Tag: Supreme Court of India

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Supreme Court of India

The role of courts in arbitrator appointments – Patel Engineering and beyond

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What questions can the Chief Justice entertain while appointing arbitrators under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”)? In 2005, in SBP and Company v. Patel Engineering Ltd. (“the Patel Engineering case”), a seven-judge bench of the Supreme Court issued determinative dicta in relation to this function of the court. In this post, we examine a series of subsequent cases where the Supreme Court has interpreted and given effect to its dicta in the Patel Engineering case.

Background

Section 11 of the Act provides that when the parties fail to appoint one or more arbitrators according to the terms of the arbitration agreement, or when two arbitrators fail to choose the third or presiding arbitrator, or the designated appointment mechanism otherwise fails, the parties can approach the Chief Justice to resolve the stalemate and appoint an arbitrator.

Section 11 is based on Article 11 of the UNCITRAL Model Law, 1985 (“the Model Law”). Similar to the Model Law, Section 11 envisages the Chief Justice performing a fairly routine, administrative function in making the appointment, similar to the appointing role that arbitral institutions take on. All that is required is a request from a party to the Chief Justice to appoint the arbitrator, usually in the form set out in Notification No F22/1/95/SCA/Genl.The extent of enquiry in making the appointment should include checking for the impartiality and independence of the appointee and the qualifications specified in the agreement.

However, in the Patel Engineering case, the Supreme Court held that the appointing function in Section 11 is a judicial function where the Chief Justice should examine certain jurisdictional questions like the existence and validity of the arbitration agreement. The exact scope of enquiry of the Chief Justice was set out by the Supreme Court as follows:

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“It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the arbitral tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act…”

Further, the Court in this case also held that the court’s decision on any of these preliminary matters would be final and not open for subsequent examination by the arbitral tribunal.

In subsequent cases, questions have arisen in relation to this dicta – in relation to whether the Chief Justice or his designate has to examine all the preliminary issues laid down in Patel Engineering or whether he can set aside some of these preliminary issues for the arbitral tribunal to decide. Questions have also been raised about the extent to which courts can examine the scope of the arbitration agreement while dealing with a Section 11 application.

Discretion to leave issues to the arbitral tribunal

In National Insurance Company Ltd. v. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267, a two-judge bench of the Supreme Court held that the Chief Justice, in exercising his powers under Section 11, does not have to decide all the preliminary questions set out in Patel Engineering.

The Court segregated the preliminary issues into three categories, that is, “(i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.”

The first category included the Chief Justice’s territorial jurisdiction as well as the issue of whether there was an arbitration agreement and whether the Section 11 applicant is indeed a party to the agreement. The second, optional category included issues of whether claim is a dead (barred by limitation) claim or a live claim and whether the parties have concluded their contract by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection. If the Chief Justice did decide to rule on these optional issues, his decision would be final and cannot be reopened by the tribunal. However, the court urged the Chief Justice to exercise caution in exercising this option and to be guided by the objective of the Act of “expediting the arbitration process with minimum judicial intervention”. The last category of issues which the Chief Justice should not decide included issues of “(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration)” or “(ii) Merits or any claim involved in the arbitration.”

SupremeCourtofIndia_Section11ArbitrationandConciliationAct_appointmentofarbitrator.jpg.jpgThe categorisation of the Court in this case is interesting, especially in relation to the second category, because in a previous case, Shree Ram Mills Ltd. v. Utility Premises (P) Ltd., (2007) 4 SCC 599, the Supreme Court had suggested that the second category of cases, involving the decision of whether the claim is a live claim or not, has to be decided by the court as it is only by deciding this limitation issue that the court can decide whether to constitute a tribunal or not. The Court said: “… the Chief Justice has to record satisfaction that there remains a live issue in between the parties…” and that “where the Chief Justice comes to a finding that there exists a live issue, then naturally this finding would include a finding that the respective claims of the parties have not become barred by limitation.”

