Constitutional basis of ADR in India

Shashank Shekhar | Student of Campus Law Centre (shashankshekhar711@gmail.com)

26th November, 2023

An express mandate to secure Justice, Liberty, Equality and Fraternity is reflected by the Preamble to the Constitution of India. The fundamental idea behind the various ADR mechanisms revolves around these ideals. As the Constitution of India completes 75 years of its adoption[1], it becomes pertinent to dwell upon the constitutional basis of ADR.

Article 14 fortifies the mandate of equality through a widely worded provision, wherein it is implicit that the justice delivery system must view the dissimilarly placed people with the prism of intelligible differentia. Justice through the adversarial system often looks like a distant goal from the eyes of a poor human being. The ADR mechanisms offer the cheapest remedy with great efficiency for an amicable resolution of disputes, thereby making justice meaningful for the weak and the meek.

The institution of Lok Adalat is an embodiment of the equal justice and free legal aid directive provided by Article 39A of the Constitution. While dealing with the questions of free legal aid back then in 1981, Justice Bhagwati quoted the observations made by Justice Blackmun in Jackson v. Bishop[2] that “humane considerations and constitutional requirements are not in this day to be measured by dollar considerations”.[3] It is in this background that the jurisprudence of liberty rights has evolved under the umbrella of Article 21. The judgment in Minerva Mills[4] has settled the law that the harmony between the Fundamental Rights and the Directive Principles cannot be disrupted for giving effect to the later. It therefore becomes imperative that the state must adopt the means, which are in sync with the fundamental rights, to achieve the directives.

Article 51(d) mandates the state to encourage settlement of international disputes through Arbitration. The constitutional mandate regarding Arbitration has been codified through the Arbitration and Conciliation Act, 1996. Despite the various hurdles that plague the Arbitration mechanism, the world of commerce continues to rely on Arbitration for resolution of complex disputes. Party autonomy is the guiding principle in determining the procedure to be followed in an arbitration and the same has proven to be a great incentive driving the people to take recourse to arbitration.[5] The paradigm of Arbitration in India is gradually shifting from the ad-hoc arbitration of contractual nature to the Institutional Arbitration. The arbitrator is required to follow the rules of natural justice while conducting arbitration.[6]

The constitutional basis for mediation can be traced to the Preamble to the Constitution, wherein the ideal of fraternity has been enshrined. To look at mediation as an alternative forum is to undermine its efficacy. While the adversarial litigation focuses on determination of rights and liabilities while adjudicating cases, the mediation goes a step ahead in allowing the parties to have an amicable settlement. In travelling the path from resolution to dissolution of disputes, mediation guarantees to preserve fraternity in the society. The elements of party-centered approach and voluntariness have made Mediation a preferable forum for dispute resolution.[7] The enactment of the Mediation Act, 2023 is a positive step in the direction of ADR. The mandate for pre-litigation mediation in the new Act is a great step towards reducing the heavy backlog of cases.

After a reading of the Constitutional text and its underlying spirit, it can be inferred that the Constitution contains a mandate for amicable resolution of disputes to maintain peace and harmony in the society. While providing for an integrated judiciary, it also gives a clarion call for using all the alternative dispute resolution mechanisms through various provisions. A pro-active step by the state in this regard would ensure that the great ideals enshrined in the Preamble do not remain mere parchments to be viewed in a museum by the future generations. The statutory frameworks pertaining to ADR must be amended to the tune of the constitutional mandate for dealing with the novel kinds of disputes.

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[1] The Constitution of India was adopted on 26^th November, 1949.

[2] Jackson v. Bishop, 404 F.2d 571

[3] Khatri (2) v. State of Bihar, (1981) 1 SCC 627, para 5

[4] Minerva Mills Ltd. v. Union of India, (1980) 3 SCC 625

[5] Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd., (2017) 2 SCC 228, para 40

[6] Oil & Natural Gas Commission Ltd. v. New India Civil Erectors Pvt. Ltd., 1996 (Suppl.) Arb LR 426

[7] Afcons Infrastructure Ltd. v. Cherian Varkey Construction Company Pvt. Ltd., (2010) 8 SCC 24

Ex Ante vs. Ex Post Arbitration: The Approach Towards Institutionalism

Shreeyam Kedia || Student of Campus Law Centre ( shreeyamm.kedia@gmail.com )

Shristy Sinha || Student of Campus Law Centre ( sinha.shristy27@gmail.com )

|| April 15 2023 ||

It’s no secret that the expediency of disposing cases is not the strongest suit of our judiciary. In fact, a recent statement by the incumbent Law Minister, Kiren Rijiju states that the number of cases pending for more than 20 years, as per the data retrieved from the Integral Case Management Information System (ICMIS)^[1] is nearly 6.72 lakh for the district and subordinate courts and around 3 lakhs for the High Courts. Such statistics clearly bring into question the need for alternative measures of dispute resolution. With the passage of time, a plethora of pre litigation remedies have come forth. From mediation to reconciliation, arbitration to negotiation; every such remedy has been budding at its own sweet pace. In India, alternative dispute resolution has been a spoke in the wheel of the larger formal legal system since time immemorial. 

