to any of the parties involved from the withdrawal of a Counsel. In the Jean-Bosco trial, the International Criminal Tribunal (hereinafter “ICT”) for Rwanda denied withdrawal/replacement of counsel because of the possibility of undue delay in the proceedings that would cause prejudice to the parties. It was highlighted in the Jean-Bosco decision, that it is extremely essential for a new counsel to acquaint themselves with the facts, documents and figures of the existing case. Sometimes, this process of getting acquainted with everything also causes an undue delay in the proceedings, and the Courts have rejected the withdrawal for this reason. This similar reasoning was also employed by the ICT for Rwanda in the Jean-Bosco Trial to arrive at the decision of rejecting the withdrawal/replacement of counsel. Suggestions and Conclusion There is an apparent dearth of awards and decisions by ICSID Tribunals on the issue of counsel withdrawal/exclusion. The available awards reiterate the similar reasoning applied by the Tribunals in every dispute. There seems to be a well-founded reluctance by ICSID Tribunals to adjudicate over counsel’s withdrawal or exclusion with full vigour. ICSID Tribunals are constituted mainly to resolve the dispute between investors and States. The contours of a Tribunal’s powers are well-defined in ICSID Convention, Rules, and Regulation. Thus, the Tribunal finds itself in a quagmire or conundrum where the chances of overreach exist. In the light of various awards highlighted in this article, it is abundantly clear that the ICSID Tribunals have discovered their inherent power to decide on any question of “procedure” of the dispute flowing from Article 44 of the ICSID Convention. Issues of counsel’s conduct and obligations are not the mandate of ICSID Tribunals. If the Tribunals are given unfettered power to decide upon the issue of counsel’s ethical obligations, it would open a floodgate of proceedings and would further cause delay in proceedings. This would defeat the purpose of arbitration proceedings, where the primary aim is to promote expediency and efficiency. If a further step could be taken, the ICSID Convention should insert an explicit provision defining the power of its Tribunals to decide upon the issue of counsel resignation/removal, in cases of apparent bias/conflict with the arbitrator or irrevocable breakdown of attorney-client relationship. To develop their contours or limits, the Tribunals may take assistance from decision of local courts and also of international tribunals where the issue of counsel resignation has been discussed in length. *Aarya Parihar B.A. LL.B. (Hons.) | Candidate of 2026 Dr. Ram Manohar Lohiya National Law University.
- Incorporation of ‘Group of Companies’ Doctrine: Decoding the consent aspect of the SC Ruling
Digvijay Khatai and Jibisa Janvi Behera I. Introduction On 6th December 2023, the Supreme Court bench comprising Chief Justice of India D.Y. Chandrachud, Justice Hrishikesh Roy, Justice J.B. Pardiwala, Justice Manoj Misra and the concurring judgment of Justice PS Narasimha, retained the ‘group of companies’ doctrine in the Indian Jurisprudence. The ruling was pronounced in the appellate decision of Cox and Kings Ltd v. SAP India Pvt Ltd and Anr. (“Cox and Kings II”). Recognized internationally, the theory holds that a non-signatory may be bound by the terms of an arbitration agreement, if it is a member of the same corporate group as the signatory; and all parties to the agreement intend for the non-signatory to be bound by the agreement. Here, a non-signatory party is someone that has not submitted its ‘written signature’ to the agreement, signifying the absence of an ‘express consent’ to be bound by such agreement. Hence, the primary element, by the virtue of which a non-signatory party is bound by an arbitration agreement is the ‘implied consent’ of such party. There have been several Apex Court rulings that have validly recognized and tried incorporating the said doctrine by upholding its various aspects like mutual intention, economic conveniences etc. However, the jurisprudence did not particularly lay down emphasis on the consensual nature of the doctrine. This gap was recently filled by the Cox and Kings (II) judgement. As such, in this article, the authors specifically analyze how a pragmatic approach towards consent played as the ‘x factor’ in the ruling that successfully retained the doctrine in the Arbitration and Conciliation Act, 1996 (“The Arbitration Act”). II. Brief Facts In 2010, Cox and Kings Ltd. entered into a Software License Agreement with SAP India Private Ltd. for the development of an e-commerce platform. In 2015, SAP India recommended ‘the Hybris Solution’ to Cox and Kings as it included several benefits. The Agreement comprised three agreements (in particular, contracts), a Software License Agreement, a Support Agreement, and a Services General Terms of Contract Agreement. Further the Services General Terms of Contract Agreement consisted of an arbitration clause. However, due to failure in implementing the Solution, the Hybris Solution’s contractual framework was terminated in 2016, leading to a demand for a refund of Rs. 45 crores by Cox and Kings Ltd. Failed attempts to resolve the matter led SAP India to invoke arbitration, and it further claimed a payment of Rs. 17 Crores, for wrongful termination of the Contract by the Petitioner. The disagreements remained unresolved. The establishment of an Arbitral Tribunal is noteworthy, particularly in light of the exclusion of the second respondent, “SAP SE GMBH” from the Arbitration Proceedings. In addition, Cox & Kings filed an application pursuant to Section 16 of the 1996 Arbitration & Conciliation Act (the "Act"), arguing that the four agreements together constituted a single, composite transaction. Further, in response to an application filed against the Petitioner under Section 7 of the Insolvency and Bankruptcy Code, 2016, the National Company Law Tribunal appointed an Interim Resolution Professional on October 22, 2019. The Corporate Insolvency Resolution Process commenced on November 5, 2019, and NCLT ordered the parties to postpone the arbitration proceedings. Cox & Kings Ltd., this time arraying SAP SE GMBH, sent a second notice of intent to invoke arbitration on November 7, 2019, but SAP India Private Ltd did not reply. Aggrieved, Cox & Kings Ltd. filed an application under Sections 11(6) and l1 (12) (a) of the Arbitration Act with the Hon’ble Supreme Court of India, requesting the setting up of an Arbitral Tribunal. In Cox and Kings Limited v. SAP India Private Limited and Another, pronounced by Chief Justice N.V. Ramana on May 06, 2022 (“Cox and Kings (I)"), the former Chief Justice criticized the group of companies’ doctrine applicability in India, raising questions about its basis and emphasizing caution. In contrast, Justice Surya Kant supported the doctrine but referred critical legal questions to a larger bench that read as follows - 1. Whether the group of companies doctrine should be read into Section 8 of the Act or whether it can exist in Indian jurisprudence independent of any statutory provision; 2. Whether the group of companies doctrine should continue to be invoked on the basis of the principle of ‘single economic reality’; 3. Whether the group of companies doctrine should be construed as a means of interpreting implied consent intent to arbitrate between the parties; 4. Whether the principle of alter ego/and or piercing the corporate veil can alone justify pressing the group of companies doctrine into operation even in the absence of implied consent. The blog limits its scope to the current Cox and Kings 2023 (II) judgment, and hence the issues recognised in the Cox & Kings (I) have only been provided as an advent to the same. III. Issues The principle of ‘privy/ privity of contract’, arising from the Indian Contract Act, 1872, mandates that parties to an agreement are the only entities against whom terms of the agreement can be enforced. This principle primarily stems from the assumption that – it is only the parties – that have consented to the agreement. Nonetheless, consent can be expressed in two forms i.e. implied and expressed. While it is easier to identify express consent that emanates from direct written or oral form, implied consent is inferred from the implicit behavior or conduct of the concerned party. In the case of written agreements, consent is expressed in the form of a signature and the party doing so is also known as the ‘signatory to the agreement’. Here it is also important to maintain the difference between ‘signatory’ and ‘party’ to the arbitration agreement. Similarly, arbitration agreements are agreements between parties of a pre-existing agreement, to submit to arbitration in the event of a future dispute between them. Section 7 of the Arbitration Act governs arbitration agreements in India. Further, sub-section 7(3) of the Arbitration Act recognizes the same in the form of ‘written agreements’ only. The group of companies’ doctrine seeks to bind a non-signatory party by the virtue of its membership in the same group of companies who constitute as a party to the agreement. With the absence of an ‘express consent’ in the form of a signature on behalf of the non-signatory party, the core element that binds such party to the agreement is its ‘implied consent’ to be bound by the arbitration agreement. The deduction of such implied consent is completely based on the facts and circumstance of the case. However, at the same time, “[s]ince consent forms the cornerstone of arbitration, a non-signatory cannot be forcibly made a “party” to an arbitration agreement, as doing so would violate the sacrosanct principles of privity of contract and party autonomy.” (Paragraph 65) Where Section 7 of the Arbitration Act recognizes arbitration agreements in written forms only, a valid question arises as to whether written agreements accommodate recording implied consent under it. Therefore, the Constitution Bench recognized two critical questions under the consent part of the judgement. 1. Is it necessary for a party to be a ‘signatory’ of the arbitration agreement to be bound by the same. 2. Does implied consent come under the ambit of Section 7 of the Act that rigidly recognizes arbitration agreements in written forms only? In the following sections, the authors have highlighted how adjudacting these questions led to the successful incorporation of the doctrine and where the judicial precedents have failed to do the same. IV. Judicial Precedents There are several precedents in the field of arbitration law that have laid down circumstantial grounds to bind non-signatories to arbitration agreements. In Chloro Control (P) Ltd v. Severn Trent Water Purification Inc. (“Chloro Control”), the Supreme Court laid down several grounds on which a non-signatory could be bound by the arbitration agreement. As per the ruling, the non-signatory not only needed to share a direct legal relationship with the signatories to the agreement and but must also have a direct commonality to the subject-matter of such a transaction. Relying on the Chloro Control (supra) judgment, the Supreme Court in Ameet Lalchand Shah v. Rishabh Enterprises held that in arbitral disputes where several interconnected agreements exist among parties (involving both signatories and non-signatories), all the parties can be referred to arbitration by the virtue of their participation in interconnected agreements. Similarly, a two-judge bench of the Apex court in Reckitt Benckiser (India) Private Limited v. Reynders Label Printing India Private Limited held that for a non-signatory to be bound by an arbitration agreement, it needs to have a ‘causal relationship’ with negotiations preceding the agreement. The causal relationshop contextually refers to the ‘active involvement’ of the concerned non-signatory party in the negotiations of the concerned transaction before its execution. The doctrine’s purport was also under question in Cheran Properties v. Kasturi Sons Pvt Ltd & Ors (2021),where the Apex Court observed that, the doctrine intends to facilitate the fulfilment of a mutually held intent between parties, where the circumstances indicated the intention to bind non-signatories as well. It binds a party who assumes obligations in layered business transactions without formally being a signatory to it. Lastly, the Supreme Court in the ONGC v. Discovery Enterprises noted that a non-signatory may be bound by an arbitration agreement, where (a) there exists a group of companies; and (b) the parties have made statements or engaged in conduct indicating an intention to bind a non-signatory. It thus, established a dual requirement for the application of the doctrine. Further, it reiterated that the present law on the subject considers the following factors: (a) mutual intent of parties; (b) relationship of a non-signatory to a signatory; (c) commonality of the subject-matter; (d) composite nature of the transaction; and (e) performance of the contract. The group of companies doctrine traces its origins from the French case Dow Chemical Vs. Isover Saint Gobain adjudicated by the International Chamber of Commerce Tribunal (“ICC”). Seeking to determine its jurisdiction over non-signatories, the ICC tribunal tried to discover the ‘common intention’ of the parties to be part of the negotiation and performance of the agreement. The tribunal concluded that if an ‘intention’ of the parties could be discovered from their actions, to be bound by the process of negotiation and performance of the agreement, then the parties can be said to be ‘parties to the agreement’. This additionally made the non-signatory parties to the arbitration. The case has also emphasized upon the inclusion of implied consent under the ambit of written agreements. Now, it can be inferred from the domestic rulings that none of them precisely answer the questions and issues discussed in the previous section. The SC in its previous rulings, has not been cognizant of the issue of including implied consent under written arbitration agreements. Although the Discovery Enterprises tried laying down guidelines for including almost every aspect of the doctrine, it overlooked the ‘consent aspect’ of the doctrine. In the following section, the authors attempt to demonstrate how the Court has finally laid down to rest the issues raised in the previous section. V. Parties Being Non-Signatories Before scrutinizing the ambit of Section 7 of the Arbitration Act, the Court had to first look at the meaning of ‘parties’ in the context of arbitration agreements. The Court noted, that as per Section 2(h) of the Arbitration Act a ‘party’ refers to ‘any party to an arbitration agreement’. The Court also took note of how Section 7 of the Arbitration Act recognizes arbitration agreements in writing and in three different forms as per sub-section 7(4). The Court observed that Section 7 has both aspects i.e. formal and substantive. The substantive aspect has been captured in sub-section 7(1) that forms a legal relationship between parties to submit to dispute to arbitration in the event of any dispute arising out of the contractual relationship. Legal relationships that are contractual in nature have to abide by the Indian Contract Act, 1872. The Court further emphasized that contracts can be both express and implied. In words of the bench, as per paragraph 74 of judgment, “[t]hus, it is not necessary for the persons or entities to be signatories to a contract to enter into a legal relationship – the only important aspect to be determined is whether they intended or consented to enter into the legal relationship by the dint of their action or conduct’. Similarly in paragraph 75, examining sub-section 7(3) of the Arbitration Act, the Bench held that “[t]he mandatory requirement of a written arbitration agreement is merely to ensure that there is a clearly established record of the consent of the parties to refer their disputes to arbitration to the exclusion of the domestic courts”. To substantiate its stand, the Bench referred to Article 7 of the UNCITRAL Model Law. The Article states that an arbitration agreement may be entered into in any form, for example orally or tacitly, as long as the content of the agreement is recorded. It eliminates the requirement of the signature