In Chloro Controls India Private Ltd v. Severn Trent Water Purification Inc., (2013) 1 SCC 641, a three-judge bench of the Supreme Court said that there is no variance between the Shree Ram Mills Ltd. and Boghara Polyfab Private Limited judgments; both judgments were in line with the law declared in the Patel Engineering Case. Quoting from Shree Ram Mills, the Court clarified that it laid down that “it is only for the purpose of finding out whether the arbitral procedure has to be started that the Chief Justice has to record satisfaction that there remains a live issue in between the parties.

… The Chief Justice only has to record his satisfaction that prima facie the issue has not become dead by the lapse of time or that any party to the agreement has not slept over its rights beyond the time permitted by law to agitate those issues covered by the agreement….”

Thus, “…the Chief Justice may not decide certain issues finally and upon recording satisfaction that prima facie the issue has not become dead even leave it for the Arbitral Tribunal to decide.”

The Court also upheld the categorisation laid down in Boghara Polyfab Private Limited: “We have no reason to differ with the classification carved out in National Insurance Co. as it is very much in conformity with the judgment of the Constitution Bench in SBP.”

The scope of the arbitration agreement

In Arasmeta Captive Power Company Private Limited v. Lafarge India Private Limited, the Supreme Court in December, 2013, reiterated another aspect of the Patel Engineering decision, namely that the Chief Justice should not decide on whether the claim in question is one which comes within the purview of the arbitration clause or not. In 2005, the Supreme Court had said: “It will be appropriate to leave that question to be decided by the arbitral tribunal on taking evidence, along with the merits of the claims involved in the arbitration.”

In 2013, the question was whether the claims raised by the parties fell within the definition of a ‘billing dispute’ and thus, within the scope of the arbitration agreement. The Supreme Court categorically stated that the question fell to be determined by the arbitral tribunal and not the courts.

The Court said, “….the designated Judge… while dealing with an application under Section 11(6) of the Act, on an issue raised with regard to the excepted matters, was not justified in addressing the same on merits whether it is a dispute relating to excepted matters under the agreement in question or not…..The designated Judge has fallen into error by opining that the disputes raised are not “billing disputes”, for the same should have been left to be adjudicated by the learned Arbitrator…”

Thus, the third category of issues (under Boghara) are strictly for the tribunal to decide. With Arasmeta, the Supreme Court has shown that it is prepared to strictly enforce the jurisdictional line (between the court and the tribunal) and not further encroach upon the jurisdiction of the tribunal apart from what is necessary to appoint an arbitrator under Section 11.

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

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Supreme Court of India

Supreme Court’s pragmatic approach shields right to education amendments from basic structure challenge

In an important judgment this week, the Supreme Court upheld Articles 15(5) and 21A of the Constitution of India against a basic structure challenge.

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In Ashoka Kumar Thakur (2008), a Constitution Bench had upheld the validity of Article 15(5), save for its application to private un-aided educational institutions. That question had been left open for another day, and was finally answered this week. Alongside it was the question of whether Article 21A, which guarantees the right to a free and compulsory education between the ages of six and fourteen, is consistent with the basic structure.

It is trite knowledge that Kesavananda Bharati v. State of Kerala established the proposition that Parliament, in the exercise of its amending power, cannot “damage or destroy” the Constitution’s basic structure. Over the years, basic features of the Constitution have been identified in the language of abstract principle: separation of powers, the rule of law, a democratic and republican form of government, secularism, judicial review, and so on. In this case, the petitioners made a novel claim: Article 19(1)(g), which guarantees the freedom of occupation, was a basic feature, and that Article 15(5) eliminated it entirely. It was argued in addition that by “treating equals unequally”, there was an Article 14 violation as well.

GautamBhatia_SupremeCourtofIndiajpgIf you find something odd about these claims, you’re right. Typically, Articles 14 and 19(1)(g) are invoked to challenge the constitutionality of a law. Here, however, it is not a law that is at stake. A Constitutional right itself is being attacked for violating other constitutional rights. Thus, we have the odd argument that some constitutional provisions stand in a hierarchical relationship above others. This cannot be right. It is precisely to avoid this manner of claim that the Supreme Court, over the years, has steadfastly refused to locate the basic structure in any one provision, but has understood it to embody abstract principles that underlie and justify concrete provisions.