The matter in question is that despite the importance which has been given to these alternative processes, the impact has been less than intended. We try to understand why that is and what can be done to improve the existing system of arbitration by essentially categorising ADR into two groups – ex-ante and ex-post. Increasing the incidence of ex-ante agreements provides an edge over all ex-post processes. While ex-post (settling the conflict after its occurrence) only aims at reducing conflicts which go to court, ex-ante agreements (finding solutions to conflicts before they arise) find their centre in improving the well-being of the people and decreasing the conflicts that arise in the first place. A Study by Steven Shavell quotes certain advantages of ex-ante agreements, how parties tend to adopt ADR more when they lead to mutual benefits. There are certain agreements where ex-ante approach gives improved incentives since having those changes the behaviour of parties in a way that increases joint welfare eventually leading to a more favourable outcome. Further, with such agreements there is no need to wait for a dispute to arise to bring an arbitration action, thus helping decrease the frequency of disputes themselves.

Now, we look at the need for an institutional approach to ADR, especially arbitration. Here, the aim is to establish more formal and standardised arbitration methods. Usually, when disputes reach arbitration, parties do not tend to be cooperative. In such circumstances, an institutionally developed arbitration system can help avoid “the risk of dilatory tactics, which increases delays and costs”^[2]. Further on, an ad hoc approach to arbitration in India has even more disadvantages due to the lack of monitoring. Therefore, a conscious effort must be made to set up institutional arbitration centres and guidelines. There needs to be uniform rules of practice and established norms. In KK Modi v. KN Modi^[3], the court spoke about a certain set of guidelines that helps determine whether parties agreed for arbitration or not. Formalising such guidelines can help establish a clear set of rules which reduces the need for courts to decide on a case-to-case basis. It also provides a better set-up for ex ante arbitration clauses in agreements and contracts.

An extension of the institutional approach lies in the development of infrastructure of the arbitral centres. Research conducted as a part of the Review of the Institutionalisation of Arbitration Mechanism in India by a High level committee in 2017 revealed that Indian arbitral centres have an abysmally low caseload when compared to other countries as a result of misconceptions of high costs and low flexibility. In fact, these institutions are lacking continuous updates in their process and a tech-savvy approach. Indian arbitral centres also often face criticisms of unprofessionalism in arbitrators and an inefficient feedback mechanism which can help improve performance. Moreover, the current number of arbitral institutions is impotent to suffice the volume of arbitrations. There’s also a lack of adherence to timelines on the part of these arbitral centres emphasising on the need for provisions for the same and a need for a cap on per sitting fees of arbitrators.

As we can see, there lies a lukewarm attitude toward institutional arbitration in India. However, it should be noted that the institutional approach is more preferred to ad-hoc arbitration for the reasons that the former renders a fixed framework of rules and accountability of arbitrators that could eventually create potential for the development of arbitral jurisprudence. As such, there comes a need to spread more awareness about the benefits and scope of arbitration and especially of arbitration clauses in contracts to prevent disputes from arising in the first place (i.e., ex ante agreements). The initiative should begin with the legal and business community by training them on how to diversify the horizon of alternative dispute resolution in legal matters.

To Conclude, the aim should be at optimising the number of disputes that arise and thereon, revolving of disputes. In furtherance of this, our suggestions lie in favour of ex ante agreements to reduce the number of disputes that arise in the first place and, create a functional country-wide institutional approach to this process of alternative dispute resolution with more attention on arbitration. The parties themselves know their situations the best and much better than the courts. Therefore, giving them a chance to decide a method for dispute resolution as compared to a complicated, time-consuming legal process can surely offer a wide variety of better solutions.

References:

1. Nearly 6.72L cases pending in district, subordinate courts for over 20 years: Kiren Rijiju (2023) The Economic Times. The Economic Times. Available at: https://m.economictimes.com/news/india/nearly-6-72l-cases-pending-in-district-subordinate-courts-for-over-20-years-kiren-rijiju/articleshow/97583641.cms (Accessed: March 2023). 
2. Law Commission of India, Need for Justice Dispensation Through ADR, etc.: Report No. 222, 2009.
3. Shavell, Steven. “Alternative Dispute Resolution: An Economic Analysis.” The Journal of Legal Studies, vol. 24, no. 1, 1995, pp. 1–28. JSTOR, http://www.jstor.org/stable/724588. Accessed 5 Mar. 2023.
4. Prof. Pillai , K.N.C., V.S., J. and K, V.K. (2008) “ADR: STATUS / EFFECTIVENESS STUDY.” Banglore and Bombay. 
5. K.K Modi vs. K.N Modi AIR 1998 SC 1297
6. Justice Srikrishna, B.N. (2017) “Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India.” High Level Committee by Ministry of Law and Justice, Government of India. 
7. Kumar, V. (2019) Mediation as a profession in modern legal system: An economic analysis, THE IMW POST. Available at: https://imwpost.com/mediation-as-a-profession-in-modern-legal-system-an-economic-analysis/ (Accessed: March 5, 2023). 