of parties or an exchange of messages between the parties. When recorded in writing under Section 7 of the Arbitration Act, a ‘signature’ is an expressed or formalistic version of signifying consent to an agreement, which directs towards the idea of ‘express consent’. In regard to ‘implied consent’ under the ambit of written arbitration agreements, there is no explicit provision in the existing legal framework. However, it is important to note that Section 7 of the Arbitration Act does not explicitly speak on whether it requires consent to be similarly recorded in an expressed form, or it subsumes implied consent under it. This ambiguity proves to be a major impediment in the incorporation of the group of companies’ doctrine that binds non-signatories to an arbitration agreement by the virtue of their implied consent. Before scrutinizing the ambit of Section 7 of the Arbitration Act, the Court had to first look at the meaning of ‘parties’ in the context of arbitration agreements. The Court noted in Paragraph 73 of the judgment, that as per Section 2(h) of the Arbitration Act a ‘party’ refers to any party to an arbitration agreement. The Court also took note of Section 7’s rigid requirement of arbitration agreement in written form only and the three different forms as per sub-section 7(4) namely – a) a document signed by the parties. b) an exchange of letters, telex, telegrams, or other means of telecommunication 1[including communication through electronic means] which provide a record of the agreement; or c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. The Court observed that Section 7 has both aspects i.e., formal and substantive in sub-sections 7(3) and 7(1) respectively. The substantive aspect has been captured in sub-section 7(1) that forms a legal relationship between parties to submit to dispute at the event of any dispute. The Court also noted that, as similar to contracts, consent to a legal relationship can be both implied or expressed and the same has to be inferred from the conduct of the parties. As per paragraph 74 of judgment, “The legal relationships between and among parties could either be contractual or non-contractual. For legal relations to be contractual in nature, they ought to meet the requirements of the Indian contract law as contained in the Contract Act. It has been shown in the preceding paragraphs that a contract can either be express or implied, which is inferred on the basis of action or conduct of the parties. Thus, it is not necessary for the persons or entities to be signatories to a contract to enter into a legal relationship – the only important aspect to be determined is whether they intended or consented to enter into the legal relationship by the dint of their action or conduct”. Hence, the Bench prioritized the presence of consent of a party, over the manner in which the same is discovered i.e., expressed or implied, in order to bind such party to an agreement. Hence, the Court ruled in paragraph 76 that “Section 2(h) read with Section 7 does not expressly require the “party” to be a signatory to an arbitration agreement or the underlying contract containing the arbitration agreement”. Hence after reading Section 7, the Court held that it is not necessary for the persons or entities to be signatories to the arbitration agreement to be bound by it. In case of non-signatory parties, the important determination for the courts is whether the persons or entities intended or ‘consented’ to be bound by the arbitration agreement or the underlying contract containing the arbitration agreement through their acts or conduct. VI. Consent- A Pragmatic Approach The Constitutional Bench observed that there often arise situations where a company which has signed the contract containing the arbitration clause is not always the one to negotiate or perform the underlying contractual obligations. In such situations, emphasis on formal consent will lead to the exclusion of such non-signatories from the ambit of the arbitration agreement, leading to multiplicity of proceedings and fragmentation of disputes. Hence, the Court felt the need for a more pragmatic approach towards consent. Paragraph 93 of the ruling took note of Professor Hanotiau who suggested that “it is more accurate to refer to a modern approach to consent; an approach that is more pragmatic, more focussed on an analysis of facts, which places an emphasis on commercial practice, economic reality, trade usages, and the complex and multifaceted dimensions of large projects involving group of companies and connected agreements in multiparty multi-contract scenarios; an approach that is no longer restricted to express consent but that takes into consideration all its various expressions and tends to give much more importance than before to the conduct of the individuals or companies concerned”. Evidently, the need for the recognition of implied consent is being talked about, in world of business and commercial agreements that restrict their understanding of consent in an express form i.e., signature only. Looking at the modern-day businesses involving complex multiparty contractual agreements, the Court understood the context how the group of companies’ doctrine was created to bind non-signatory parties who were implicated in subject matter of the dispute of arbitration. Hence, the Court expressed its concluding opinion in paragraph 128 of the ruling which states “[w]e hold that all the cumulative factors laid down in Discovery Enterprises (supra) must be considered while determining the applicability of the group of companies doctrine. However, the application of the above factors has to be fact-specific, and this Court cannot tie the hands of the courts or tribunals by laying down how much weightage they ought to give to the above factors. This approach ensures that a dogmatic emphasis on express consent is eschewed in favour of a modern approach to consent which focuses on the factual analysis, complexity of commercial projects, and thereby increases the relevance of arbitration in multi-party disputes. Moreover, it is also keeping in line with the objectives of the Arbitration Act which aims to make the Indian arbitration law more responsive to the contemporary requirements’. The bench took note of the fact Indian arbitration law is both domestic and international in nature and needs to abide by principles of contracts and corporate law recognised internationally. Finally, the court concluded the consent aspect of judgment in the following three points:- a) The definition of “parties” under Section 2(1)(h) read with Section 7 of the Arbitration Act includes both the signatory as well as non-signatory parties. b) Conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement. c) The requirement of a written arbitration agreement under Section 7 does not exclude the possibility of binding non-signatory parties. With such an inclusive approach towards, the court held that requirement of written agreements Section 7 of the Arbitration act does not exclude a non-signatory party from being bound by an arbitration agreement solely due to the absence of a formal signature of such party. This pragmatic construal of consent coupled with the holistic application of guidelines laid down in Discovery Enterprises (Supra) leads to the successful integration of the group of companies doctrine into the existing legal framework. VI. Conclusion In this article, the authors have fairly pointed out the ‘x factor’ that segregates this landmark judgment of the Supreme Court from its previous ones i.e. a pragmatic approach towards consent. The authors also bring to the notice that the group of companies’ doctrine is consent based doctrine, and any effort to integrate the doctrine into the legal system also requires recognition of implied consent by the parties to be bound by an arbitration agreement. Further the Court has also set a pathbreaking precedent that emphasizes the importance of taking an inclusive approach towards implied consent while dealing with disputes pertaining to legal relationships. Hence, the ruling can be considered a welcome one in the field of not only arbitration law but corporate legal system in general.  Digvijay Khatai is a second-year B.A. LL.B. Student at National Law University, Odisha. EMAIL: email@example.com  Jibisa Janvi Behera is a second-year B.A. LL.B. Student at National Law University, Odisha. EMAIL: firstname.lastname@example.org
- Clarity Amidst Controversy: Has Green Light been given on Unstamped Arbitration Agreements?
Kushagra Tolambia I. Introduction The interpretation of unstamped arbitration agreements has been a contentious issue before various Courts worldwide. The Indian Supreme Court, for instance, has faced numerous cases dealing with the enforceability of arbitration clauses within unstamped contracts. Historically, the Court's stance leaned towards upholding the validity of arbitration agreements, even in unstamped contracts, if the agreement itself could be treated independently from the underlying contract. The Indian Arbitration and Conciliation Act, 1996, was enacted to align with international practices and streamline the arbitration process. Section 11 of the Act empowers the court to appoint arbitrators unless the agreement is null and void, inoperative, or incapable of being performed. The Supreme Court, in a series of landmark judgements, emphasized the separability doctrine, asserting that an arbitration agreement could exist independently from the underlying contract. Recently, a seven judge bench of the Supreme Court in the case of In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 And the Indian Stamp Act, 1899 (“In Re: The Interplay”), has upheld the validity of unstamped or inadequately stamped agreements in an arbitration proceeding. II. What is the issue about? The issue arose in the context of the interplay between the Arbitration and Conciliation Act, 1996 (“the Act, 1996”), the Indian Stamp Act, 1899 (“the Stamp Act, 1899”)and the Indian Contract Act, 1872 (“the Contract Act, 1872”). Under the Stamp Act, 1899, an instrument which is unstamped or inadequately stamped is inadmissible in evidence and cannot be acted upon. Often, contracts containing arbitration clauses are unstamped. When a party seeks appointment of an arbitrator under Section 11 of the Act, 1996, objections are raised that the arbitration agreement is inadmissible since the underlying contract is unstamped. The key question was whether such an unstamped contract (and consequently the arbitration agreement) would be non-existent, unenforceable or invalid. In N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.,2021 (“N.N. Global"), a three-judge bench held that an arbitration agreement is separate and distinct from the underlying commercial contract, and would remain valid and enforceable despite the contract being unstamped. This view differed from the earlier judgments in SMS Tea Estates v. Chandmari Tea Co. P. Ltd. (“SMS Tea Estates”) and Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd (“Garware Wall Ropes”). A five-judge Constitution Bench in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., 2023 (“the N.N. Global (II)”)” subsequently affirmed SMS Tea Estates and Garware Wall Ropes and held that an unstamped contract containing an arbitration clause is void under Section 2(g) of the Indian Contract Act, 1872, and the arbitration agreement cannot be acted upon until the underlying contract is duly stamped. Thereafter, a three-judge bench decision in Vidya Drolia v. Durga Trading Corporation, 2020 cited SMS Tea Estates and Garware Wall Ropes with approval. This led to a reference before a larger seven-judge bench in the case of In Re: The Interplay to reconsider the correctness of N.N. Global and related issues concerning stamping of arbitration agreements. III. The Court’s Conclusion? 1. Unstamped instruments are inadmissible in evidence but not void The Court held that merely being unstamped does not render an instrument void under the Stamp Act 1899. The consequence of non-payment of stamp duty is that the instrument is inadmissible in evidence. However, this does not amount to invalidity. Being a fiscal statute, the Stamp Act, 1899 renders an instrument inadmissible in evidence to ensure payment of stamp duty. It does not prescribe the substantive consequences of voidness, unenforceability or non-existence. 2. Non-stamping is a curable defect The Court held that non-stamping or insufficient stamping is merely a curable defect. The Stamp Act itself provides a procedure for having the instrument stamped on payment of requisite stamp duty and penalty. This indicates that unstamped instruments are not void ab initio. There is no procedure for ‘curing’ a void instrument. 3. Arbitration agreements are valid despite unstamped underlying contract The Court relied on the doctrine of separability enshrined in Section 16 of the Act, 1996 to hold that an arbitration agreement contained in an unstamped underlying contract remains valid and enforceable. The non-stamping of the substantive contract does not ipso facto invalidate the arbitration agreement therein, since the latter is a separate agreement. 4. Limited prima facie examination under Section 11 of the Act, 1966 Under Section 11, a court is confined to examining the existence of an arbitration agreement prima facie. It cannot undertake a detailed adjudication on stamping or impound the instrument at the pre-arbitral stage. This would undermine the competence-competence principle and the arbitral tribunal’s jurisdiction. Issues of stamp duty and impounding fall within the domain of the arbitrators. 5. The Act, 1996 has primacy over the Stamp Act, 1899 with respect to arbitration agreements The Court held that the Act, 1996 being a special law governing arbitrations, will prevail over the more general Stamp Act, 1899 and Contract Act, 1872 qua arbitration agreements. The minimal judicial intervention mandate of Section 5 of the Act, 1996 implies that provisions of the Stamp Act, 1899 cannot interfere with the operation of the Arbitration Act, which has primacy. IV. Settling Down the Controversy of Unstamped Arbitration Agreements (Analysis) The Supreme Court's judgment settles the controversy on the validity of arbitration agreements in unstamped contracts. It steers a middle path so that neither the Act, 1996 nor the Stamp Act, 1899 is rendered otiose. The ruling upholds party autonomy and the competence-competence principle which are cornerstones of arbitration law. At the same time, it preserves the object of the Stamp Act, 1899 in securing revenue by requiring payment of stamp duty before the underlying contract is acted upon. By holding that unstamped instruments are not void ab initio, the Court followed a long line of precedents including Thiruvengadam Pillai v. Navaneethammal, 2008 and Gulzari Lal Marwari v. Ramgopal 1936 which had distinguished between voidness and inadmissibility. The Court correctly held that the Stamp Act, 1899 renders a document inadmissible in evidence and not void or invalid. The ruling settles this confusion in jurisprudence. The Court has also authoritatively applied the doctrine of separability to hold that defects in the underlying contract do not ipso facto invalidate the arbitration clause, which remains a distinct agreement. This finding accords with international arbitration jurisprudence and gives full effect to party autonomy. The judgment helpfully clarifies the contours of Sections 8 and 11 of the Act, 1996. The prima-facie existence test under Section 11 excludes issues of stamping which must be left to the arbitrators. This upholds competence-competence and speedy constitution of tribunals. At the same time, issues of stamp duty can be agitated later during arbitration or challenge to the award. V. Implications of the Judgment The Supreme Court's judgment will have far-reaching implications. First, it settles the law by holding that unstamped contracts and arbitration agreements are not void or invalid. Second, it secures the validity of India's position as an arbitration friendly jurisdiction and a global hub for international arbitrations. Third, it upholds party autonomy and minimises judicial intervention at the pre-arbitral stage. Fourth, it reduces litigation over the appointment of arbitrators and ensures speedy constitution of tribunals. Commercially, the judgment is a boon for business transactions and contracts containing arbitration clauses. Parties need not rush to pay stamp duty at the time of execution for fear of subsequent invalidation. The ruling incentivises business entities to choose arbitration over litigation. At the same time, it preserves the revenue interests of states since stamp duty remains payable before substantive rights and obligations under a contract can be enforced. For arbitral institutions and foreign parties, the verdict assures that unstamped contracts will not derail India-seated arbitrations at the outset. It promotes arbitration as a time and cost effective dispute resolution mechanism. Court delays over impounding contracts at the pre-arbitral stage will also reduce. However, courts can still test the validity and enforceability of unstamped underlying contracts if an award is challenged on such grounds later under Section 34 of the Act, 1996. VI. The Way Forward The Supreme Court has given a pro-arbitration interpretation to reconcile party autonomy under the Act, 1996 with the state's fiscal interests under the Stamp Act, 1899. Lower courts must adhere to this authoritative pronouncement and refrain from delaying arbitration proceedings due to unstamped contracts. However, access to justice concerns may arise if arbitration becomes an exclusive domain for affluent parties, while weaker parties are unable to invoke arbitration due to procedural costs and delays in stamping contracts. Courts should adopt a balanced approach. For domestic and small-value disputes, substantial stamping compliance must be ensured at the initial stage itself. For high-value commercial and international arbitrations, exorbitant stamp duty requirements should not hamper arbitration. The onus is also on states to rationalize and simplify stamp duty administration, adopt technology solutions and minimize penal consequences for unstamped instruments. This will complement the Supreme Court's judgment in fulfilling the objectives of both the Stamp Act, 1899 and the Act, 1996. The ruling lays the ground for India's economic growth, global role and emergence as an arbitration hub. *Kushagra Tolambia is a third-year B.A. LL.B (Hons.) student at National Law University, Lucknow