Admittedly, some provisions are integral to the basic structure. Undoubtedly, if Parliament simply repealed Article 14, thus removing the anchor for the principles of “equality before law” and “rule of law”, a basic structure challenge would be sustained. Arguably – although more controversially – eliminating Article 19(1)(g) from the Constitution altogether would violate the basic structure. Article 15(5), however, does nothing of the sort. It just carves out a fairly narrowly drawn exception to Article 19(1)(g): that the Article will not apply only to the special provisions aimed at advancing socially and educationally backward classes. This language is familiar to us from Article 16(4), and leaves ample scope for judicial review, as is evidenced from sixty years of affirmative action jurisprudence, which has placed substantial limits both on the government’s identification of beneficiaries, as well as the extent to which reservation is permitted. Admittedly, it goes against a strictly formalistic, colour-blind vision of equality, but so do all reservation provisions under the Constitution – Articles 15(4), 16(4), 16(4A) and 16(4B).

These were precisely the arguments that the Court used to reject the basic structure challenge. Article 15(5), insofar as it sought to equalise the educational opportunities of members of socially and educationally backward classes, did not destroy equality. Rather, it adopted a group-and-context sensitive vision of equality that took into account historic and continuing structural subordination in determining present allocation of resources. As the Court has held before, the Constitution holds both these visions of equality in balance. Therefore, it also clarified – correctly, in my opinion – that Article 15(5) would not prevent it from reviewing laws on the touchstone of Articles 14 and 19(1)(g). Article 19(1)(g), for instance, would continue to apply if the government failed to demonstrate that the requirements of Article 15(5) were satisfied. Article 14 would continue to apply in all cases. For example, if the government imposed an 80% reservation requirement on private schools, it is likely that the Court would not find it to fall within Article 15(5) at all, and almost certain that it would strike it down under Article 14.

In challenging Article 21A, the petitioners made another curious argument.

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The Right of Children to Free and Compulsory Education Act, 2009, (“RTE Act”) as is well known by now, requires private, un-aided schools to accept 25% of their total admitted students from underprivileged backgrounds. The petitioners used this to argue that because Article 21A imposed constitutional obligations upon private parties, it violated the basic structure. Naturally, the Court gave short shrift to this argument. Article 21A does nothing of the sort. It provides a right to education that is enforceable against the State. Under the RTE Act, the State carries out its obligations by imposing certain regulations of admissions upon private schools. While that might raise constitutional questions about the Act, it does not, in any way, affect Article 21A itself.

Of course, the constitutional validity of the RTE Act – including the 25% requirement – was challenged, and upheld, in Society for Un-Aided Private Schools of Rajasthan v. Union of India. After having upheld the validity of Article 21A then, the Court needed to go no further. It clarified, however, that while Article 21A vested in the State the power to make law to discharge its educational obligations, the scope of that Article – and consequently, the scope of the power it conferred upon the State – would still be interpreted harmoniously with Articles 19(1)(g) and 30. Consequently, a law made under Article 21A would continue to be tested for reasonableness under Articles 19 and 30. Notice how this analysis mirrors the Court’s analysis of Article 15(5), and leaves it with maximum judicial wiggle room to examine laws as and when they are made.

LR-BlogAdHarmoniously construing Articles 21A and 30(1), the Court held that the minority institutions’ right to preserve their character necessitated excluding the applicability of the RTE Act to those institutions. It also found that Article 21A provided a basis separate from Article 19(6), for justifying the 25% seat reservation. This, I would suggest was unnecessary. It would have been doctrinally more satisfactory to use Article 21A – as the Supreme Court did in Society for Un-Aided Private Schools – to adjudicate upon the reasonable restriction that the RTE Act placed upon private schools, and uphold it on that basis. The Supreme Court’s opinion, however, implies that we now have two separate bases for restricting Article 19(1)(g) rights: 19(6) and 21A, and it is entirely unclear how these two relate to each other.