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[1] (Nearly 6.72L cases pending in district, subordinate courts for over 20 years: Kiren Rijiju 2023)

[2] Prof. Pillai et al., ADR: STATUS / EFFECTIVENESS STUDY 2008

[3] K.K Modi vs. K.N Modi AIR 1998 SC 1297

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Landmark Supreme Court Judgment in the Vodafone Case: A Game-Changer for Arbitration in India

Pallavi Priya || Student of Campus Law Centre ( pallavipriya287@gmail.com )

|| March 29 2023 ||

Arbitration is a popular alternative dispute resolution mechanism in India. Arbitration offers a speedy and effective system for resolving disputes between the parties, in contrast to judicial proceedings, which can take years. When compared to the resolution of disputes in a court of law, the arbitration method of dispute settlement makes it easier to hear the issues of the parties in dispute in a private meeting in an informal manner. It also attempts to resolve disputes in less time, with fewer complications, and at a lower cost. Family issues, legal disputes, and economic and commercial disputes can all be resolved using this method. By using arbitration, the parties to a disagreement can submit their disagreements to be judged by an impartial party or group that has been chosen by both sides of the conflict or in accordance with the rules of a particular legislation.

It provides parties with an opportunity to resolve disputes outside of court in a timely, cost-effective, and efficient manner. ADR (Alternative Dispute Resolution) is a group of strategies used to settle disputes without going to court. Due to its efficiency, economy, and lack of conflict, ADR has becoming more popular in India. There have been a number of major ADR-related judgments in ADR (Alternative Dispute Resolution) in latest days. Recently, An important shift in the Indian arbitration landscape has been brought about by a Supreme Court of India decision that set new precedents. The case is commonly referred to as the “Vodafone case” and pertains to an international arbitration dispute between Vodafone and the Indian government.

Background of the Vodafone Case

The Vodafone case arose out of a dispute between Vodafone, a multinational telecommunications company, and the Indian government. The Vodafone case has been one of the most high-profile tax disputes in India’s recent history. The Indian tax authorities had argued that the transaction was liable for tax in India, while Vodafone argued that the transaction was not taxable. In 2007, Vodafone acquired a majority stake in Hutchison Essar, an Indian telecommunications company. The Indian tax authorities, however, sought to tax the transaction as it involved the transfer of shares of an Indian company. Vodafone disputed the tax liability and initiated arbitration proceedings against the Indian government under the bilateral investment pact between India and the Netherlands. The case went through several rounds of litigation in Indian courts, and ultimately ended up in the Supreme Court.

The arbitration tribunal ruled in favour of Vodafone and held that India’s tax demand was in violation of the bilateral investment treaty. However, the Indian government refused to comply with the tribunal’s award and challenged it in the Indian courts. The case eventually made its way to the Supreme Court of India, which rendered its judgment in September 2020.

Supreme Court’s Judgment

The Supreme Court’s decision in the Vodafone case is a significant development in the Indian arbitration landscape. The court held that foreign arbitral awards are enforceable in India, even if they are contrary to the Indian tax law. The court ruled that the Income Tax Act, which is the domestic law governing tax matters in India, does not override the provisions of international treaties. Therefore, the Indian government could not impose tax liability on Vodafone under the Income Tax Act when the same was in violation of the India-Netherlands Bilateral Investment Treaty.

The Supreme Court’s judgment is in line with the pro-arbitration stance adopted by Indian courts in recent years. The court recognized the importance of upholding the sanctity of arbitration awards and promoting foreign investment in India. The judgment is expected to boost India’s position as an arbitration-friendly jurisdiction and attract more foreign investment into the country.

Legal Significance

The Vodafone case has significant legal significance for arbitration in India. It clarifies the law on the enforceability of foreign arbitral awards in India and provides greater certainty to parties involved in international arbitration. The judgment also reaffirms India’s commitment to honouring its international treaty obligations and promotes the country’s reputation as a pro-arbitration jurisdiction.

The judgment has been hailed as a landmark decision by legal experts and practitioners. According to Abhijit Mukhopadhyay, a partner at Khaitan & Co., “This judgment will definitely have a positive impact on India’s standing as an arbitration-friendly jurisdiction, particularly in the context of international commercial arbitration.” Furthermore, the case also brings to the fore the issue of tax disputes in India. Tax disputes in India are notoriously protracted, with many cases taking several years to resolve. This has a significant impact on businesses, particularly foreign investors, who may be deterred from investing in India due to the uncertainty and unpredictability of the tax regime.

