Tag: Supreme Court of India

Categories
Corporate Lounge

Why SEBI has jurisdiction over GDRs that impact Indian securities markets

DeekshaSinghEarlier this month, the Supreme Court decided on the jurisdiction of the Securities and Exchange Board of India (“SEBI”) in relation to Global Depository Receipts (“GDRs”). Let us take a closer look at GDRs and the Court’s decision in Securities and Exchange Board of India v. Pan Asia Advisors Ltd.

What are GDRs?

GDRs are instruments created by a foreign depository outside India and authorised by a company making an issue of such depository receipts. A depository can be any company, bank, or institution that holds and facilitates the exchange of securities. Depositories issue receipts for the securities deposited with them, which then function as negotiable financial instruments that can be traded on a stock exchange.

Let us look at how this works. Each GDR represents a certain number of equity shares of an Indian company, which are listed on an Indian stock exchange. A local custodian in India holds the underlying equity shares on behalf of the depository. The depository issues these GDRs, which are then listed and traded on the foreign exchanges. The underlying equity shares are not traded on the Indian stock exchange until the GDR holder redeems the depository receipts. Until then, they are merely held by the local custodian.

The GDR holder may redeem the GDRs and obtain the underlying equity shares. The terms of the redemption will depend on the terms of the deposit agreement between the issuer, the GDR holder, and depository issuing the GDRs. The GDR holder however, should be eligible to hold the underlying equity shares according to the foreign exchange laws in India, namely, the Foreign Exchange Management Act, 1999 and the regulations made under it, in order to redeem the GDRs and obtain the underlying equity shares.

In India, the Ministry of Company Affairs has issued the Companies (Issue of Global Depository Receipts) Rules, 2014 (“GDR Rules”) to govern the issue of GDRs. The GDR Rules provide that any GDR issue must comply with the GDR Rules and the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993, which was notified by the Ministry of Finance.

SEBI v. Pan Asia Advisors Ltd. – the facts

In this case, issued GDRs were all converted into the underlying equity shares of the issuing companies, which were then sold in large deals to several buyers, such as stock brokers. The stock brokers would in turn sell the shares to other investors.

After investigation, the SEBI found that the issuing companies, the lead manager to the GDRs, the foreign institutional investors (“FIIs”), and the stock brokers were all acting as a group. They were able to maintain the share price of the company through these transactions. No information was communicated to outside investors who may have paid a high price based on the issuance of GDRs by the companies and large holdings maintained in them by FIIs.

SEBI held that this was an instance of market manipulation and exercising its quasi-judicial function, passed an order restraining the parties from participating in the capital markets.

The Securities Appellate Tribunal (“SAT”) overturned the SEBI’s ruling on the ground that SEBI does not possess jurisdiction to regulate GDRs. SEBI appealed the matter. The issue was whether the SEBI has the jurisdiction to initiate action against the lead managers to the GDRs issued outside India.

The Supreme Court’s decision

The Supreme Court of India

The Supreme Court of India

The Supreme Court looked at the process involved in a GDR issuance. It recognised that while the deposit of the ordinary shares with the custodian takes place in India, the actual issue and trading of the GDRs takes place outside India.

Since the GDR does not come into existence unless the underlying shares are issued, Indian law does apply. This also leads to the conclusion that GDRs would fall within the definition of “securities” under section 2(h) of the Securities Contracts (Regulation) Act, 1956 (“SCRA”).

The Supreme Court then looked at the powers of the SEBI under the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) and the SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Market) Regulations, 2003. After finding that the SEBI has extensive powers to protect the interests of investors in the securities markets, the Supreme Court noted that the alleged actions of the parties involved in the transactions adversely affected the Indian securities markets. It observed that “… the violation complained of by the appellant is with reference to such of those provisions contained in SEBI Act, 1992 vis-`-vis the underlying shares of GDRs. Therefore, we are unable to see any violation of exercise of its jurisdiction since the underlying shares of GDR were created and dealt with as well as traded in the stock market of Indian Territory.”