Ultimately, the opinion is characterised by pragmatism. The Court maintains its time-honoured tradition of judicial avoidance when it comes to basic structure claims. At the same time, it leaves its hands untied to scrutinise legislation passed under the two amendments on the touchstone of existing constitutional rights, as and when it might come to court.

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

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Supreme Court of India

Previous sanction requirement for prosecuting senior bureaucrats for corruption offences struck down – the Article 14 thicket grows denser

GautamBhatia_SupremeCourtofIndiajpgThis week, in Centre for Public Interest Litigation v. Union of India, a Constitution Bench of the Supreme Court struck down Section 6A of the Delhi Special Police Establishment Act, 1946 (“DSPE Act”). The Section, which had been inserted into the enactment through a 2003 amendment (with a tortuous history of its own), prohibited inquiries or investigations of offences alleged to have been committed under the Prevention of Corruption Act, 1988 without the prior approval of the Central Government, if such allegations were made – inter alia – against certain senior government officials (Joint Secretary and above), and officials appointed in government corporations. Section 6A thus created two classes of officials, one of which could be investigated for corruption without prior sanction and the other, which could not. This classification was challenged under Article 14 of the Constitution. The Supreme Court upheld the challenge.

In order to survive an Article 14 challenge, the government must demonstrate three things. There must be an intelligible differentia between the two groups that have been treated differently. This differential treatment must bear a rational nexus with a governmental purpose. And the purpose itself must be legitimate. This is accepted doctrine, established in cases such as Budhan Choudhry v. State of Bihar, and Rama Krishna Dalmia v. Justice S.R. Tendolkar (both cases that the Court cites).

Unfortunately, the Court’s opinion omits these distinct enquiries. This renders the basis of its judgment uncertain, and leaves the law in a state of some confusion.

The government’s argument was straightforward. High-level government officials must repeatedly take important decisions. They must take them swiftly and without the benefit of hindsight. Repeated and frivolous allegations of corruption will invariably exercise a chilling effect upon their behaviour. Often, they will prefer inaction over taking a controversial decision that could subsequently land them in court, answering corruption charges. Section 6A is important just to avoid this policy paralysis. Thus, governmental efficiency is the legitimate purpose with which this classification bears a rational nexus.

A response to this could do one of four things: challenge the intelligibility of the classification, its nexus with the stated purpose, whether the stated purpose is the actual purpose, and if so, whether it is a legitimate purpose.

Surprisingly, however, the Court begins its analysis by ignoring the government’s stated purpose altogether. In Paragraph 58, it notes:

“It seems to us that classification which is made in Section 6-A on the basis of status in the Government service is not permissible under Article 14 as it defeats the purpose of finding prima facie truth into the allegations of graft, which amount to an offence under the PC Act, 1988.”

LR-BlogAdAdmittedly, the purpose of the Prevention of Corruption Act is to expose corruption. Yet the stated purpose of S. 6A of the DSPE Act, which is under consideration, is different: to achieve efficiency by insulating “decision-making officials” from frivolous allegations. The Court spends a significant part of its opinion demolishing a straw-man. It argues – with perfect truth – that making a distinction between higher and lower officials bears no rational nexus with exposing corruption, because “irrespective of their status or position, corrupt public servants are corrupters of public power. The corrupt public servants, whether high or low, are birds of the same feather and must be confronted with the process of investigation and inquiry equally.” The Court makes a number of observations about the need for an unhampered, unbiased, free, and fearless enquiry into corruption, and the role and purpose of the CBI more generally. But in so doing, the Court substitutes the government’s stated purpose with a purpose it imports from a different statute, without providing reasons for the same. Having done so, it enters a finding of irrationality in the scheme of classification.

It is difficult not feel that its suspicion of a corrupt and self-serving political class has played a role in the Court’s thinking. Immediately after its most conclusive statement of no-rational-nexus, the Court observes:

“There will be no confidentiality and insulation of the investigating agency from political and bureaucratic control and influence because the approval is to be taken from the Central Government which would involve leaks and disclosures at every stage.”

That is no doubt an undesirable state of affairs, but one that, in a Constitutional democracy based on the separation of powers, is meant to be punished by the voters at the ballot box. A bad situation of governance is not an Article 14 violation.