Conclusion

The Vodafone case is a significant development in the Indian arbitration landscape. In particular, the case has aided in both the recognition of India as a favourable location for international arbitration and the clarification of the function of Indian courts in the arbitration process. The Supreme Court’s judgment reaffirms India’s commitment to promoting foreign investment and upholding the sanctity of arbitration awards. The decision is expected to boost India’s position as an arbitration-friendly jurisdiction and attract more foreign investment into the country. It is a positive step towards creating a favourable environment for international arbitration in India. The Vodafone case, however, has also significantly influenced arbitration in India. The case has specifically aided in the recognition of India as a favourable location for international arbitration and in the clarification of the function of Indian courts in the arbitration process.

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References:

1. Vodafone International Holdings BV v. Union of India, (2020) 4 SCC 1.
2. India-Netherlands Bilateral Investment Treaty.
3. Income Tax Act, 1961.
4. Indian Arbitration and Conciliation Act, 1996.
5. “Vodafone win a positive step towards creating a favourable environment for international arbitration in India.” Livemint, 16 September 2020, https://www.livemint.com/news/india/vodafone-win-a-positive-step-towards-creating-a-favourable-environment-for-international-arbitration-in-india-11600179519168.html.

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Doctrine of Group of Companies in Indian Jurisprudence

Satyarth Kuhad || Student of Campus Law Centre ( kuhadsatyarth@gmail.com )

Shelly Chhillar || Student of Campus Law Centre ( shellychhillar@gmail.com )

|| March 29 2023 ||

The doctrine of group of companies in matters of arbitration agreement refers to a legal principle that allows an arbitration agreement between one company in a group of companies to be extended to other companies within the same group, even if those other companies are not signatories to the arbitration agreement.

This concept originated in 1984 in the case of Dow Chemical v. ISOVER Saint Gobain^[1], where the ICC Arbitral Tribunal observed that, when a non-signatory company has effectively and individually participated in the conclusion, performance and termination of a contract, and appeared as an actual party both to the contract and to the arbitration clause, then it may be bound by the arbitration agreement.

Evolution in India

In the year 2012, in Chloro Controls India Pvt Ltd v Severn Trent Water Purifications Inc & Ors^[2], the Supreme Court of India, for the first time, allowed non-signatory parties to be a part of arbitration proceedings in exceptional cases and laid down a threefold “mutual intention” test which requires:

1. the non-signatory party to be proven in direct relationship to the party signatory to the arbitration agreement,
2. a direct commonality of the subject-matter, and
3. the agreement between the parties should be of a composite transaction.

The Court also clarified on the interpretation of Section 45 of the Arbitration and Conciliation Act, 1996 observing that “in Section 45, the expression ‘any person’ clearly refers to the legislative intent of enlarging the scope of the words beyond ‘the parties’ who are signatory to the arbitration agreement” (Supra).

The Law Commission of India in its 246^th Report^[3] in the year 2014, expressed the necessity of clarifying the definition of “party” in the act, to enable it to be read in accordance with the judgement of the Supreme Court, where the Court recognised non-signatories to be party of the arbitration proceedings in some cases. The commission was of the view that the scope and nature of judicial intervention in context of Section 8 and 45 should be the same as that under Section 11 of the act. The Commission proposed an amendment to the definition of “party” under section 2(h) of the Act^[4]. The LCI report also recommended amendment to Section 8 to make it at par with Section 45 of the act. Regarding Section 8, the report mentioned that, “…where the context would demand, a party includes also a “person claiming through or under such party”^[5].

Present Status

In 2020, in the case of Cox and kings Pvt Ltd v SAP India Pvt Ltd & Anr.^[6], the Appellant company invoked arbitration against Respondent No. 2 which was a parent company of Respondent No. 1 and was not a signatory to the arbitration agreement. The respondents did not respond to the notices; hence the appellant filed the present application seeking appointment of the Arbitrator in an International Commercial Arbitration.

The most dominant issue was whether Respondent No.2, the parent company which was not part of the original contract, could be made a party to the arbitration proceedings arising out of the dispute related to Respondent No.1, the subsidiary company. The three-judge bench examined the doctrine and passed two separate but concurring judgements, and referred the question of correctness and applicability of the doctrine to a larger bench. 