It further relied on the case of GVK Industries Limited v. Income Tax Officer and stated that in order to proceed “in exercise of any extra territorial aspect, which has got a cause and something in India or related to India and Indians in terms of impact, effect or consequence would be a mixed matter of facts and of law, then the Courts have to enforce such a requirement in the operation of law as a matter of law itself.”

So with regard to the limited question of jurisdiction, the Supreme Court concluded that the SEBI has jurisdiction over GDR issues that impact the Indian securities markets. It sent the matter back to SAT for a decision on the merits of the case.

The specific facts of the case could have affected the Supreme Court’s decision. This transaction in question was not just a GDR issue. A series of allied transactions allegedly caused adverse consequences for Indian investors. The scope of this judgment may therefore be somewhat limited. However, it serves to clarify that just because a GDR issue is carried out entirely outside India does not mean that it is outside the SEBI’s territorial jurisdiction.

Deeksha Singh is part of the faculty at myLaw.net.

Categories
Human Rights Supreme Court of India

On Shreya Singhal: Section 66A is too broad, vague, and will chill free speech

GautamBhatia_SupremeCourtofIndiajpgIn the second half of December 2014, the Supreme Court began to hear a series of challenges to various provisions of the Information Technology Act of 2008 (“IT Act”). Hearings will commence again when the Court reopens in January after the winter break. The batch of petitions, clubbed under Shreya Singhal v. Union of India, impugn – inter alia – the constitutional validity of Section 66A of the IT Act.

Section 66A has attained a degree of notoriety in recent times, having been used to arrest people for posting (and liking) Facebook comments, for critical political speech, and so on. Section 66A is largely borrowed from the English Communications Act (the scope of which has been severely curtailed after allegations of abuse), and was originally intended to tackle spam and online harassment. It hardly bears repeating that its implementation has gone far beyond its objective. Beyond poor implementation, however, there is a strong case for the Court to hold at least part of Section 66A unconstitutional, on the ground that it violates the freedom of speech guarantee under Article 19(1)(a) of the Constitution.

Among other things, Section 66A criminalises the sending, by a computer resource or a communication device, any information that is “grossly offensive” or has a “menacing character” (S. 66A(a)), as well as the sending of “any electronic mail or electronic mail message for the purpose of causing annoyance or inconvenience.” The components of the offence, therefore, include online speech that is “grossly offensive”, “menacing”, or causes “annoyance” or “inconvenience”.

Legitimate restrictions permitted on the fundamental right in Article 19(1)(a)

The State’s authority to legitimately restrict speech can be sourced to Article 19(2) of the Constitution, which allows for the State to impose, by law, “reasonable restrictions on the freedom of speech in the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality or in relation to contempt of court, defamation or incitement to an offence.” S. 66A’s restrictions might be connected with three of these concepts: public order, decency or morality, and defamation.

In a series of cases, the Supreme Court has made it clear that the connection between “public order” and a free speech restriction ought to be proximate, like that of a “spark in a powder keg”, and not far-fetched or remote. Clearly, while certain forms of offensive or menacing speech might, at some point, lead to a public order disturbance, the connection is anything but proximate. Similarly, the “decency and morality” prong has been invoked to deal with cases of obscenity, where the offending work appeals solely to the prurient interest, as seen from the point of view of the reasonable, strong-minded person. And lastly, the ingredients of defamation are highly specific, and much narrower than causing offence or annoyance – they are limited to lowering the reputation of the plaintiff in society (subject to certain defences).