The Court then shifts tack. In Paragraph 67, it holds:

“The object of Section 6-A, that senior public servants of the level of Joint Secretary and above who take policy decision must not be put to any harassment, side-tracks the fundamental objective of the PC Act, 1988 to deal with corruption and act against senior public servants. The CBI is not able to proceed even to collect the material to unearth prima facie substance into the merits of allegations. Thus, the object of Section 6-A itself is discriminatory.”

This is a very curious statement. The Court rules that because the objective of S. 6A (a legally enacted provision of a statute) is in conflict with the objective of another legally enacted statute (the Prevention of Corruption Act), it is an illegitimate objective. Both the DSPE and the PC Acts, however, enjoy the same legal status in our hierarchy of norms. A finding of illegitimate objective surely needs something more than an existing conflict with an equally authoritative norm.

The Court punctuates its legal findings with rhetorical flourishes about equality before law, noting that it is singing to the tune of the aphorism, “However high you may be, the law is above you.” Insofar as this applies to different procedural requirements for prosecuting the same offence, this is simply untrue. Sanction-for-prosecution requirements exist in a number of laws, most controversially, the Armed Forces (Special Powers) Act, 1958. The Court expressly holds that it is concerned with the validity of sanction-for-prosecution more generally, but is concerned only with this case. Yet the seeming basis for judgment – that you can’t have different legal regimes for different persons, based on their status – cuts much wider and deeper, and calls into question a number of legislations – which, evidently, the Court did not intend. Yet it is where it must explain why this statutory provision specifically violates Article 14 that the Court stumbles.

It is only towards the end of the judgment that the Court briefly engages with the government’s argument. Noting that there has been no recorded case of frivolous harassment of officials, and noting that the classification assumes that out of all investigative organisations, harassment is limited to the CBI, it dismisses the argument. This, of course, is the quintessential Article 14 enquiry into the relationship between the stated purpose and the classification. Unfortunately, it is limited to two paragraphs, and the Court does not explain what standard of scrutiny it is applying, what degree of deference is due to the government, and what evidence it considers relevant.

Ultimately, the Court’s decision is – arguably – correct. The reasoning however, only extends the ad hoc jurisprudence that has come to characterise one of the most important fundamental rights of our Constitution. That is a pity.

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

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Supreme Court of India

The choice-of-seat dilemma and the separability question in Enercon

SindhuSivakumar_DraftingForArbitrationThe previous post discussed the Supreme Court’s views in Enercon (India) v. Enercon GmBH (dated February 14, 2014) on how arbitration clauses ought to be interpreted. In this post, we will look at two other issues related to the arbitration clause – namely, the choice-of-law issues that the vaguely drafted Clause 18 (the arbitration clause) in the Intellectual Property Licence Agreement (“IPLA”) gave rise to, and the discussion on separability that the challenge to the IPLA led to.

On the choice of seat

“18.3 All proceedings in such arbitration shall be conducted in English. The venue of the arbitration proceedings shall be London… The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply.”

It is really difficult to work out what the parties intended when they were drafting this clause. Did they intend for London to be the seat, using the word “venue” as an alternative for “seat”? But if that were the case, why insert the words, “The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply”? Was it merely a reference to Part II of the Arbitration and Conciliation Act, 1996, inserted to ensure that an English award is enforceable in India? It is a very real possibility, as many India related foreign-seated arbitration clauses expressly include the application of Part II (and expressly exclude Part I).

The net result of this clause was confusion about what the seat was, whether the seat was different from the curial (that is, procedural) law, and what the law governing the arbitration agreement was.

On this point, we are not entirely in agreement with the reasoning of the Supreme Court. The Supreme Court believed that the parties had made no choice on the seat. They disregarded the language “The venue of the arbitration proceedings shall be London” holding that this sentence only indicated the parties’ choice of a convenient “venue” for their hearings, never mind the fact that there was no indication in the current case that suggested that London would be convenient. The obiter views of Eder J. in the English High Court proceedings in the same case, [2012] EWHC 689 (Comm), illuminate this point.