- Navigating the Uncharted Water of §1782: Impact on International Arbitration and Evidence Collection
Yuvraj Sharma* Introduction In recent years, an increasing number of U.S. courts have been involved in cases dealing that revolve around the interpretation and application of 28 USC §1782. This has made section 1782 more popular among foreign parties involved in legal or arbitration proceedings outside the United States who want to leverage the broad discovery procedures available in the U.S. However, the language of the statute has generated significant debate about its applicability. The central question revolves around whether it can be used in private commercial arbitrations and whether U.S. courts can compel the production of document loaded in other countries. This article specifically addresses the later question and explores how the current legal landscape impacts international arbitration and what is the applicability of this with respect to India. Understanding Section 1782 and its application International Arbitration Section 1782 enables a U.S. federal district court to assist foreign legal proceedings by ordering the production of documents and witness depositions. Typically initiated through a unilateral application, its docent requires the foreign proceeding to be active but must be reasonably contemplated. For this assistance, three criteria must meet: “1) the request originates from a foreign or international tribunal or an interested party”, “2) the requested information is intended for use in a foreign or international tribunal”, and “3) the person subject to discovery reside or is found in the district where the request is made”. If these conditions are satisfied, the district court may, at its dictation, grant the request. The Supreme Court’s intel decision introduced four factors for courts to consider when exercising the discretion: Whether the subject of discovery is a party to the foreign proceedings (which makes it harder to obtain discovery). The willingness of the foreign court to accept U.S. assistance. Is the §1782 request being made in an effort to bypass limitation on gathering evidence in a foreign jurisdiction? Is the request unduly invasive or imposing an excessive burden on the party being asked to provide the asked information? Before the Intel decision, two circuit court had ruled on whether section 1782 applied to Private International Arbitration (“Nat. Broad co. v. Bear Stearns & Co., Inc. and Republic of Kazakhstan v. Biederman Int’l”). Both courts had concluded that section 1782 did not apply to such cases. However, in Intel, Justice Ginsberg cited Professor Hans Smit, a key contributor to Section 1782’s drafting, who stated that the term “tribunal” included arbitration. This led to 18 years of section 1782 cases being brought in support of arbitration, creating a split in district and circuit courts. The Supreme Court took up the case to resolve this division. The Uncertainty surrounding of use section 1782 discovery The “Servotronics Inc. v. Rolls Royce Plc” (“Servotronics”) case, which revolves around the interpretation of Section 1782 in U.S. Law. The key issue was whether an international tribunal can be classified as a “foreign or international tribunal” under section 1782, determining its applicability in International Arbitration cases. Notably Two U.S. circuit courts, the Fourth and Seventh circuits, reached conflicting conclusions on this matter. The Fourth Circuit allowed Section 1782 discovery in International arbitration cases, while the Seventh circuit denied it. This circuit split had created legal uncertainty and prompted Servotronics to appeal the case to the Supreme Court in December 2020. The historical context of the case and the diverse interpretations across different legal circuit have been comprehensively documented in various sources, and for brevity, these details will not be further elaborated on this post. What’s notable is that multiple parties, including the U.S. Department of justice, have significance amicus brief in the Supreme Court proceedings, highlighting the significance of the issue and the potential implications of the court’s decision. A closer look of Implications of ruling The Supreme Court’s decision in this case settles a legal dispute and clarifies the rules for getting information in International arbitrations in the U.S. Now, it’s straightforward if the arbitration group is private, it’s not subject to U.S. discovery rules under §1782. This decision makes international arbitration more predictable but limits the choices for people making contracts. If the courts had allowed information gathering in private arbitrations, parties could choose whether to follow standards rules or exclude U.S. discovery into here agreements. The decision is likely good news for U.S. parties but not so great for foreign parties. People in arbitration now know they can’t use §1782 to get information in the U.S This clarity has pros and cons. Foreign parties can no longer seek information in the U.S., which was allowed in some areas. But parties in the U.S. may like this decision because it limits the information they can access in foreign arbitration, making things fairer between them and the people they are making agreement with. Section 1782, which allows parties U.S. discovery for international arbitration, has gained more attention recently. This is particularly true for private international commercial arbitration outside the U.S. However, while it can be a valuable tool for obtaining information that might otherwise be hard to access, it also raises important issue in the context of arbitration. Arbitration is meant to be a less burdensome alternative alive to litigation, with discovery usually limited by chosen arbitration rules or the law of the arbitration’s location often outside the U.S. But using section 1782 to get overseas discovery can significantly expand the available information beyond what arbitration forums discovery rules, but the fact that the requested information can’t be obtained there doesn’t determine the outcome. This has significant implications for International arbitration. In district allowing extraterritorial Section 1782 discovery, companies within their jurisdiction may be compelled to produce documents from their affiliates in unrelated countries, which would otherwise be off-limits in the arbitration. Similarly, section 1782 could force testimony from witnesses, including third parties, that might not otherwise be use in the arbitration. Arbitration is typically based on party’s agreement, including the choice of rules and the arbitration’s location, which dictate the extent of discovery, non-U.S. entities may not even know about it when signing arbitration agreements. Some argue that unilateral section 1782 applications could violate arbitration agreements. Notably section 1782 potential uses have faced critics. Some courts are concerned about potential abuse and “forum shopping” for information unrelated to the U.S commentators also point out that using Section 1782 in foreign arbitrations may lead to controversial results, such as allowing preheating discovery for arbitrations outside the U.S., which domestic parties cannot do under the Federal Arbitration Act. Moreover, obtaining internal documents of non-US. Entities through their U.S. affiliates jurisdiction extension could have far reaching consequences. English courts, for example have been hesitant to restrain section 1782 discovery. Foreign jurisdiction hasn’t enacted similar mechanism as the U.S., and some have expressed discomfort with Section 1782. Overall while tribunal and courts outside the U.S. are open to evidence obtained through section 1782, there are still limits and concerns about its applications. A closer look at legal stance in India In the context of Indian law, the Code of Civil Procedure, 1908 (CPC) places strict limitations on the discovery process, ensuring it is not overly broad or speculative. Discovery tools, such as interrogatories, are subject to relevance, and affidavits of documents generally hold conclusive weight. However, when dealing with legal matters involving entities or individuals from the United States, there is a unique avenue available. Through an application in a U.S. Federal Court under 28 USC §1782 once can obtain U.S. style discovery allowing broader access to documents and the examinations of witness a process that often leads to pre-trial settlements. Shifting the focus, the recent 2015 Amendments to the Arbitration and Conciliation Act of 1996 in India has reinstated, to some extend the principle established in the Bhatia International judgement. This amendment, affecting Section 2(2) of the 1996 Act, affirms that the provisions of Part-I, including interim relief, are applicable to all arbitrations, including those with a foreign seat, unless expressly or implicitly excluded the parties. The term “subject to an agreement to the contrary” introduces a level of ambiguity, as it does not specify whether the agreement must be express or implied. In case without an express contrary agreement, Indian courts have issued judgements on the concept of an ‘implied agreement’ to exclude the application of Part I of the 1996 Act and its Section 9. This is implied exclusion of Indian Arbitration Law in foreign seated arbitrations has been a subjected of extensive debate among legal practitioners and scholars. To understand the impact of the 2015 Amendment Act on international commercial arbitration governed by foreign law, it is essential to delve into the legal stance on ‘implied exclusion.’ Indian courts have provided examples of situations in which they used implied exclusion to exclude Part I's application. This exclusion is predicated on a number of variables, such as the arbitration agreement's controlling law, the seat of the arbitration, and the procedural procedures of international arbitral institutions. A few prominent cases that highlight this strategy include Videocon Industries Ltd. v. Union of India, Yograj Infrastructure Ltd. vs. Ssangyong Engineering Construction Co. Ltd., Hardy Oil Gas Ltd. vs. Hindustan Oil Exploration Company Ltd., and Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd. These cases highlight that specific provisions in the contract, such as the seat of arbitration, the governing law of the agreement, and the law governing the conduct of arbitration, can imply the exclusion of Part I of the 1996 Act. However, a recent unreported judgement by the Madras High Court took a difference stance. The court held that in a Pre-Balco Arbitration Agreement, even with the explicit selection of foreign law, it parties allow approaching Indian Courts for interim measures, Section 9 of the Act becomes valid and applicable. The court emphasizes the importance of the precise language used in contracts and arbitration agreements, noting that the current case is unique since it has a retention or saving clause, which was not present in previous decisions. This emphasizes how complex legal circumstances might be in international arbitration and how important it is to have precise language in arbitration agreements. Legal disputes in Indian courts are likely to arise from the different interpretations that result from different judgments, especially when it comes to preliminary topics. Concluding Remarks The court's latest ruling is an important step forward for international arbitration and the rules governing the gathering of evidence in these cases. This historic decision has far-reaching effects, and a thorough appreciation of its significance necessitates examining a number of crucial aspects of the opinion. Firstly, international arbitration now has much-needed clarity thanks to the court's ruling. It sets a standard for the collection and presentation of evidence in these kinds of disputes, thereby impacting the arbitration procedure as a whole. Parties involved in international arbitration proceedings may now anticipate the rules and guidelines guiding the evidence gathering process thanks to this increased clarity. Second, notwithstanding its prior assistance in obtaining evidence in instances involving international arbitration, the United States is now limited in its involvement by the current rule. The landscape of international arbitration has changed significantly as a result of this restriction on U.S. court aid, since parties are now required to rely more on the arbitration process itself rather than requesting substantial support from U.S. courts. Furthermore, it is imperative to bear in mind that the current decision in Intel Corp v. Advanced Micro Devices, Inc. is not as far-reaching as it was in the past. The Intel Corp case opened the door to more extensive U.S. assistance in foreign lawsuits. The New Ruling limits the situations in which U.S. courts can help in international arbitration issues, marking a change from this more expansive understanding. The recent decision primarily focuses on private arbitral bodies, as opposed to those with clear government authority. This distinction is crucial because it defines the types of cases affected by the ruling. Matters involving private arbitral bodies will see more significant changes in the way evidence is handled. It remains uncertain whether this decision applies to international treaty-based institution such as ISCID. The extend of the ruling’s application to these institution’s, which have distinct procedural rules, is still a matter of debate. Lastly, as is stands, §1782, which governs the assistance of U.S. courts in the discovery process, does not apply to international commercial and significant investment arbitration. This means that for the foreseeable future, the discovery in International arbitration. Parties involved in these arbitration cases will need to adapt to this new legal landscape and find alternative means of evidence collection and presentations. *Yuvraj Sharma, 4th year, BA. LL.B from the School of Law, Narsee Monjee Institute of Management Studies, Hyderabad.