Over-breadth and disproportionate restrictions

IMediaLawst is therefore clear that certain terms of Section 66A suffer from the vice of “overbreadth”, that is, they authorise the restriction of expression that the government is entitled to prohibit, as well as that which it is not. In Chintaman Rao v. State of Madhya Pradesh, the Supreme Court, while striking down certain restrictions on agricultural labour under Article 19(1)(g) of the Constitution, held that “the law even to the extent that it could be said to authorize the imposition of restrictions in regard to agricultural labour cannot be held valid because the language employed is wide enough to cover restrictions both within and without the limits of constitutionally permissible legislative action affecting the right. So long as the possibility of its being applied for purposes not sanctioned by the Constitution cannot be ruled out, it must be held to be wholly void.” In other words, as far as fundamental rights are concerned, over-breadth is constitutionally fatal to a statute. This conclusion is further buttressed by the fact that in State of Madras v. V.G. Row, the Supreme Court also held that a “reasonable restriction” under Articles 19(2) to (6) would have to satisfy the requirements of proportionality: “the nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, should all enter into the judicial verdict.” Proportionality and over-breadth are closely linked: if a statute proscribes conduct that is much broader than what is permitted under Article 19(2), on the ground that there is some – tenuous – connection between the two, there is good reason to argue that the restriction is disproportionate.

Vagueness

In addition to over-breadth, the provisions of Section 66A suffer from an additional problem: that of vagueness. “Menacing”, “annoyance”, “inconvenience” and “grossly offensive” are all highly subjective, and open to numerous varying interpretations depending upon individual and diverse standpoints. Their scope and boundary are both large and ill defined. Consequently, they create a zone of uncertainty for Internet users. What kind of speech might land you in trouble? It is hard to tell.

Vagueness is constitutionally problematic. In Kartar Singh v. State of Punjab, the Supreme Court – citing American precedent – observed that “it is the basic principle of legal jurisprudence that an enactment is void for vagueness if its prohibitions are not clearly defined. Vague laws offend several important values… laws should give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly. Vague laws may trap the innocent by not providing fair warning. Such a law impermissibly delegates basic policy matters to policemen and also judges for resolution on an ad hoc and subjective basis, with the attendant dangers of arbitrary and discriminatory application.” Thus, the twin problems of uncertainty and impermissible delegation to the executive, are inextricably connected with vague statutes.

Censorship
Image is from Tyler Menezes’ photostream on Flickr. CC BY-SA 2.0.

Vague and over-broad statutes are especially problematic when it comes to free speech, because of the chilling effect that they cast upon speech. As the Court put it in Kartar Singh, “uncertain and undefined words deployed inevitably lead citizens to “steer far wider of the unlawful zone … than if the boundaries of the forbidden areas were clearly marked”.” When faced with uncertain, speech-restricting statutes, citizens are likely to self-censor, in order to ensure that they steer well clear of the prohibited line.

In the Shreya Singhal petitions, the Supreme Court will be faced with the choice of striking down Section 66A, or reading it down and (perhaps) issuing guidelines aimed at checking abuse. There is no doubt that the objectives of preventing scam and protecting Internet users against cyber-harassment and online bullying are important. But there are other parts of Section 66 that can be used to curtail such activities. If the Court is not minded to strike down Section 66A in its entirety, it ought to at least sever the words that have the greatest and most unbounded catchment area, and are most prone to abuse, and excise them from the statute.

(Gautam Bhatia blogs at Indian Constitutional Law and Philosophy.)

Categories
Human Rights Supreme Court of India

A revolutionary judge who gave new meaning to the Constitution – V.R. Krishna Iyer (1914-2014)

Suhrith_ParthasarathyJustice V.R. Krishna Iyer, a judge of the Supreme Court of India between 1973 and 1980, and a champion of individual liberties and social justice, died on Thursday in Kochi at the age of 100. As a Supreme Court judge, Krishna Iyer infused life into the otherwise abstract rendering of constitutionally guaranteed fundamental rights. In so doing, he changed the core of the Court’s jurisprudence; the Court, during Krishna Iyer’s tenure, moved from being a decidedly positivist body into one that, howsoever briefly, thought of social justice as the underlying aim of the Constitution. His ability to coalesce his inherent sense of compassion and integrity with an intellect of stupendous brilliance allowed him to make indelible marks on the development of the law as a means to justice.