In this case, Justices NV Ramana and AS Bopanna making the majority opinion observed that arbitration is a creature of contract so binding the non-signatories does not justify the purpose of arbitration agreement. The Bench doubts the correctness of the law laid down in Chloro Control (Supra) and cases following it as it appears to be based more on economics and convenience rather than law. The Hon’ble Judges referred the following questions to a larger bench:

1. Could the term “claiming through or under” as used in Sections 8 and 11 be construed to encompass the “Group of Companies” doctrine?
2. Is the “Group of Companies” doctrine as established in the Chloro Control Case (Supra), and its subsequent rulings, legally correct?

In a minority opinion, Justice Suryakant in his concurring judgement made certain observations regarding the mechanism of corporations while making contracts and pressed on identifying the actual intention behind such acts. The Hon’ble Judge referred the following questions to a larger bench in addition to the questions referred by Justices NV Ramana and AS Bopanna:

1. Is it appropriate to interpret Section 8 of the Act to include the Group of Companies Doctrine, or can it exist as a standalone principle in Indian jurisprudence?
2. Should the Group of Companies Doctrine continue to be applied based on the principle of “single economic reality”?
3. Is it valid to construe the Group of Companies Doctrine as a method for inferring implied consent or intent to arbitrate between the parties?
4. Can the principles of alter ego and/or piercing the corporate veil, in the absence of implied consent, justify the application of the Group of Companies Doctrine?

The present status as to the applicability of the Doctrine of Group of Companies to join the non- signatory parties to the arbitration proceeding is ambiguous and has been referred to a larger bench of the Supreme Court of India in May 2022 by a three- judge bench in the case of Cox and kings Pvt Ltd v SAP India Pvt Ltd & Anr (Supra). The doctrine has been applied in India in exceptional cases, but its validity in law and interpretation in the context of the Arbitration and Conciliation Act is still a matter of debate and requires further clarification from the Supreme Court.

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^[1] ICC Case No. 4131 of 1982

^[2] Civil Appeal No. 7134 of 2012

^[3] Law Commission of India, “246th Report on Amendments to the Arbitration and Conciliation Act, 1996” (August, 2014)

^[4] Law Commission of India, “246th Report on Amendments to the Arbitration and Conciliation Act, 1996” Page 38 (August,   2014)

^[5] Law Commission of India, “246th Report on Amendments to the Arbitration and Conciliation Act, 1996” Page 33 (August,   2014)

^[6] Arbitration Petition (Civil) No. 38 of 2020

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Emergency Arbitration And Its Applicability In India

Shivam || Student of Campus Law Centre ( shivammkd0@gmail.com )

|| Feb 6, 2023 ||

Emergency Arbitration

It is a stage before the appointment of an arbitral tribunal. In this mechanism, if the party to the arbitration proceedings wants urgent relief, then it can ask for the appointment of the Emergency Arbitrator who decides the dispute within the specified period and pass the emergency award and this award is in a form of an interim award as the arbitral tribunal can modify/revoke the emergency award after its formation. Various international arbitration centres amended their rules to include the emergency awards like the Singapore International Arbitration Centre, the Stockholm Chamber of Commerce, etc.

Applicability in India

In India, awards passed by the emergency arbitrator are not given statutory recognition. In India, the arbitration is governed by the Arbitration and Conciliation Act, 1996 (Act 26 of 1996) (‘A&C Act’), Sec 2(1)(d) which defines the “arbitral tribunal” does not include the ‘emergency arbitrator’. The Law Commission of India in the year 2014, in its 246^th report,[1] recommended the govt. to amend section 2(1)(d) of the A&C Act to include the ‘emergency awards’ in the definition of ‘arbitral tribunal’ but it is not included in the 2015 amendment of the A&C Act. Again, in the year 2017, Justice B. N. Srikrishna committee[2] recommended the inclusion of emergency arbitration in the A&C Act and the adoption of the recommendations made in the 246^th law commission report.

Applicability in Arbitration Seated in India

The applicability of the emergency award in India is unclear till the judgment of the Hon’ble supreme court in the case of Amazon.com NV Investment Holdings LLC v. Future Retail Limited and Others[3] held that the emergency arbitration is well within the ambit of the A&C Act and the expression “during the arbitral proceedings”  used in section 17(1) of the A&C Act, is wide enough to include the emergency arbitration and the awards made under these proceedings and can be executed in India by interpreting section 17(2), in case of arbitration seated in India (in this case the proceedings are governed by the rules of Singapore International Arbitration Centre and arbitration is seated in New Delhi). Therefore, in case of arbitration seated in India, the party has two options either it can beg the emergency award or it can approach the court under Sec. 9 of the A&C Act of 1996.