- India's Economic Rise Sparks Demand for Efficient Dispute Resolution: The Evolution of Institutional Arbitration and the Rise of India as a Global Arbitration Hub
- Harsh Mahaseth and Anvita Sharma[i] India's remarkable ascent as a key player in the global economy continues, characterized by a surge in investments both within and beyond its borders. This economic dynamism has given rise to an escalating demand within the international business community for a reliable and definitive method to address disputes related to India. Faced with a significant backlog of cases and time constraints, courts are increasingly open to exploring alternative dispute resolution methods. Data indicates that as of September 2023, a staggering 80,344 cases were pending before the top court, a figure exacerbated by inadequate infrastructure and a shortage of judges grappling with an increasing workload. With arbitration emerging as a pivotal and favoured approach for dispute resolution, both domestically and globally, it is imperative for the Government of India, in collaboration with the Judiciary, to assume a pivotal role in aligning and enhancing the efficiency of arbitration processes. Post-liberalization of its economy, India drew inspiration from the United Nations General Assembly's initiative to adopt the UNCITRAL Model Law of Arbitration. Subsequently, the Arbitration and Conciliation Act, 1996, was modelled to modernize Indian arbitration law and align it with the best global practices. However, it lacked a structural framework for institutional arbitration. The recent 2019 amendment (“Amendment”) seeks to address this gap by mandating the creation of the Arbitration Council of India, tasked with promoting alternative dispute resolution practices such as mediation, arbitration, and negotiation. With this Amendment, India is poised to become a global hub for arbitration, backed by a body dedicated to fostering amicable methods of dispute resolution. The Amendment also introduces tiered and grading systems to ensure quality checks of specific institutions. Concerning international arbitrations, the amendment empowers the Supreme Court and High Court to designate arbitration institutions graded by the Arbitration Council of India. Traditionally, international investors favoured sending their disputes to arbitration centres in London, Singapore, Hong Kong, and the International Chamber of Commerce. In an effort to revamp India’s reputation as a foreign investment-friendly nation, the Central Government launched the New Delhi International Arbitration Centre Bill (“Bill”) in 2018. The Bill aimed to acquire and restructure the governance structure and procedural framework that were formerly under the International Centre for Alternate Dispute Resolution by establishing the New Delhi International Arbitration Centre (“NDIAC”). The Bill suggests designating NDIAC as an institute of national significance, which is anticipated to grant NDIAC independence in its academic, financial, and administrative operations. In 2019, the Government of India approved the Bill, a major step towards developing institutional arbitration. The New Delhi International Arbitration Centre Act, 2019, requires the NDIAC to strive to facilitate the conduct of international and domestic arbitration and conciliation. Consequently, the New Delhi International Arbitration Centre (Amendment) Act, 2022, includes the conduct of other forms of alternative dispute resolution. Inevitably, the question arises as to how NDIAC would attract international investors. Three factors would develop NDIAC as a preferred arbitration institute – cost, timelines, and facility. The shift to institutional arbitration would only occur if these institutes were designed to conduct arbitration and conciliation in a professional and timely effective manner. The Central Government believed that implementing a cost-effective process would be the best method to steer the nation away from litigation. Additionally, the NDIAC would be preferred to ad-hoc arbitration because the costs are not predetermined in the latter. It does not follow any regulations. The Supreme Court in ONGC vs. Afcons Gunanusa brought to light the excessive fees charged by arbitrators unilaterally. Building upon this, the Supreme Court highlighted how institutional arbitration can “save arbitration from arbitration cost”. The fees are determined at a prescribed rate depending upon the complexity and number of hearings. Along with cost, time is one of the primary advantages of arbitration. According to Section 15 of the 2019 Act, the centre must provide timely resolution of disputes at both national and international levels. Studies denote that ad-hoc arbitration can be time-consuming with no guarantee that the terms agreed upon will address all issues. In terms of facility, NDIAC has an experienced panel of accredited professionals to conduct proceedings. It provides for the specialization of arbitrators, which means parties can freely choose an arbitrator skilled in the subject matter in question. NDIAC also provides parties with alternative forms of dispute resolution such as mediation and conciliation proceedings. Such facilities will educate people about which process would work best for the effective resolution of their disputes. Moreover, the NDIAC promotes research and training, and conducts seminars in the field of alternative dispute resolution, benefiting the nation in the long run. Alongside NDIAC, several other arbitration centres have been established in India, including The Indian Council of Arbitration, the Mumbai Centre for International Arbitration, and the International Centre for Alternative Conflict Resolution, all endorsing effective and reliable conflict resolution. The India International Arbitration Centre (“IIAC”), founded under the India International Arbitration Centre Act, 2019 is an enormous catalyst for progress. It is comprised of a group of knowledgeable individuals, including a former Supreme Court judge. The IIAC is dedicated to making India a leading centre for arbitration globally. A focused examination of the Arbitration and Conciliation Act, especially concerning the NDIAC, illuminates the diverse strategies India is employing to establish itself as a prominent global arbitration hub. Somesh Dutta highlights the need to significantly diminish the reliance on foreign jurisdictions such as Hong Kong and Singapore for resolving domestic disputes through arbitration. Achieving this objective necessitates the establishment of a robust arbitration bar. As India continues on this transformative journey, the emphasis on cultivating a strong domestic arbitration infrastructure becomes paramount. [i] About the Authors: Harsh Mahaseth is an Assistant Professor and Assistant Dean (Academic Affairs) and Anvita Sharma is a law student at Jindal Global Law School, O.P. Jindal Global University, India
- Analyzing the Conundrum Around the Nature of Mediation & Conciliation Clauses
Advik Rijul Jha I. Introduction Arbitration as a preferred mode of Dispute Resolution has proliferated over the years in India, with an increase in not only the number of cases being referred to arbitration, but also a rampant rise in the kinds of disputes which are being referred to arbitration, both in terms of the nature of the dispute and the quantum of amounts in dispute. However, albeit the above growth of arbitration, it is pertinent to point out that Conciliation which has statutory recognition has also been promoted at a pre-arbitral stage for the resolution of disputes due to the possibility of hastening the resolution of the disputes in a time-bound manner coupled with reducing the burden on the courts. An instance of the same can be evinced from a perusal of various contracts entered into by the Public Sector Undertaking (PSU’s) such as GAIL, NTPC etc, wherein Conciliation has been explicitly stated to be attempted prior to Arbitration being invoked and proceeded with. Even in industrial disputes, the first step is to reach an amicable settlement by resorting to Conciliation vide the appointment of Conciliation officers, post which the matter is referred to be resolved vide arbitration. Against this backdrop, the question arises as to whether the process of Conciliation which is part and parcel of various Dispute Resolution clauses is directory or mandatory in nature prior to arbitration being commenced with. In order to answer the above question, it is imperative to refer to the relevant statutory provisions and judicial precedents in this regard. Further, with the Mediation Act, 2023 being passed recently, it would be interesting to see what changes the enactment of a dedicated statute brings to this dynamic of directory or mandatory nature of pre-arbitral modes of dispute resolution. II. Statutory Overview The provisions governing Conciliation are contained in Part III of the Arbitration and Conciliation Act, 1996 (“The Act”). A bare perusal of the various sections contained in the afore-mentioned chapter itself evince that Conciliation is a voluntary process which can only be proceeded with in the event of both parties agreeing to the method for resolution of their disputes. Commencement of conciliation proceedings therefore depends upon the acceptance of the invitation to conciliate. Further, it is imperative to refer to Section 77 of the Act, as a perusal of the said section would reiterate the voluntary and directory nature of conciliation, a view which has also been endorsed vide various judgments which would be discussed hereunder subsequently. A reading of the aforesaid section evinces that while the conciliation proceedings are in process, parties are prevented from taking recourse to any arbitral or judicial proceedings but where any of the parties are of the opinion that such movement on his part is needed so as to preserve his rights, resort to arbitral or judicial proceedings may be had. Thus, the statute itself waters down the mandate of resorting to conciliation prior to resorting to arbitration. III. Judicial Precedents The Hon’ble Supreme Court of India as well as the High Court of Delhi have had the occasion to deal with this interesting question of law. The Supreme Court dealt with this issue in the case of Demerara Distilleries Pvt. Ltd. v/s Demarara Distilleries Ltd. In the aforesaid case, the Court observed “it was opined that the relegation of the parties to the avenue of amicable resolution, when the application under Section 11(6) of A&C Act, 1996 has been filed, would be unjustified as in the case, where such relegation would be merely in the nature of an empty formality.” (Para 5) A perusal of the above demonstrates that conciliation/mutual discussion has a mere directory nature when the ultimate recourse lies in arbitration. Another corollary view has been taken by the High Court of Delhi in Ravindra Kumar Verma v/s BPTP Ltd., wherein it was observed that “nothing worthwhile would be achieved by relegating the parties to explore any avenue of amicable resolution. Besides, the appointment of an Arbitrator by this Court would not act as an impediment to the parties to resolve their disputes amicably should it be possible at any point of time.” (Para 11). The Courts have also harped upon the voluntary nature of conciliation proceedings from time to time. One such judgment is of Abhi Engg. Corporation Pvt. Ltd. v/s NTPC Ltd., wherein it has been held that “[I]t has been rightly argued on behalf of the learned counsel for the 'petitioner that the process of "conciliation" could be resorted to only if both the parties agreed. Since the petitioner was not agreeable to resolution through conciliation, the Invocation of Arbitration cannot be held to be in noncompliance of mechanism agreed between the parties.” (Para 11) Another notable ruling following the same line of reasoning is that of M/s Oasis Projects Ltd. v/s Managing Director, National Highway and Infrastructure Development Corporation Ltd., wherein a Coordinate Bench of the Delhi High Court, has held that “[i]t needs no emphasis that Conciliation as a Dispute Resolution Mechanism must be encouraged and should be one of the first endeavours of the parties when a dispute arises between them. However, having said that, Conciliation expresses a broad notion of a voluntary process, controlled by the parties and conducted with the assistance of a neutral third person or persons. It can be terminated by the parties at any time as per their free will.” (Para 12) The afore-said rationale has also been reiterated in the case of Subhash Infraengineers Pvt. Ltd. v. NTPC Ltd., wherein it has been stated “conciliation is a voluntary process and once a party has opted out of conciliation, it cannot be said that the said party cannot take recourse to dispute resolution through arbitration.” (Para 28) From the conspectus of cases discussed hereinabove, it is evident that the Hon’ble Supreme Court and the Delhi High Court are consensus ad idem with regard to the voluntary and directory nature of conciliation as opposed to it being mandatory. The same also seems to be steeped in logic since if an arbitration clause is read in a mandatory manner with respect to any prior requirement to be complied with albeit conciliation/mutual discussion before invoking arbitration, the same can result in serious and grave prejudice to a party who is seeking to invoke arbitration because the time consumed in conciliation proceedings before seeking the invocation of arbitration is not exempted from limitation under any of the provisions of the Limitation Act, 1963 including its Section 14. Once there is no provision to exclude the period spent in conciliation proceedings, it is perfectly possible that if conciliation proceedings continue when the limitation period expires the same will result in nullifying the arbitration clause on account of the same not capable of being invoked on account of the bar of limitation i.e when proceedings for reference to arbitration are filed in court, the right to seek arbitration may end up being beyond three years of arising of the disputes and hence the petition for reference may be barred by limitation. Such an interpretation would lead to valuable rights of parties of getting disputes decided by arbitration getting extinguished, which is definitely not the intent of the Legislature nor the Judiciary. Therefore, it is imperative to have a look at the recently passed Mediation Act, 2023 to see if any progress has been made in this regard. IV. The Mediation Act, 2023: The Mediation Act, 2023 has been passed recently which provides statutory recognition to amicable resolution of disputes in civil, commercial, family and matrimonial matters and fosters a collaborative approach, reduces the burden on the courts by facilitating settlement of disputes outside courts, and preserves relationships of amongst disputants. However, there are certain provisions in the Act which may act as a deterrent rather than as a catalyst for meeting these objectives. The first of such provisions which is imperative to be pointed out is that on a plain reading of the relevant provisions of Section 5 of the Act, it is discernible that even pre-litigation mediation although being given statutory recognition, has been given a voluntary nature i.e. the provision reads “may voluntarily and with mutual consent”, which may render it similar to conciliation as discussed above. Due to the above wording, there is a high possibility that the courts while interpreting these provisions follow the interpretation as currently employed with regard to conciliation, as discussed in various cases hereinabove. The voluntary nature of Mediation is also discernible from a reading of Section 16 of the Act. This in effect can lead to a situation wherein parties entirely skip the mediation process, prior to resorting to arbitration or litigation, thereby defeating the objective of the Act at the initial stages itself. Another potential drawback of the Act is with respect to Court referred Mediation in accordance with Section 7, wherein the Court has been empowered to pass interim orders which may eventually lead to litigation before the Courts in this regard. Therefore, the legislature may have missed an opportunity here by not making mediation compulsory in the first place prior to the parties approaching the courts, which would have helped in reducing cases before the courts, which is the objective of the Act. However, there is also light at the end of the tunnel with this new Act. The Act under Section 18 has proposed a time-limit for the completion of mediation proceedings which has been given a mandatory nature. This is corroborated by the fact that unlike Conciliation proceedings which have the tendency to eat into the period of limitation prescribed for arbitration as discussed earlier, the time spent in Mediation proceedings has been excluded from the calculation of the limitation period. This would ensure that the rights of the parties to approach the Court are not negatively impacted. Therefore, while the Mediation Act, 2023 is a mixed bag with its own hits and misses, there is scope for this Act to reduce some of the panacea that the current Arbitration Act had.  About the author: Advik Rijul Jha is an Advocate who has been practising at the Supreme Court of India, High Court of Delhi and various Tribunals for the past couple of years. The author graduated from Jindal Global Law School. He is currently a Law Researcher with the Delhi International Arbitration Centre (DIAC), High Court of Delhi. Views are personal.  MANU/SC/1121/2014.  MANU/SC/1121/2014.  MANU/DE/3028/2014.  MANU/DEOR/85493/2022.  MANU/DE/0638/2023.  MANU/DE/2476/2023.