Krishna Iyer began his practice as a lawyer in 1937 in the courts of Thalassery, where he often represented labourers and menial workers. But he soon found himself gravitating towards a more active political life. In 1952, at the young age of 37, he was elected to the Madras Legislative Assembly, with the support of the Communist Party. Later, he would also serve as a minister in Kerala’s first government. To politics he brought an invigorating blend of empathy and statesmanship, but it is his revolutionary role as a judge of the Supreme Court that he will be most remembered for.

VRKrishnaIyer1914-2014

In 1973, after a mere five years as a judge of the Kerala High Court, Krishna Iyer was elevated to the Supreme Court. Here, his judgments, written in effusive—and often dynamic—prose, quickened the march of the law in numerous and diverse fields. The law, he believed, was a means to achieving the ends of justice. And it was this fundamental ethos that allowed him to imbue in the court’s philosophy, a proclivity for loosening the standards of locus standi. In fact, it was Krishna Iyer’s judgment in The Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai, which served to forge the movement towards public interest litigation, which has today achieved a hallowed status. Where public interest demanded, “even Article 226, viewed in wider perspective, may be amenable to ventilation of collective or common grievances, as distinguished from assertion of individual rights,” he wrote. “Public interest is promoted by a spacious construction of locus standi in our socio-economic circumstances and conceptual latitudinarianism permits taking liberties with individualization of the right to invoke the higher Courts where the remedy is shared by a considerable number, particularly when they are weaker. Less litigation, consistent with fair process, is the aim of adjectival law.”

It was his indefatigable concern for equality as an all-pervading value that allowed him to foster a jurisprudence, which would give new meaning to a hitherto tepid Constitution. In both Sunil Batra and M.H. Hoskot’s Case, Krishna Iyer’s fundamental concern for the rights of the prisoner spoke to his larger commitment to a constitutional morality. “I hold that bar fetters are a barbarity generally and, like whipping, must vanish,” wrote Krishna Iyer, in Sunil Batra v. Delhi Administration. “Civilised consciousness is hostile to torture within the walled campus. We hold that solitary confinement, cellular segregation and marginally modified editions of the same process are inhuman and irrational.” In appealing to similar values, Krishna Iyer ruled in M.H. Hoskot v. State of Maharashtra that if a prisoner sentenced to imprisonment was unable to exercise his right of appeal, for want of legal assistance, “there is implicit in the Court under Article 142, read with Articles 21, and 39A of the Constitution, power to assign counsel for such imprisoned individual for doing complete justice.” Krishna Iyer’s dogged commitment to equality as a virtue also saw him make colossal contributions to labour law. His expansion of the mere textual meaning of the word “industry,” in Bangalore Water Supply and Sewerage Board v. A. Rajappa continues to resonate even today.

Krishna Iyer’s mark on the polity did not end with his tenure on the bench. In the years since his retirement, he used his tireless verve to advocate causes that appealed deeply to his conscience, and, as it would so happen, to the Constitution’s essential values, properly understood. Of the death penalty, for example, he wrote that a legislative abolition of the punishment would be “a statutory tribute to the Founding Fathers of Article 14.” Were the legislators to do so, it would also equally be a fitting tribute to the glorious ideas of Justice Krishna Iyer, ideals that, more than anything else, appealed to the securing of an equal society.

(Suhrith Parthasarathy is an advocate practising at the Madras High Court.)

Categories
Supreme Court of India

Supreme Court correctly holds National Tax Tribunal unconstitutional but should ordinary law be tested against basic structure and constitutional convention?