Applicability in Arbitration Seated outside India

In case the emergency award is passed by the emergency arbitrator in the arbitration seated outside India, that award is not enforceable in India, as section 17 does not cover the arbitration proceedings seated outside India. The Hon’ble Delhi High Court in the case of Raffles Design International India Pvt. Ltd. v. Educomp Professional Education Ltd[4] (in this case the emergency arbitration seated in Singapore) held that the arbitration award passed by the emergency arbitrator seated outside India is not enforceable in India and it will only be enforceable after the approval of the court under section 9 of A&C Act read with section 2(2) and its proviso. Although the emergency award will have some persuasive value, but the court pointed out that it will deal with the application made under section 9 regardless of the decision of the emergency arbitration. Therefore, it is advisable that the party should approach the court in the first instance rather than approaching the foreign seated arbitration as far as the enforcement of the award only in India is concerned.

Conclusion

The awards given by the Emergency Arbitrator are enforceable in India as the decree of the civil courts in case the emergency arbitration is seated in India, but they are not enforceable in case of foreign seated arbitration. Therefore, if the party wants interim relief, then it can approach the court under sec. 9 of the A&C, Act, or it can go for emergency arbitration seated in India but if the arbitration is seated outside India, then the party must approach the court after getting the emergency award or it can straight away approach the court under sec. 9 of the A&C Act. These judgments are steps, by India, in the direction of a pro-arbitration country but India is still waiting for the statutory recognition of the emergency arbitration. As the advanced and leading international arbitration centres in the world had amended their rules to include emergency arbitration and to recognize the emergency awards made in all arbitration proceedings. Therefore, India should also change their law and make the required amendments, in accordance with the recommendations made in the 246^th report of the law commission, to be on par with the international community, to ensure best practices are followed, to increase the efficiency of the arbitration proceedings and to remove the ambiguity created by the decisions of the court.

References

1. https://www.lexology.com/library/detail.aspx?g=dcb3ff1d-6b2f-48dd-9103-11032cbd876f#:~:text=An%20emergency%20arbitration%20(%E2%80%9CEA%E2%80%9D,formation%20of%20the%20arbitral%20tribunal.(last visited on November 15, 2022)
2. https://www.mondaq.com/advicecentre/content/3958/Emergency-Arbitration-In-India-Concept-And-Beginning (last visited on November 15, 2022)
3. Law Commission of India, 246^th Report on Amendments to the Arbitration and Conciliation Act, 1996(Act 26 of 1996), available at: https://indiankanoon.org/doc/194486288/ (last visited on November 15, 2022)
4. Arbitration and Conciliation Act, 1996 (Act 26 of 1996), available at https://www.indiacode.nic.in/bitstream/123456789/1978/1/AAA1996__26.pdf (last visited on November 15, 2022)
5. High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, available at  https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf (last visited on November 15, 2022)

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[1] Law Commission of India, 246^th Report on Amendments to the Arbitration and Conciliation Act, 1996(Act 26 of 1996).

[2] High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India.

[3] Amazon.com NV Investment Holdings LLC v. Future Retail Limited and Others, 2021 SCC OnLine SC 623.

[4] Raffles Design International India Pvt. Ltd. v. Educomp Professional Education Ltd., 2016 SCC OnLine Del 5521.

Introduction to Arbitration

Tavin Sethi || Student of Campus Law Centre ( tavin.sethi01@protonmail.com )

|| Dec 8, 2022 ||

Arbitration has been the favored mode of dispute resolution for quite a time now. Especially regarding commercial disputes.

Contractual relations are frequently multifaceted. These relations are getting more complex with time. And hence these complex relations have some specific dispute resolution needs.

Since the contracts aren’t veritably frequently between only two parties or for that matter not indeed in a single contractual document.

There are multiple ways to address similar specific requirements first is allowing inclusion of impacted parties in the main arbitration (joinder) and second is incorporating two separate arbitration proceedings into one (consolidation). [1]

In this blog, the author takes up the issue of joinder and specifically regarding the joinder of non-signatories.

Joinder of non-signatories to the arbitration

The major events which changed the trend in this regard are the (i) “The case of Chloro Control”[2], (ii) “246^th Law Commission Report”[3] and (iii) “amendment of “Arbitration and Conciliation Act” (hereinafter “A&C Act”) in 2015”[4].

The leading case on this is Chloro Controls India v. Severn Trent Water Purification [5] case.

The court ruled that in extraordinary circumstances, a non-signatory or third party could be brought into arbitration without their prior consent if they meet the criteria of “claiming through or under a party to the arbitration agreement.” To ascertain such cases the court has laid down a threefold test or the mutual intentions test:

• a requirement of having a direct relation to the party signing the arbitration agreement;
• a requirement that the subject matter be directly related; and
• a requirement that the agreement between the parties be a composite transaction.[6]

Plus cases where ‘group of company’ (Dow Chemical Case)[7] doctrine is applicable.

When contrasting the text of Sections 45 and 8 of the A&C Act, the Supreme Court ruled that “in Section 45, the expression ‘any person’ clearly refers to the legislative intent of enlarging the scope of the words beyond ‘the parties’ who are signatory to the arbitration agreement”[8]. This helps to reach to the conclusion that a party who is “claiming through or under” a party to the arbitration agreement is on the same footing as a party to the agreement and hence can be lawfully added to the arbitration.