- Traversing the Constitutional Jurisprudence of a Pre-Deposit Clause in Arbitration Agreement
Shelal Lodhi Rajput Introduction: The Supreme Court in Lombardi v. Engineering Limited (“Lombardi”), delivered by a 3-judge bench, reiterated that the Indian Constitution is a Grundnorm and every law needs to be in consonance with it. The court struck down a pre-deposit clause in an arbitration agreement by emphasizing the inviolability of the Constitution in arbitration agreements as it hindered the effectiveness of an alternate dispute resolution mechanism. The ruling is concerned with the dispute between a Swiss Corporation named Lombardi Engineering Ltd and Uttarakhand Jal Vidyut Nigam Limited (“UJVNL”), a corporation owned by the Government of Uttarakhand where Lombardi had filed an application under Section 11(6) of Arbitration and Conciliation Act, 1996 (“A&C Act, 1996”) for appointment of an arbitrator. The Court has reemphasized its commitment towards a pro-arbitration approach and stands affirm with its path-breaking precedent of ICOMM Tele Ltd. v. Punjab State Water Supply & Sewage Board & Anr., (“ICOMM”) on a likewise subject matter. In the said case, the Supreme Court struck down the pre-deposit clause in question on the ground that it was arbitrary and unjust. The judgment was hailed as well as criticized at length. However, the latest ruling in Lombardi restates the stance of ICOMM ruling as a pro-arbitration approach adopted by the court in arbitration jurisprudence. The decision in Lombardi deals with the intersection of constitutional law jurisprudence with arbitration law in the Indian milieu specifically regarding the existing jurisprudential understanding of Pre-deposit clauses in arbitration agreements. This article restricts its inquiry to the moot issue and does not explore other issues addressed by the Apex Court. Background and Facts in Dispute: In the instant case, the petitioner company entered into a contract with Uttarakhand Project Development and Construction Corporation Limited (UPDCC) provide consultancy services for a hydroelectric project. Subsequently, the project was transferred to UJVNL through a tripartite agreement. Dispute emerged between the parties, prompting the Petitioner to serve a Notice of Arbitration to the Respondent. This Notice aimed to initiate the process of selecting an arbitrator as outlined in the contract's arbitration clause. In response, the Respondent decided to terminate the contract, alleging that the Petitioner had not fulfilled their work and contractual obligations. The arbitration clause found in the General Conditions of Contract became a subject of scrutiny, and the Petitioner requested the appointment of an arbitrator to address their claims. Issue for Consideration: The crux of the matter lies in the objection raised by Petitioner against the two specific clauses Clause 53 and 55 of the General Condition of Contract (“GCC”). The core of the dispute revolved around the stipulation under Clause 55 of the agreement that the petitioner must deposit 7% of the arbitration claim as a security for invoking the arbitration clause. Apex Court has formulated the four major issues in the instant case for consideration but the core of dispute that’s addressed herein is whether the pre-deposit clause as provided in the Contract can be considered as violative of Article 14 of the Constitution of India for being manifestly arbitrary. The Judgment: Analytical Perspective On Constitution: Pre-deposit Clause and Arbitrariness The major consideration for the Court was whether the conditions stipulated in Clause 55 of GCC pertaining to the pre-deposit condition could be tested on the anvil of Article 14 or not. The arbitration clause in the GCC was under consideration herein along with other issues of appointment of an arbitrator to resolve their claims. Undoubtedly, it’s not the first time that courts have tested the arbitration clause on the touchstone of Article 14 while deciding Section 11(6) application, however, some interesting aspects herein are that the State is a party to the contract and there’s a pre-deposit clause in consideration. To erudite the aforesaid rationale, the Court traversed into jurisprudential understanding pertaining to Kelson’s Pure Theory of Law to elaborate on how the Constitution is Grundnorm and every and any law in India needs to adhere to the Grundnorm. The applicability of Art.14 herein is in order to ascertain that the clause should not be arbitrary in nature. It means that the stipulation under Clause 55 shall not be arbitrary and such arbitrary clause cannot be acted upon even by the consent of parties or in accordance with the principle of party autonomy as it contravenes the Grundnorm i.e., Indian Constitution. Along with that, such a clause should not be discriminatory in its approach to its application and it should be applicable to both parties. Further, the applicability of Art.14 in the context of a pre-deposit clause in the arbitration agreement has been explained by the Court in A.L. Kalra v. Project and Equipment Corporation of India Ltd.. In the case of ICOMM, the agreement explicitly stipulated the forfeiture of the security deposit, even if the judgment favoured the party that submitted the deposit. In this context, the court deemed such a provision arbitrary and in violation of Art. 14 of the Constitution. In the instant case, Clauses 3 and 4 of GCC concerning the security deposit for performance and its refund, are entirely unrelated to the predetermined 7% pre-deposit specified in Clause 55 of the GCC. The indistinct and ambiguous requirement of a 7% pre-deposit for the entire claim renders it more susceptible to arbitrary actions, thereby infringing upon Article 14 of the Constitution. An intricate aspect herein pertains to the private aspect of the contract, however, the Court highlighted the term ‘operation of law’ with relevant judicial precedents to depict the wider connotation resulting in coverage of the A&C Act, 1996. The court has not restricted itself to academic inquiry but also referred to five precedents from different high courts to demonstrate the theory of Grundnorm and they are Squadron Leader H. S. Kulshrestha v Union of India, Abdur Sukur & Another v State of West Bengal & others, Om Prakash Gupta v Hindustan Petroleum Corporation Ltd. & Anr, Government of Andhra Pradesh & Ors vs Smt. P. Laxmi Devi and Sunil v State of M. P. & Another. Thus, the arbitration agreement or any clause stipulated therein cannot be violative of Article 14 of the Constitution of India by virtue of Article 13 of the Constitution of India. A vital consideration herein pertains to the “party-autonomy” concept in arbitration law. Notably, it’s a settled position of law that there cannot be a consent against the law or to waive the fundamental rights. Thus, the arbitration clause needs to be in consonance with the “operation of law” to become legally binding and party autonomy cannot supersede the Grundnorm at any time. The court analysed the Pre-deposit clause on the anvil of Article 14 along with leading precedents on the subject matter. The court has comprehensively analysed the ICOMM and S.K. Jain judgments as they render contrasting decisions due to their different footings. A total of six decisions from different high courts were scrutinised by the Court. Those 06 decisions were related to determining the validity of the pre-deposit clause in the arbitration agreement and the appointment of an arbitrator in arbitration. High Courts have looked at the dictum of ICOMM and SK Jain and followed either one of them as per the facts of the case. Apex Court concluded that both the decisions were correct and not in conflict with each other. By doing so, the principles enunciated in ICOMM was further reiterated, relied and emphasised in the instant case to render the judgment. The Court concluded that Clauses 3 and 4, relating to security deposits for performance and their subsequent refund, were not directly or even indirectly related to the 7% pre-deposit mandate outlined in Clause 55 of the GCC. The lack of clarity and ambiguity surrounding the 7% pre-deposit requirement rendered it more prone to arbitrary interpretation, thereby infringing upon the principles of Article 14 of the Constitution. Doctrine of Freedom of Contract & Arbitrator’s Appointment Notably, this is not the first instance where the Court has granted special concessions to enhance the level of public interest in arbitration proceedings involving the State. In the case of Datar Switchgears Ltd. vs. Tata Finance Ltd. (2000), the court ruled in favour of a clause that allowed one party to unilaterally select the arbitrator in the event of a dispute. However, the discernible aspect herein is that the State is a party to the conflict and thus, the precedent of Datar is distinguishable on facts and is not applicable herein. This decision was based on the principle of contractual freedom, which granted parties complete discretion in shaping their own terms. This principle has been reaffirmed in various other cases involving two private parties. The scenario differs somewhat when the State is a party to the arbitration as in the instant case. In Voestalpine Schienen GmbH vs. DMRC Ltd., the Court scrutinized a clause that permitted DMRC to choose a pool of arbitrators from which the other party could then appoint one. The Court emphasized the necessity of having independent and impartial arbitrators in the arbitration process and deliberated on the significance of the arbitrators' neutrality, as outlined in Section 12(3) of the A&C Act, 1996. It also discussed the application of this provision concerning contracts with State entities and how the balance between procedural fairness and the binding nature of contracts has shifted in favour of the former. Closing remarks In crux, the court speaking through Hon’ble Justice J.B. Pardiwala held that the two conditions within Clause 55- firstly, a 7% deposit of the total claim amount and secondly, appointment of a sole arbitrator by Principal Secretary should be disregarded. It is because it hinders the independent and impartial nature of the arbitrator in arbitration due to vested interest as the State is a party to the dispute. Notably, the principal secretary is an employee of the State and thus, has a vested interest in appointing the arbitrator. Notably, the ruling of Perkins Eastman Architects DPC and another v. HSCC (India) Ltd held that no party who has any interest in the dispute can unilaterally appoint the sole arbitrator due to aspect of bias. Individuals with a vested interest in arbitration are not allowed to have the authority to nominate arbitrators. The Court has rightfully opined that the imposition of exemplary costs can be invoked in cases where claims are determined to be frivolous. However, requiring an upfront payment of 7% of the claimed amount and would contradict the primary objective of arbitration, which is to ensure the prompt, effective, cost-efficient, and expeditious resolution of disputes. This ruling establishes a precedent, upholding the integrity of the Indian arbitration process and reinforcing the Constitution as Grundnorm over arbitration agreements. It emphasises that the fundamental tenets of the constitution cannot be compromised by any agreement whatsoever and that arbitrary prerequisites must not impede access to justice. A food for thought Notably, on reading Para 82 of the judgment it seems that the Court has laid down a broad proposition of law for all arbitration agreements without deciphering the aspect of nature of parties and transactions involved in the dispute. In an instant case, the State is a party to dispute along with the private party, however, it would be interesting to see how the same facts will get treated in cases ahead as well as where dispute arises between private parties. In other words, in contrast to the discernible factor on the basis of which the ruling of S.K. Jain and ICOMM is deciphered. It poses a question of whether private law should be institutionalised. It will be intriguing to observe how this approach might enable the penetration of arbitrary clauses between two private entities in different sets of facts and formulation of pre-deposit clauses in arbitration agreements. It is possible that the Court could examine such an agreement using Section 23 of the Indian Contract Act, which renders contracts against public policy null and void. However, it's worth noting that this section is only invoked when the entire agreement is contrary to public policy. Whether it can be invoked when only one clause in the agreement is in question remains to be seen.  Shelal Lodhi Rajput is a 5th Year Student reading law [B.B.A. LL.B (Hons.)] at Symbiosis Law School, Pune (email@example.com).