GautamBhatia_SupremeCourtofIndiajpgIn a landmark judgment last week – Madras Bar Association v. Union of India – a Constitution Bench of the Supreme Court held unconstitutional, the National Tax Tribunal Act, 2005. The majority opinion runs into 230 pages and deals with a host of complicated statutory and constitutional provisions. Briefly, the National Tax Tribunal Act provided for the constitution of a National Tax Tribunal (“NTT”), which had the power to adjudicate appeals from various appellate tribunals (constituted under the Income Tax Act, the Customs Act, and the Central Excise Act), where such appeals involved a substantial question of law. Before this, such appeals were heard by the jurisdictional high courts. The idea behind the NTT was to create a single forum for the hearing of tax appeals, in order to provide the uniformity and consistency that was lacking in the law because of the conflicting decisions of the various high courts.

The petitioners challenged the NTT Act on four grounds: first, that the reasons for setting up the NTT were fallacious, since there were no problems of consistency in the present jurisprudence of the high courts; secondly, deciding upon a substantial question of law was a “core judicial appellate function”, which could not be transferred to a quasi-judicial authority that lacked the basic features of a superior court; thirdly, that the enabling constitutional provision, Article 323B, inserted into the Constitution via the 42nd Amendment, violated the basic features of the Constitution (such as the rule of law, the separation of powers, and the independence of the judiciary); and fourthly, certain specific provisions of the NTT Act undermined the independence of the judiciary, and were therefore liable to be struck down. In short, the Court accepted the second and fourth contentions, while upholding the validity of Article 323B.

Chief Justice R.M. Lodha and Justices Khehar, Chelameshwar, Sikri, and Nariman comprised the bench.
Chief Justice R.M. Lodha and Justices Khehar, Chelameshwar, Sikri, and Nariman comprised the bench.

Examining the line of Tribunals Cases – Sampath Kumar, Chandra Kumar and Union of India v. Madras Bar Association, the Court concluded that it was settled law that judicial review in general – and the High Courts’ power to exercise judicial superintendence over the courts and tribunals in their respective jurisdictions in particular – was part of the basic structure of the Constitution. While the Parliament was competent to enact a law transferring the jurisdiction of the High Court with respect to specific subjects to other courts or tribunals, what it could not do was to transfer the constitutionally-vested power of the High Courts elsewhere. The NTT Act – the Court found – transferred only jurisdiction, and not the High Courts’ powers of superintendence under Articles 226 and 227 of the Constitution. Accordingly, the Court held that the NTT Act did not violate the basic structure.

We may pause here to notice a controversial assumption that the Court only touches upon: that ordinary legislation is subject to a basic structure challenge. From the inception of the basic structure doctrine, it has been a contested issue whether that doctrine applies only to constitutional amendments, or to ordinary laws as well. For instance, in Union of India v. R. Gandhi, a judgment handed down by a coordinate bench just four years ago, it had been found that ordinary laws could be challenged only upon the touchstone of the Constitution, and not the basic structure. In holding otherwise, without referring to prior doctrine, the Court further muddied an already confused area of law.

Transfer of adjudicatory functions and guarantees of judicial independence

The Court then turned to the issue of transfer of adjudicatory functions. In what is perhaps the most interesting part of the judgment, it noted cases from across commonwealth jurisdictions – Canada, England, and the Privy Council – to hold that in constitutions based on the “Westminster model of governance”, there was a clear demarcation of functions between the executive and the judiciary, with the two being kept independent of each other. This independence was guaranteed through provisions regulating the appointment and security of the tenure of judges. Consequently, adjudicatory powers could be transferred from traditional courts only if the forums that they were being transferred to had analogous guarantees of independence. This was the only way in which the scheme of separation of powers could be maintained. Constitutionally, this proposition was supported by the L. Chandra Kumar judgment, and its insistence that the transfer of jurisdiction must be to a forum that embodies the salient features of the court from which the transfer is taking place.