The said “Law Commission Report” recommended amendment in “Section 8”  of the A&C Act[9] to add “person claiming through or under a party”. “2015 amendment”[10] followed the report in this regard.  This would mean that now reference could be made “by a party to an arbitration agreement or any person claiming through or under him” as par with the Chloro Controls Judgement.[11]

Another relevant judgment is “P.R.Shah Shares & Stock Brokers v. B.H.H. Securities”[12] in which it was held that such joinders can happen as otherwise, it would lead to “multiplicity of proceedings, conflicting decisions, and cause injustice”[13]. In this judgement, the question of whether the party asking to be added is “claiming through or under a party to the arbitration agreement” was not considered necessary by the court.

Conclusion

The situation at present is such that the enforcement of awards (in cases of joinder of non-signatory), where such a reference has been made by court order, is unlikely to be denied. However, the same is not the case where an arbitral tribunal or an institution makes such reference, in such scenarios the treatment has been inconsistent.

While there are some cases like P.R. Shah[14]  and “Sterna India Oil and Gas v. Nandini Impex”[15] in which the courts have accepted such reference by arbitral tribunals, on the other hand, there are some cases which even suggest that arbitral tribunals don’t even have the power to order consolidation/joinder. The leading case here is “V.G. Santhosam v. Shanthi Gnanasekaran”[16] where the high court set aside an award in which the tribunal had permitted the joinder of a party’s legal heir. The arbitral tribunal is not permitted to implead non-signatories to the arbitration agreement in the proceedings, the court ruled.

So, it is fairly clear that the Indian Courts have leaned towards favoring the joinder of non-signatories to a single arbitration but such reference has to be made by the courts, and whether arbitral tribunals have such a power or not remains a topic to be taken up on another day.

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[1] Budihal, V. M. (n.d.). Chapter 3: Multiparty and Multi-contract Arbitrations’, in M.H., Dushyant Dave, et al.(eds), “Arbitration in India” 49-72 (Kluwer Law International, 2021).

[2] Chloro Controls India v. Severn Trent Water Purification, (2013) 1 SCC 641.

[3] Law Commission of India, “246th Report on Amendments to the Arbitration and Conciliation Act, 1996” (August 2014).

[4] The Arbitration and Conciliation Act, 1996.

[5] (2013) 1 SCC 641 .

[6] (2013) 1 SCC 641.

[7] Dow Chemical Company v. Isover Saint Gobain, ICC Case no. 4131 of 1982; (2013) 1 SCC 641.

[8] (2013) 1 SCC 641.

[9] “Arbitration and Conciliation Act, 1996, s. 8”.

[10] “Arbitration and Conciliation(Amendment) Act, 2015”.

[11] Ibid.

[12] “P.R.Shah Shares & Stock Brokers v. B.H.H. Securities”, (2012) 1 SCC 594.

[13] (2012) 1 SCC 594.

[14] (2012) 1 SCC 594.

[15] “Sterna India Oil and Gas v. Nandini Impex , MANU/DE/1694/2020”.

[16] “V.G. Santhosam v. Shanthi Gnanasekaran , MANU/TN/1637/2020”.

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Financial Institution Arbitration

Samridhi Dutta || Student of Campus Law Centre ( samridhidutta.47@gmail.com )

|| Dec 8 2022 ||

Institutional Arbitration is an arbitration proceeding that is carried out in compliance with institutional arbitration rules and is supervised by an arbitral institution with responsibility for a variety of elements relating to the composition of such arbitration panels, administrative, financial and similar considerations. In this context, “arbitration” refers to the management of the dispute resolution process by a specialised institution.^[1] Financial institution, like any other business, engages in commercial transactions and arbitration may be used to settle disputes arising from the purchase or sale of goods, services, or equity stakes in other companies. In addition, the industry covers numerous specific types of transactions and financial activities.

Initiatives have been taken to promote and encourage financial  institution arbitration internationally, such as^[2]:

1. P.R.I.M.E. Finance (Panel of Recognised Market Experts in Finance): The organisation was established in January 2012, in The Hague. The centre provides mediation, arbitration, and other conflict resolution services to the financial industry and has its own arbitration rules that have been tailored to satisfy the requirements of the financial markets.

2. The 2013 ISDA Arbitration Guide: In September 2013, ISDA published a guide on the use of arbitration in the ISDA Master Agreement. The Guide was revised in 2018 to offer a broader selection of  model arbitration clauses for a wider variety of arbitral institutions and seats around the world.

3. The Financial List: The Financial List is a specialised, cross-jurisdictional list designed to meet the specific business requirements of cases involving financial matters. The list can address the following situations:^[3]

• Typically involving transactions worth more than £50 million,
• That necessitates expert judicial knowledge of financial markets, and
• Raise significant issues for the sector.