- Deconstructing the Appointment of Arbitrators Amidst Med-Arb Enigma in the Indian Landscape
-Utkarsh Srivastava and Gaurav Choudhary Part I- Introduction The trajectory of the process of the appointment of an arbitrator under Section 11 of the Arbitration & Conciliation Act, 1996 (hereinafter ‘Arbitration Act’) operates from a mechanism which gives primacy to the approval of a voluntary, party autonomy-based appointment which is sanctioned by the courts and in the event of a failure of such process, an appointment is made by the judicial system.[i] There has been a long-standing jurisprudence of how an adjudication has to be made by the courts when treating a Section 11 application.[ii] This jurisprudence also includes questions pertaining to the extent to which a court must base its analysis in determining whether the Section 11 application should be dismissed or allowed. The conditions precedent to a Section 11 application is the existence of a valid arbitration clause and an arbitrable dispute between the parties. However, strictly limiting the court’s analysis to these conditions precedent while treating a Section 11 application has often resulted in a procedural imbroglio when this segment involves the applicability of a pre-arbitral mediation in the dispute resolution clause of the contract. Mediation is predominantly seen as a voluntary procedure in which the parties have significant control not only during the process itself but also beforehand, such as when they need to select a mediator. There are majorly three preferred routes for the appointment of a mediator, the first being the voluntary appointment by the parties, second by submission of the matter to any recognised mediation centre and third, wherein the court orders for commencement of mediation proceedings in a suit under Section 89 of the Code of Civil Procedure, 1908. In none of these routes do we find the applicability of any of the provisions of the Arbitration Act. However, there is a recent trend in courts where, while adjudicating on a dispute involving the applicability of a “Med-Arb Clause”, the bench has surprisingly not only appointed a mediator in an order Order under Section 11 of the Arbitration Act but has also simultaneously appointed the arbitrator before the commencement of mediation. The orders raise various procedural questions primarily in light of the timeline under Section 23(4) of the Arbitration Act. In this article, the authors, in Part II, try to decipher the judicial practice regarding the placement of mediation proceedings when the courts allow for mediation before the commencement of arbitration while considering Med-Arb clauses. Simultaneously, the recent deviation from such practice is also discussed. In Part III, the authors analyse the impracticality which arises due to this deviation in light of the mandate under Section 23(4). In Part IV, solutions which suggest a change in approach to the interpretation of the language of Section 23(4) are discussed. Finally in Part V, the authors give a brief yet effective conclusion to the whole article. Part II- Judicial practice in the treatment of Section 11 applications when there is the presence of a pre-arbitral mediation mechanism In India, courts have had differing views on the legality of multi-tiered clauses, with some considering them mandatory and others regarding them as voluntary pre-arbitration procedures. The same has been showcased through the treatment they have given to Section 11 applications when there has been a presence of pre-arbitral mediation in the arbitration clause. For example, in the celebrated judgment of Demerara Distilleries (P) Ltd vs Demerara Distillers Ltd, wherein the court, while analysing the problem, had rejected the stand of mediation being mandatory and had gone on to appoint an arbitrator. The Delhi High Court took it up a notch by holding that mere insisting by a party to first initiate the conciliation process before seeking initiation of arbitration would be a failure for appointment of arbitrator and, therefore, the same could be done by the court.[iii] The court, in such instances, rejected the claim for mediation and allowed the petition under Section 11 (6). However, on the other hand, the courts have also dealt with the same issue through a different set of eyes. For example, inSushil Kumar Bhardwaj vs Union of India,[iv] the Court had dismissed the Section 11 application on the ground that unless in the absence of an averment or a pleading to the effect that the agreed procedure or the procedure prescribed in law has been followed, there would be no option but to reject the application under Section 11(6) of the Arbitration Act as without cause of action and/or premature. In another instance,[v] the court had asked the parties to explore conciliation before turning to arbitration and had disposed of the application under Section 11. Therefore, from the above discussion, it is clear that the conditions under which a Section 11 application is allowed, and an arbitrator is appointed, cannot include allowing to conduct mediation simultaneously. However, there have been orders, such as in the case of Rao Constructions vs State of Karnataka,[vi] M/s. Hello Verify India Private Limited vs. M/s. Happiest Minds Technologies Private Limited,[vii] and Shreans Daga & Ors. vs. I.B.M. India Private Limited,[viii]wherein the court, while adjudicating on a Section 11 application, appointed an arbitrator to the dispute and not only permitted the mediation process to be followed before the arbitration but also appointed a mediator for such mediation under an application of Section 11. The Court, in both these cases, reasoned that there was an existence of a valid arbitration clause and an arbitrable dispute at hand, and therefore, it warranted the appointment of an arbitrator. These orders are irregular with respect to the legal process followed in India at multiple levels. Firstly, under no circumstances can a mediator be appointed under a Section 11 application. The scope of the provision is limited to the appointment of arbitrators, and mediation is not even covered by the statute itself. Even if the court were to appoint a mediator to the dispute, the correct procedure would have been a separate civil miscellaneous petition from the parties under which the court would have appointed a mediator.[ix] The appointment of a mediator under the Section 11 of the Arbitration Act is not tenable in law. Secondly, when the court upheld the mediation process, a pre-emptive appointment of an arbitrator was not the correct procedure to be followed. This is because when a court upholds the validity of such a mediation process before the arbitration, it presumes that the triggering of the arbitral process under the arbitration agreement would happen on a failure of the mediation mechanism.[x] Since the appointment of arbitrators is also a part of the arbitral process, therefore, such an appointment should also occur after the parties have exhausted the route of mediation given under the arbitration agreement to the contract.[xi] It is a settled position of law that, while adjudicating on a Section 11 application, the procedure agreed by the parties and party autonomy has to be given primacy.[xii] Therefore, if the parties have agreed to a mediation process before the arbitration, such a procedure should be followed while effectuating such adjudication. The appointment of an arbitrator not only frustrates the entire purpose of giving primacy to the procedure agreed upon by the parties but also provides for a practical impossibility to fulfilling the obligation under Section 23(4) of the Arbitration Act, which the authors have discussed in the next part. Part III- The timeline of Section 23(4) and how it affects this structure Not only the legal tenability of such orders is questionable, but their enforcement also provides for certain impractical circumstances for the parties. A possible impractical scenario can be considered in the case of the timeline mentioned under Section 23(4) of the Arbitration Act. According to the provision, the statement of claim and defence has to be completed within six months of the date wherein the arbitrators receive the notice of their appointment. When such a timeline mandate is seen in the context of an order where subsequent to an appointment of arbitrators, mediation has to be commenced, and post the failure of the mediation process, the arbitral proceedings will begin, it becomes nearly impossible for the parties to complete the statement of claims and defence within the duration of six months. Consider a situation where the mediation upheld under such an order itself takes six months. In such a case, since the computation of the duration for Section 23(4) will be calculated from the date when the arbitrators would have received the notice of their appointment, the mandate of six months would expire even before the initiation of the actual arbitral process. In addition to this, in the event that the parties try to adhere to this timeline, there is always a risk of an inefficient mediation process. In this respect, the applicability of the ratio in Geo Miller & Co. (P) Ltd. vs. Rajasthan Vidyut Utpadan Nigam Ltd. also needs to be checked. In this case, it has been categorically held by the Supreme Court that the duration of amicable settlement before the arbitral process would not be counted for the purpose of calculating the limitation period. However, this judgment is inapplicable for our assessment for two-pronged reasons. Firstly, in this judgment, there was no applicability of any pre-arbitral dispute resolution clause; rather, the parties were in the process of an amicable settlement between them. Secondly, this judgment relates to the time mandate under the Limitation Act, 1963 and the timeline under Section 23(4) is a separate time mandate and does not relate to the law of limitation. Part IV- Solution Certainly, under no circumstances a situation in the dispute resolution process can exist where a pre-arbitral dispute resolution process is initiated, and at the same time, the application under Section 11 is allowed as well. Such an Order is necessarily untenable in law. However, there is no explicit judgment which holds that a Section 11 application should be dismissed when a pre-arbitral mediation is upheld by the court of law. The judicial decisions in this respect only depict a practice wherein whenever such a dispute resolution mechanism is upheld, the Section 11 application has been dismissed. But, there isn’t any jurisprudence which entails reasoning as to why the courts dismiss a Section 11 application rather than moving forward with other alternatives such as granting a stay etc. Therefore, there is no explicit bar on the passing of such orders. Hence, our first solution would be to judicially forbid the passing of such decisions. The second solution in this regard would be to give a contextual broader interpretation to the words “receive the notice of their appointment” to mean initiation of proceedings and relax the time limit given under the provision. In the event of the continuation of the passing of such orders, the first hurdle which needs to be resolved is the pacification of the impossibility of complying with the mandate of Section 23(4). The non-compliance of the provision can provide an arbitrary leeway to the respondent party to file for termination of proceedings under Section 25. Therefore, to make the conditions surrounding the proceedings practicable for both parties, the time limit under Section 23(4) has to be relaxed either through a liberal interpretation or by an express relaxation by a judicial decision. Part V- Conclusion In conclusion, the treatment of Section 11 applications in cases involving pre-arbitral mediation mechanisms in India has presented a complex legal landscape. While there is no explicit bar on passing orders allowing simultaneous pre-arbitral mediation and Section 11 applications, such orders raise procedural and practical challenges. The judicial practice in this regard has been inconsistent, with some courts appointing an arbitrator and dismissing the Section 11 application when upholding the mediation process, while others have taken a different approach. To address this issue, it is imperative for the judiciary to establish a clear stance and judicially forbid the passing of orders allowing simultaneous processes of pre-arbitral mediation and Section 11 applications. This would provide clarity and avoid procedural confusion. Additionally, a contextual and broader interpretation of the timeline mentioned in Section 23(4) of the Arbitration Act could be adopted. By considering the initiation of proceedings as the trigger point for calculating the timeline, the practical challenges posed by the simultaneous mediation and arbitration process can be mitigated. Alternatively, a judicial decision explicitly relaxing the time limit under Section 23(4) could also provide a feasible solution.  Utkarsh Srivastava is a 5th Year Student at Dr Ram Manohar Lohiya National Law University, Lucknow. (firstname.lastname@example.org).  Gaurav Choudhary is a 4th Year Student at Dr Ram Manohar Lohiya National Law University, Lucknow. (email@example.com). [i] Gautam Bhatia, Section 11 of the Arbitration and Conciliation Act of 1996: The Jurisprudence of the Supreme Court and Implications for the Jurisdiction of an Arbitral Tribunal, National Law School of India Review Vol. 21, No. 2 (2009) pp. 67. [ii] Ibid. [iii] Oasis Projects Ltd. v. Managing Director, National Highway and Infrastructure Development Corporation Limited, 2023 SCC OnLine Del 645. [iv] Sushil Kumar Bhardwaj v. Union of India, 2009 SCC OnLine Del 4355. [v] Sanjay Iron and Steel Limited v. Steel Authority of India, 2021 SCC OnLine Del 4566. [vi] Rao Constructions v. State of Karnataka, 2020 SCC OnLine Kar 3498. [vii] M/s. Hello Verify India Private Limited v. M/s. Happiest Minds Technologies Private Limited, Civil Miscellaneous Petition No. 237 of 2020. [viii] Shreans Daga v. IBM India Private Limited, Civil Miscellaneous Petition No. 184 of 2019. [ix] Section 89, Code of Civil Procedure, 1908. [x] Nirman Sindia v. Indal Electromelts Ltd, Coimbatore, 1999 SCC OnLine Ker 149. [xi] Simpark Infrastructure Pvt Ltd v. Jaipur Municipal Corporation, 2012 SCC OnLine Raj 2738. [xii] Supra note 1.