Facebook Images-470x246Having established this, the Court then turned to the specific provisions of the NTT Act. It found that the establishment of a central tribunal (with no regional benches), the power of the central government to determine the constitution of benches and the transfer of members, the provision allowing “technical members” and “accountant members” to be appointed to the tribunal (to adjudicate substantial questions of law), the provision of a direct appeal to the Supreme Court (thus bypassing the jurisdictional High Courts) – all pointed to the fact that while the composition of the NTT was supposed to be on the same parameters as that of the judges of high courts (since, effectively, the NTT was acting as a substitute for the High Court), in practice, this was not so. Consequently, the Court held, in paragraph 90:

“Sections 5, 6, 7, 8 and 13 of the NTT Act have been held by us (to the extent indicated hereinabove) to be illegal and unconstitutional on the basis of the parameters laid down by decisions of constitutional benches of this Court and on the basis of recognized constitutional conventions referable to constitutions framed on the Westminster model. In the absence of the aforesaid provisions which have been held to be unconstitutional, the remaining provisions have been rendered otiose and worthless, and as such, the provisions of the NTT Act, as a whole, are hereby set aside.”

 What is curious about this paragraph is its reliance upon constitutional conventions to strike down legislation. This is surely a first! Constitutional conventions are – as the term suggests – conventions, that is, practices that have acquired strong normative and binding force because of a long period of consistent adherence. To hold a convention to be legally enforceable is a category mistake – what distinguishes constitutional provisions from constitutional conventions is precisely their legal standing. As the reasoning above demonstrates, the Court had no need to resort to conventions: the reasoning in the Tribunals Cases was enough for it to hold that a transfer of jurisdiction must be to a forum with the relevant trappings of a court. In the alternative, if it was of a mind to invoke the Westminster constitutional model, it could simply have held that the independence of the judiciary was a structural feature of a Westminster Constitution (as, incidentally, was held in some of the cases that the Court cited from abroad, none of which relied upon conventions). Structural analysis, that is, inferring constitutional obligations not directly from the constitutional text, but by way of necessary implications from its overall scheme and structure – is an accepted form of constitutional adjudication, widely prevalent in the United States, and – although controversial, most famously in Kesavananda Bharati – used in India as well, on occasion (see, for instance, the Delhi High Court’s finding of the word “sex” in Article 15 including “sexual orientation”). In holding constitutional conventions to be legally enforceable, the Court has – with respect – created an entirely unnecessary minefield for the future.

In a brief and pithy concurring opinion, Justice Nariman decided the case on the narrow ground that the legislature was not permitted to divest superior courts of record from the core judicial function of deciding substantial questions of law. He relied upon Chandra Kumar, which had clearly held that “tribunals are competent to hear matters where the vires of statutory provisions are questioned. However, in discharging this duty, they cannot act as substitutes for the High Courts and the Supreme Court which have, under our constitutional set-up, been specifically entrusted with such an obligation. Their function in this respect is only supplementary and all such decisions of the Tribunals will be subject to scrutiny before a Division Bench of the respective High Courts.” In supplanting the scrutiny of the High Court, the Act bypassed its constitutionally guaranteed power under Article 227, as well as falling foul of Chandra Kumar.

Madras Bar Association v. Union of India is correctly decided. Its holding, that the adjudication of substantial questions of law cannot be transferred to tribunals that lack the substantive trappings of the High Court, is clearly consistent with Chandra Kumar, Article 227 of the Constitution, and the structural foundations of the Westminster Model. In simultaneously holding that ordinary laws can be subjected to a basic structure challenge, and that constitutional conventions can be used to strike down an otherwise validly enacted law, the Supreme Court has, however, ventured into uncertain territory. It remains to be seen what implications this will have for the future.

(Gautam Bhatia blogs at Indian Constitutional Law and Philosophy.)

Categories
Supreme Court of India Uncategorized

Pre-BALCO arbitration agreements with foreign seat: SC decision does little to improve clarity on Part 1 exclusion

SindhuSivakumar_DraftingForArbitrationA few months ago (May 28, 2014), in Reliance Industries Limited and Another v. Union of India, the Supreme Court of India elaborated on the law laid by it in relation to the jurisdiction of Indian courts over foreign-seated arbitrations in the 2012 decision in Bharat Aluminium v. Kaiser Aluminium, (2012) 9 SCC 552.