4. ICC Report on Financial institutions and international arbitration: The International Chamber of Commerce (ICC) published a report in November 2016,^[4] confirming that arbitration is a suitable method for resolving disputes in many areas of banking and finance activity.^[5]

It has been an emerging trend to use arbitration in certain specialist avenues of finance, some of which are listed below^[6]:

a.) Derivative dispute arbitration: The use of Arbitration for dispute resolution may be attractive to financial parties who can select arbitrators with specialised derivatives expertise in this sector.

b.) Disputes related to sovereign finance: The most prevalent dispute witnessed in this avenue is non-payment, the more complex issues in sovereign financing include may include debt restructuring, the liability of the state arising from an investment treaty, and other similar conflicts which may require expert arbitration

c.) Regulatory disputes: There has been a growing receptiveness to arbitration of breaches in regulations. It is now not uncommon for disputes between consumers and financial institutions to go into arbitration.

d.) International Finance Disputes: In cases where parties belong to different states, arbitration is considered the most appropriate mode of dispute resolution. Given the diversity in the international financial market, it may not be ideal to pursue litigation in domestic courts to resolve conflict.

Scope of Financial Institution Arbitration in India

There was no provision for institutional arbitration in India until the Indian Arbitration and Conciliation (Amendment) Act 2019. International arbitration centres like Singapore and Hong Kong have been chosen by parties due to the lack of institutionalised arbitration in India. As a result of the 2019 Amendment Act, institutionalised arbitration is being encouraged in India. One of the objectives of the act was to set up the Arbitration Council of India (ACI), an independent body for alternative dispute resolution. The act provides for the appointment of arbitrators to arbitral institutions designated by the Supreme Court and High Courts to facilitate institutional arbitration in India. Arbitration has the potential to play a more significant role in the settlement of financial disputes. Financial institutions can greatly benefit from the increased use of arbitration, and from proceedings that are specifically tailored to their needs. While some countries have arbitration institutions providing services for the resolution of financial conflicts, India is yet to join the ranks.

Conclusion

Arbitration as a method of dispute resolution is preferred because of the degree of autonomy, the parties to dispute exercise a greater degree of control over the proceedings and can maintain a higher degree of confidentiality. Financial disputes generally require a greater degree of privacy, to avoid media coverage that can invoke public distress and cause stock price fluctuation which can have lasting grave long-term impacts on goodwill and financial stability, therefore parties to such disputes prefer to resolve their disputes privately by consulting an institution that has expertise in dealing with disputes of financial nature, rather than going to courts. The current model of arbitration prevailing in India is one where a retired judge presides over arbitral proceedings and often they lack expertise and knowledge in finance and finance-related matters which leads to unsatisfactory resolution of disputes. While institutional arbitration itself is not a new phenomenon, it is still gaining a foothold in India, with the Arbitration Council of India (ACI) having been set up in 2019. India set out on the path to join the ranks of other elite international arbitration institutions and created a forum for redressal of grievances of specialised characteristics locally so parties do not have to approach arbitration institutions abroad for the resolution of their disputes. However, since institutional arbitration is relatively new in India, there is still a long way until Indian arbitration institutions can claim to be at par with their well-established international counterparts.

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^[1]  Institutional Arbitration, Jus Mundi, available at: https://jusmundi.com/en/document/publication/en-institutional-arbitration  (last visited on May 7,2022)

^[2]Use of arbitration in finance disputes. Ashurst, available at: https://www.ashurst.com/en/news-and-insights/legal-updates/quickguide—use-of-arbitration-in-finance-disputes/ (last visited on May 7,2022)

^[3]Financial list: FAQ. Courts and Tribunals Judiciary, available at: https://www.judiciary.uk/publications/financial-list-faq/ (last visited on May 9, 2022)

^[4]ICC COMMISSION REPORT “Financial institutions and international arbitration” (2016), available at: https://cdn.iccwbo.org/content/uploads/sites/3/2016/11/icc-financial-institutions-and-international-arbitration-icc-arbitration-adr-commission-report.pdf (Last visited May 7,2022)

^[5]Briefing Note. (2016, November). Cliffordchance.com/Briefings.html., available at: https://www.cliffordchance.cnoom/content/dam/cliffordchance/briefings/2016/11/icc-examines-the-use-of-international-arbitration-by-financial-institutions.pdf., (last visited on May 9,2022)

^[6]Briefing Note. (2016, November). Cliffordchance.com/Briefings.html., available at: https://www.cliffordchance.cnoom/content/dam/cliffordchance/briefings/2016/11/icc-examines-the-use-of-international-arbitration-by-financial-institutions.pdf., (last visited on May 9,2022)

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