- Ignorance by Tribunal: Growing Judicial Challenges and Award Remittance
Avesta Vashishtha INTRODUCTION The integrity and effectiveness of arbitration as an alternative dispute resolution mechanism rely on the fair and informed decisions rendered by arbitral tribunals. However, there are instances where arbitral awards fail to address crucial and contentious issues, leading to a miscarriage of justice and violation of public policy. In such cases, the appellate court sets aside the arbitral award delivered by the tribunal without considering a crucial claim, while exercising its powers of setting aside an award under Section 34 (hereinafter ‘Sec. 34’). The continuous affirmation of the same by various High Courts, after the principle was established by the Supreme Court in the case of I-Pay Clearing Services, necessitates the recognition of violation of the basic intent of ‘The Arbitration and Conciliation Act, 1996’ if such awards are not set aside. This article entails a discussion on the infringement of rights in such situations and the aid of Sec. 34, analysing the perspective of various High Courts in dealing with set-aside applications. Further, it has been suggested how remitting such perverse awards back to the tribunal can be an efficient recourse. PERVERSITY DUE TO DISREGARD OF CONTENTIOUS ISSUE The general concept in view of various precedents in arbitration law has been that a flaw that can be corrected or removed from the award, shall be referred back to the tribunal for such correction under Sec 34(4), instead of simply setting it aside. But in numerous cases, the flaw is not curable, and the same is caused due to the sheer lackadaisical approach of the tribunal in recognising, acknowledging, and then discussing the major issues related to a dispute. The rights of the parties are so gravely affected that the award cannot be corrected by referring it to the same tribunal. The scope of Sec. 34 is set by the Supreme Court to allow the setting aside of such awards which are ‘perverse’ and patently illegal in nature due to disregard of a contentious issue. The term perverse has been interpreted widely to include a finding based on “no evidence at all or an award which ignores vital evidence” in arriving at its decision would be perverse and liable to be set aside on the grounds of patent illegality. CREATION OF CONUNDRUM W.R.T CONTENTIOUS ISSUES AND EVIDENCE The challenges posed by tribunals' ignorance of pertinent issues and evidence manifest in two ways: neglecting crucial evidence despite acknowledging the issue and completely overlooking a pertinent issue in the award. Either the tribunal acknowledges the issue, but fails to base its award on the evidence presented during the proceedings, or it altogether does not recognise a pertinent issue in the award. The former illegality is discussed frequently by courts when crucial evidence is ignored by the tribunal while passing an award. When the parties have put on record certain important aspects of the dispute, which are essential for concluding their rights, but the tribunal neglects such evidence, such award has been termed perverse in several judgements. In the latter situation, the tribunal is unable to conclusively determine the enforceable rights of the parties, let alone grant a legitimate award. For eg., an issue of limitation in a time-barred dispute would be a contentious aspect of the dispute, and passing an award without considering this issue would render the award patently illegal. If the award is given without any discussion on this issue, it would be unjust for the party against whom the award is passed, since the award holder would have taken advantage of the tribunal’s mistake by enforcing a right that has been statutorily prohibited. Another example is, if a party has surrendered a right and has been estopped from enforcing the same, or the Court has restricted it from raising certain claims during arbitral proceedings, but the unreasonable findings of the tribunal, wholly disregarding the existence of such facts, presents an award that goes against judicial orders of the court. JUDICIAL APPROACH TOWARDS SUCH AWARDS The Supreme Court, in the I-Pay Clearing Services case, conclusively decided the question of patent illegality when the tribunal failed to examine certain contentious issues, and held “in absence of any finding on contentious issues, no amount of reasons can cure the defect in the award”. Therefore, in such cases, the award cannot be remitted back to the tribunal for curing the same. This ruling has been followed in numerous High Court judgements. The Delhi High Court has recognised that such awards would be liable to be set aside under Sec. 34, and stated “While the Arbitral Tribunal had also duly taken notice of the contentious issue, unfortunately, the award is entirely silent on this issue. In the considered opinion of this Court, the Ld. Arbitral Tribunal has committed a manifest error in not coming to any finding on this issue.” It has been held in Inox Air Products (P) Ltd. v. Air Liquide North India (P) Ltd, “The learned arbitrator cannot reconsider his conclusion, or that Sec. 34(4) of the Act cannot be resorted to in a situation where the award itself may change as a result.” It has also been commented that such awards suffer from ‘incurable defects’ by not dealing with a party’s contentions. Further, “a finding is based on no evidence, or an arbitral tribunal takes into account something irrelevant to the decision which it arrives at; or ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.” The same perspective was also held in the landmark judgement of Ssangyong Engg. & Construction Co. Ltd. v. NHAI. UNNECESSARY MEDDLING BY COURTS The author opines that the argument where the arbitrator would not be able to appreciate the evidence a second time if it was ignored the first time, seems vividly exaggerated. If the award is remitted back to the tribunal, the arbitrators would be aware of the missing gaps in the award, and the same can be rectified specifically. Additionally, in numerous cases, arbitrators from non-legal backgrounds are appointed to deal with the technicalities of the subject matter that might be involved in the dispute. They are sometimes not aware of the procedural aspects of the legal system. An opportunity shall be given to them to rectify their errors and learn from the procedure so that they may render better awards in the future, without setting aside the whole award. Further, it has been abundantly established that the intent of Sec. 34 is to eliminate any curable defects from the award, which can only be done by the arbitral tribunal, and not by the court due to the principle of minimal judicial interference. Therefore, it is essential to remit the award back to the tribunal for deciding a pertinent issue. However, a problem exists where the court has to determine whether the lack of consideration given to certain evidence or contentious issue by the arbitrator renders the award totally incurable, or it can be remitted back to the tribunal for removing flaws. The test of perversity lies in the reasonableness of the decision of the arbitrator. The appellate courts have to determine perversity as follows -: “If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with”. The ambiguous and wide scope in Sec 34(4) exercised in such cases can create discrepancies in different cases, where the court is burdened with the discretion to decide the contentious issues of the dispute, and whether the same should be referred back to the tribunal owing to their curable/incurable nature. The court’s powers are restricted to determining the same, and not entering the merits of the case that has already been heard at length. Hence, the court is left with the sole alternative of setting aside the award. The approach of determining reasonableness in the award is followed while evaluating perversity, but the same does not have any set standard of rules that govern ‘reasonableness’ in an award. Therefore, the appellate courts have to conclude whether an award is reasonable, and there is sufficient scope correcting the award by remitting it back to the tribunal even where a contentious issue has been omitted. One of the standards for remitting back an award is whether the arbitrator failed to determine an issue because of ‘pure oversight’, and if the same can be corrected, it should be remitted back to the tribunal. This would be a subjective test based on factual circumstances of different cases. CONCLUSION The award should be sent back to the tribunal for the arbitrators to consider the relevant issue or evidence, and alter the award if needed. The same would be based on the legal intent of arbitration, wherein enforcement of awards is given a superior pedestal with due relevance than simply abrogating the award. There might be certain aspects of a dispute which, if ignored, would lead to grave injustice and biases in the award rendered by the arbitrator. The recent developments in the judicial sphere concerning awards omitting ‘contentious issues’ has been inclined towards setting aside such awards. But at the same, the courts must restrain itself from setting aside each award instantly. Striking the right balance between setting aside awards and allowing tribunals to rectify curable defects can uphold the integrity of arbitration and ensure justice prevails.  Avesta Vashishtha is a 3rd year student at Dr. Ram Manohar Lohiya National Law University, Lucknow.  Indian Oil Corpn Ltd v FEPL Engineering Ltd 2023 SCC OnLine Del 1617.
- Harmonizing ESG Disputes through Arbitration: Analyzing Positive Contribution of Resolution Forums
Nitesh Ranjan & Aman Upadhyay ESG stands for Environmental Social Governance. In this globalized world industrial sector is flourishing at a very high pace. As such, it is inevitable to maintain a balance between environmental well-being and economic affluence. In this regard, certain standards and sets of guidelines are needed to protect the environment and in turn, protect the biotic components of the world. Introduction Environmental, social, and governance (“ESG”) refers to a set of standards for a company’s behaviour used by socially conscious investors to screen potential investments. Environmental criteria take into account a company's environmental protection efforts, such as corporate climate change policies. The management of relationships with customers, suppliers, employees, and the communities in which it operates is examined under the social criteria. Leadership, executive compensation, audits, internal controls, and shareholder rights are all topics covered by governance. The number of legal disputes involving ESG-related concerns tends to rise as ESG becomes more significant in business policies and investment choices. A wide range of ESG-related claims regarding its interpretation and compliance in specific circumstances have already been filed in numerous judicial and quasi-judicial forums, demonstrating the broad scope of those issues. However, there are two types of claims that are particularly well suited for arbitration: claims based on commercial contracts and claims based on treaties. Legal Foundations & Statutory Compliance The Environmental pillar of ESG becomes immensely important in relation to the growing global concerns over environmental degradation, carbon footprints, and related issues.There has also been a growing concern about human rights globally. As such, it is important for corporates to comply with the standards in terms of human rights and maintain harmonious relationships with the employees. Hence, the Social Pillar becomes the base here. Similarly, for the successful conduct of a company, there should be efficient and honest management, which is covered under the governance pillar. There are certain provisions in various statutes from which the idea of ESG seems to have culminated. Section 135 of the Companies Act (“Act”) provides for Corporate Social Responsibility, in accordance of which, it is explicitly mentioned in Schedule VII(iv) of the Act that ensuring environmental sustainability may be included by companies in their CSR policies. In addition to that, among others, the Environmental Protection Act, 1986 (“EPA”) contains various provisions which form the base of the Environmental pillar. From laying down standards for the emission of environmental pollutants, as per Section 3(2)(iv) of the EPA, to carrying out and sponsoring investigations and research relating to problems of environmental pollution [Section 3(2)(ix)], the EPA gives several powers to the central government to take measures to protect and improve the environment. As such, the companies are expected to comply with the rules. As far as the Social pillar is concerned, it has to be seen from the perspective of various labor laws based on the principles of social security, social justice, and social equity. Apart from this, Article 43 of the Constitution of India provides that the State shall endeavor to secure a living wage, decent standards of life, etc. for workers. Parliament has passed a number of laws pertaining to workers’ social security. In 1948, the parliament passed one such law called the Employees’ State Insurance Act. It was the first substantial social security law to give such benefits to organized sector workers in cases of sickness, maternity, and injuries at the workplace. There are certain other legislations like The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, with which a company is expected to comply. As for corporate governance, the Board of Directors is responsible for the smooth and efficient management of the company. Companies Act, 2013 and Companies Rules, 2014 provide a robust framework for the same. Section 177(9) of the Act, requires the corporation to develop a vigil mechanism through which directors and employees can report concerns about unethical behavior, real or suspected fraud, or violations of the company’s code of conduct or ethics policy. Role of Arbitration in ESG Dispute Resolution: Enhancing Effectiveness? Indeed, the International Chamber of Commerce (ICC) task force's 2019 report on “Resolving Climate Change Related Disputes Through Arbitration and ADR” noted the growing trend of ESG disputes being resolved through arbitration and made the case that arbitration is particularly well positioned to achieve this goal. Arbitration is well-suited for addressing ESG disputes due to its ability to select specialized arbitrators who understand the complexities of ESG issues, its capacity to handle international aspects effectively, and its provision for swift injunctive relief. The component of party autonomy in arbitration makes it easier for the parties to choose arbitrators who hold expertise in the field of arbitration. Judges may not be suitable for adjudicating upon the specifics of three pillars of ESG. The issues related to ESG are affecting people globally. In case a corporation is not maintaining the environmental standards, it would have effects globally. When the social pillar is not taken into consideration, the delicate social fabric is tinkered with, which affects society at large. And for that matter, the violation of governance pillar will have impact to a similar extent. As such, arbitration would enable parties to get quick injunctions to address these impacting issues. At the same time, the arbitral awards tend to gain recognition globally owing to the New York Convention, 1959. Commercial Contracts and Investment Treaties Arbitration: A Saga of Two Businesses can control ESG risks through the management of commercial contracts. Companies have the chance to assess their current supply networks and try to implement ESG into their contract portfolio as a result of exceptional supply chain disruption. These ESG guidelines may be derived from a company’s own ESG objectives and policies or from relevant legal requirements. Where there are varying standards, laws or regulations, and levels of openness between several nations throughout the supply chain, ESG contractual requirements will be especially important. Contractual clauses demanding compliance with specified ESG-related duties by all counterparties can be used to resolve jurisdiction-based conflicts. International trade and investment treaties are now increasing at a rapid rate. The relationship between ESG factors and investment arbitration has been largely overlooked, both in academic discourse and practical considerations. Article 15 of the BLEU Model BIT (2019) provides that, “Each Contracting Party shall ensure that its laws and policies provide for and encourage high levels of environmental and labour protection and shall strive to continue to improve those laws and policies and their underlying levels of protection.” This could lead to the emergence of new and innovative claims and defenses in the settlement of investor-state disputes, with more claims being brought by states. For instance, states might be allowed to bring claims (or counterclaims) against investors for ESG failures and/or the diluting of investor protection where that protection conflicts with the state's ESG objectives. ESG considerations have helped host states file winning counterclaims in cases like Perenco v. Ecuador . In the instant dispute, Ecuador claimed that Perenco's business operations caused a serious environmental catastrophe. The host state requested restitution to make up for the harm done to the environment. The tribunal made a decision in response to Ecuador's environmental counterclaim, ordering the investor, Perenco, to give Ecuador a substantial amount of USD 54 million as compensation for the essential remediation efforts required to address the environmental catastrophe. Typically, investment treaty arbitration conducted by ICSID serves as the forum for dispute resolution. The Conclusion ESG commitments are becoming more and more significant. Businesses who are able to adjust to these expectations stand to gain significantly. Arbitration could be a useful tool for resolving ESG conflicts. Arbitration is in a unique position to settle ESG issues because it offers the option of selecting a neutral court with subject-expert arbitrators. Therefore, it is expected that there will be an increase in the number of arbitrations on this subject given the growing significance of ESG in business operations and the benefits that arbitration provides for resolving ESG issues. ESG risk allocation clauses are now more prevalent in commercial contracts that businesses sign into as a result of the expanding scope of ESG duties. This tendency is clearly evident in merger and amalgamation deals, which frequently address ESG issues. Similar to this, it is typical for businesses to attempt to reduce and manage ESG risk in the agreements they make with their suppliers throughout their whole manufacturing chain. These clauses have caused commercial issues and most likely will continue to do so. We can anticipate that international arbitration will frequently be the preferred forum for the resolution of ESG-related disputes because many of the companies that are now putting ESG-related elements in their contracts operate on a worldwide scale.  Nitesh Ranjan is a 3rd Year Student at the National University of Study and Research in Law, Ranchi. (firstname.lastname@example.org).  Aman Upadhyay is a 3rd Year Student at the National University of Study and Research in Law, Ranchi. (email@example.com).