Without getting into the substantive details, the dispute and arbitration arose out of two production-sharing contracts between the parties. While Indian law governed the agreement, the arbitration clause provided for arbitration seated in London and English law expressly governed the arbitration clause (or agreement). Over the course of arbitration proceedings, the Union of India challenged the arbitrability of four issues. This was resisted by Reliance, and ultimately, the three-member arbitral tribunal decided in favour of Reliance through an award on September 12, 2012. This award of the tribunal (on arbitrability) was challenged under Section 34 of the Indian Arbitration and Conciliation Act, 1996 (“Act”) by the Union of India before the Delhi High Court.

Surprisingly, the Delhi High Court accepted its jurisdiction to hear the Section 34 set-aside application even though the award in question was passed in a foreign-seated arbitration. The reasoning of the High Court in accepting jurisdiction is suspect; the High Court seemed to suggest that the law of the seat only governed the conduct of arbitration, not the issues of arbitrability or public policy, which are also subject to the law of the contract, that is, Indian law. The High Court also took into account the fact that the parties had not expressly excluded Part 1 of the Act. Since the arbitration agreement pre-dated the Bharat Aluminium decision (it was a 1994 agreement), the fact that Part 1 was not excluded, was taken to imply that Indian courts had the jurisdiction to set aside the foreign award under Section 34 (following the logic of the Supreme Court in Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105).

Facebook Images-470x246

Reliance filed an appeal before the Supreme Court, and the Supreme Court overruled the Delhi High Court’s judgment on its jurisdiction to hear the Section 34 application. The Supreme Court essentially went back to the post-Bhatia, pre-Bharat Aluminium line of cases that dealt with what constituted an effective ‘exclusion’ of Part 1 of the Act under Bhatia International. One of these cases was Yograj Infrastructure Limited v. Ssang Yong Engineering and Construction Company Limited, (2011) 9 SCC 735, where the Supreme Court had held that the choice of a foreign seat (in this case, Singapore) amounted to an ‘implied exclusion’ of the Part 1 of the Indian Act, and that accordingly, Indian courts had no jurisdiction in such foreign seated arbitrations. Another pre-BALCO decision the Supreme Court referred to in Reliance was Videocon Industries v. Union of India, (2011) 6 SCC 161, in which the Supreme Court had held that a foreign law governing the arbitration agreement (as well as a foreign seat) amounted to an exclusion of Part I of the Indian Act. In the present case, as there was a choice of an English seat and because English law was the law governing the arbitration agreement, Part 1 was clearly excluded. Further, the Supreme Court also made it clear that the law of the seat did not just govern the conduct of the arbitration; it meant that the courts at the seat had exclusive supervisory jurisdiction to hear challenges to awards based on arbitrability and public policy. Further, the Supreme Court reiterated its ruling in Enercon that recognised the separability principle.

All in all, this decision of the Supreme Court is very much in line with the recent ‘pro-arbitration’ trend in the Indian courts. The ‘pro arbitration’ trend is reflective of a larger strategy of the present Indian government to convert India into a global arbitration hub (2014 BJP Manifesto). On the flip side, this decision does not do much to clarify the position on pre-BALCO (that is, before September 6, 2012) arbitration agreements that provide for a foreign seat: on the one hand, you have the Yograj decision which seemed to (correctly) indicate that the providing for a foreign seat was enough to exclude the application of Part 1 and Section 34, and on the other, the Videocon decision, which relied on the presence of a foreign law governing the arbitration agreement to imply the exclusion of Part 1. The Reliance case could have been the perfect opportunity for the Supreme Court to clarify that a foreign seat alone is sufficient to exclude Part 1; unfortunately, the Supreme Court did not bite.

(Sindhu Sivakumar is part of the faculty on myLaw.net.)