- The Arbitrability of Intellectual Property Right Dispute: Scrutinizing the Circumscribed Prospect
Aman Upadhyay and Nitesh Ranjan Introduction The structure of modern society is completely different from the ancient society, now disputes arise more frequently. Intellectual property is not immune to disputes, such as those resulting from registration, licencing, and infringement. The establishment of a peaceful and progressive society requires a quick resolution of these conflicts. It becomes a very cumbersome task to resolve disputes quickly and without much expense for a highly populated country like India. The courts are overburdened with already pending cases. Arbitration works as a good alternative to the courts. Also, now arbitration has become the default commercial dispute mechanism because it is less expensive, quicker, secure and offers more privacy. In India, arbitration is recognised as a medium of dispute resolution vides Section 89 of the CPC. Although arbitration is not a new concept to resolve disputes still its expansion to include disputes involving intellectual property is a developing jurisprudence. The court and statutory provision don’t have a clear instance in IP infringement-related disputes. Intellectual property rights while originating in municipal law now is deeply rooted in International law, and play a vital role in the protection of creativity. The clarity in the scope of arbitration in IP rights is the need of the hour for achieving its objective. Legislative Ambiguity: A Much-Needed Reform Statuary provisions are important to mention since the arbitrability of some matters is ascertained by them. Although nothing in the Arbitration Act precludes the enforcement of awards with respect to Intellectual Property Rights, including the validity or infringement but Section 135 of the Trade Mark Act, 1999 provides that trademark holders can seek judicial remedies through civil court. Further, the Copyright Act also provides that any suit or civil proceedings in matters of copyright infringement shall be instituted by the civil court having jurisdiction. In some instances such as Indian Performing Right Society (IPRS) Ltd. v. Entertainment Network (India) Ltd, narrow interpretations of these sections are being taken and held as the matters can only be resolved by the court not arbitration. The concept of ‘commercial disputes’ in the Commercial Courts Act, 2015 includes intellectual property conflicts, as per section 2(1)(xvii) of the Act. This means IP disputes are inherently considered as being within the ambit of commercial disputes as defined by the act. Furthermore, the Commercial Courts Act provides that commercial disputes can be arbitrated without excluding IP disputes Following this it could be inferred that the matters on IP disputes comes under the ambit commercial dispute that can be resolved through arbitration under the Commercial Courts Act. Section 103(5) of the Indian Patent Act, 1970 allows for arbitration only in instances involving the government. The statuary provisions are ambiguous, perhaps by some reform or amendment in the legislation such as by specifically providing about the arbitrability of IP disputes in the Arbitration and Conciliation Act the issue could be resolved. Determination of Arbitrability in India: Uncertainty Prevails The phrase “Quo Vadis Arbitration” (where do you go arbitration)has famously been asked by Peter Pender and is particularly relevant for the Indian context because of the inconsistency in the laws related to the question of arbitrability. In 2011 with the case of Booz Allen Hamilton vs SBI Home Finance the Supreme court made its first attempt to determine the arbitrability of any matter. In this case, the court laid down that disputes related to right in rem must be out of the scope of arbitration and only disputes related to right to personam can be arbitrable. The Court further stated that personal rights or obligations arise as a subset of public rights. But the issue with this test is that sometimes the matters of right rem and right in personam become difficult to differentiate. The same follows in the cases of Intellectual property rights disputes. In Ayyasamy vs Paramasivam while adding to the list of non-arbitrable matters, the Supreme Court has held that arbitration is available only in the cases where the law accepts arbitration as an alternative remedy. In the judgement court has neglected, the ambiguity of statutory provisions that are silent in the question of the possibility of arbitration in matters of IP disputes. The law doesn’t give a clear view either on the arbitrability or the non-arbitrability of IP matters. Another segment of non-arbitrable matters is related to the State’s inalienable sovereign and public interest functions. In the recent case of Vidya Dorlia vs Durga Trading Corporation Supreme Court has given a “fourfold test” to determine when the subject matter of a dispute in an arbitration agreement is non-arbitrable. According to the test, matters related to right in rem, matters which affects the third party ‘erga omnus effect’, the matters of State’s inalienable sovereign function, disputes which are non-arbitrable on the account of expressly or impliedly stated under the statute are excluded from the scope of arbitration. The ‘fourfold test’ given in the Vidya Dorila case is much needed as with the advancement of technologies new forms of disputes are arising but there is inconsistency and non-clarity in the usage of these rules. The right in rem and personal are still in question on some subjects. The fourth point of the test is questioned since the possibility of conflicting opinions regarding the restriction of arbitration remains open because of the vagueness of statutes on this subject. The pendulum of conflicting decisions: conundrum persists in arbitrability of IP Mundipharma AG vs Wockhardt Ltd. was one of the earliest cases which determined the arbitrability of IPR matters. In this case, the court took a narrow view regarding the arbitrability of intellectual property rights. Following statuary wording under part II of the Copyright Act, 1957, the court concluded that copyright infringement is non-arbitrable since it is up to the civil court to decide all remedies related to copyright infringement. The purposive interpretation of the act was beyond the view of the court since the purpose of the lawmakers while forming any legislation is to provide speedy and fair justice to the stakeholders. Currently, arbitration is one of the best mediums to accomplish this objective. Interpreting the statutory wording of the act provides jurisdiction to civil courts to decide remedies as the prohibition to arbitration is not correctly construed. In the SAIL case, the Bombay High Court has rejected the arbitrability by saying, “The rights to a trademark and remedies in connection therewith are matters in rem and by their very nature not amenable to the jurisdiction of a private forum chosen by the parties”. The judgement didn’t consider the possibility of right in personal within the IP infringement disputes as numerous matters related to IP disputes don’t affect society at large. A different approach in this matter was brought through the Ministry of sound international vs Indus Ranassiance Partners Entertainment Pvt. Ltd. In this case, the court has defended arbitrability owing to the fact that licencing agreements should be interpreted following the common sense approach. Since there is no absolute statutory prohibition on the arbitrability of IPR the Court held that agreements facilitating the licensing of trademarks would merely affect the rights of parties and not infringe on any legal provision. After all, it is a business document that grants the licensee permission to use the trademarks and intellectual property. The arrangement, according to the Court, was governed by English law, allowing the tribunal to issue injunctive relief. As a result, the court determined that the case should be resolved through arbitration. The Delhi High Court gave an important judgement in Golden Tobie Private Limited v. Golden Tobacco Limited. Referring the case to an arbitrator, the Court laid down that as the dispute was between a family group regarding the usage of trademark, thereby “The right that is asserted by the plaintiff is not a right that emanates from the Trademark Act but a right that emanates from the Agreement... assignment of the trademark is by a contract and not by a statutory act. It does not involve any exercise of sovereign functions of the State. It cannot be said that the disputes are not arbitrable.” Thus, the court has affirmed that IP disputes which arise out of a contract and not directly from the statute would be arbitrable. The court is right in this approach however, the scope of arbitration in the matters of IP disputes needs to be broadened. Limiting the arbitration in IP disputes to this extent is restricting the advantages which could be achieved by increasing the ambit. The ambiguity in the scope of arbitration in IP disputes persists since the decisions don’t follow a certain way and the same could be accounted to the lack of statutory provisions. Current Scenario and The Way Forward In arbitration, parties get an opportunity to carefully draft the arbitration clause. This meticulous drafting avoids potential difficulties and ensures that the interests of parties are ascertained. The right in rem approach deprives parties from taking such crucial benefits. There is no doubt that even now the conflicting decisions have made the question related to the arbitrability of IP disputes unclear perhaps due to the lack of statutory provisions. While the formulas given by Vidya Drolia and the approach of the Delhi High Court in the Golden Tobie case have provided some clarity to this issue but the ambiguity still remains. The complexity of IP disputes such as the possibility of right in personam in the disguise of right in rem and also in some contractual IP disputes, litigation would be in favour of the public interest instead of Arbitration. It is a need of the hour to come up with some clear provisions for the matter related to the arbitrability of IP disputes. As it’s already discussed by the authors that there is no clear legislative intendment in either existing IP statutes or Arbitration Act for exclusion of IP disputes from the ambit of arbitration. Even a certain extent the holistic understanding of the statutes shows the implied intention of making IP disputes amenable to arbitration. The expressed provision related to the arbitrability of the IP disputes in arbitration act or IP statues will bring clarity regarding this. IP disputes often transcend the boundary of the nation. Since arbitration has long been one of the most popular ways for businesses to resolve disputes, a nation with pro-arbitration legislation attracts investors and encourages them to invest in its companies. By making IP disputes arbitrable in India, the government can take a step ahead in the path of promoting India as an arbitration-friendly nation and attract more foreign investment, which will boost the country's economy.  Aman Upadhyay is a 3rd Year Student at National University of Study and Research in Law, Ranchi. (firstname.lastname@example.org).  Nitesh Ranjan is a 3rd Year Student at National University of Study and Research in Law, Ranchi. (email@example.com).  Indian Performing Right Society (IPRS) Ltd. v. Entertainment Network (India) Ltd, 2016 SCC Online Bom 5893.
- Evaluating the Access to Justice Rationale of Third Party Funding in India
Gautam Mohanty & Arnav Doshi 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.  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 firstname.lastname@example.org. 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.