“London was not a convenient geographical venue for disputes concerning an Indian joint venture; intellectual property in India; an Indian and German company; where the evidence would be located in India and possibly to some extent in Germany. In my judgment, the designation of London therefore had to have some other function for it to be explicable.”

Having decided that the parties had only designated a venue and not a seat in Clause 18.3, the Supreme Court went on to consider the jurisdiction with which the arbitral proceedings had its closest connection – the ‘closest connection’ test is what is generally used by tribunals and courts to determine the seat in the absence of a choice by the parties. The Court cited Dicey and Morris on the Conflict of Laws in this regard.

This is where things get murky. The Court seems to assume that the words, “The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply” indicate that the parties have chosen Indian law to govern the arbitration, that is, they have chosen Indian law (including Part I of the Arbitration and Conciliation Act, 1996) as the “curial” or “procedural” law. Having come to the conclusion that the procedural law was Indian law, the Court found that designating London as the seat would lead to an absurdity – as Part I of the Indian Arbitration and Conciliation Act, 1996 cannot apply to a foreign-seated arbitration (following BALCO), and further, English law itself does not allow for the procedural law to be different from the law of the seat. In other words, the designation of London as a seat would render what the Court believed was the parties’ choice of curial law (the words “The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply”) redundant.

As far as the proper law of the arbitration agreement was concerned, the Court understood this to be Indian law without too much reasoning on the point, although one can argue that the proper law of the arbitration agreement follows the substantive law of the contract (the NTPC v. Singer argument) and as Indian law was the governing law of the IPLA (Clause 17), the proper law of Clause 18 should also be Indian law.

Having worked out that the curial law, the proper law of the arbitration agreement, and the governing law were all Indian law, the Court held that the seat should also be India, as the arbitration as a whole has its closest connection with India.

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While we agree that the arbitration had its closest connection with India, we are not sure that there was a need to resort to this test in this first place. In other words, we do not entirely agree with the Court’s dismissal of the commonsense understanding of the parties’ designation of London as the “venue” to mean the “seat”, especially in light of the fact that London would not have been a “convenient” geographical venue.

The Court also discussed and distinguished several English judgments that supported the argument that the words, “The venue of the arbitration proceedings shall be London”, indicated the parties’ choice-of-seat.

One very similar case was Shashoua v. Sharma [2009] EWHC 957, where Cooke J. had held that in an ICC arbitration clause that provided that “the venue of arbitration shall be London, United Kingdom”, meant that London was the juridical seat and English law was the curial law.

“When therefore there is an express designation of the arbitration venue as London and no designation of any alternative place as the seat, combined with a supranational body of rules governing the arbitration and no other significant contrary indicia, the inexorable conclusion is, to my mind, that London is the juridical seat and English law the curial law…”  (Para 30)

The Supreme Court believed that this reasoning was not applicable in the Enercon case, as the parties had not designated any supranational body of rules like the ICC Rules to govern the arbitration; instead they had chosen the India’s arbitration statute (Para 118). This reasoning (for distinguishing Enercon from Shashoua) is not entirely convincing.

Another case worth mentioning is Union of India v. McDonnell, [1993] 2 Lloyd’s Rep 48 where, similar to the Enercon clause, the arbitration agreement contained conflicting provisions: “The arbitration shall be conducted in accordance with the procedure provided in the Indian Arbitration Act of 1940 …” and “The seat of the arbitration proceedings shall be London, United Kingdom.” Saville J. held that the reference to the Indian Arbitration Act, 1940, did not have the effect of changing the “seat” designated by the parties. Rather, the phrase was only a reference to the internal conduct of the arbitration. The Supreme Court mentions this case in Para 119, but does not really distinguish it.

The Court also discussed a few other recent English cases on the proper law of the arbitration agreement and the “closest and most real connection” test (we have discussed these at length in a previous post). We won’t spend too much time on all the cases discussed by the Court (Paras 100 to 125) – but it is interesting to note that the Court seems to use the test prescribed in these cases on the proper law of the arbitration agreement – to work out the choice-of-seat.

The assumption that the parties designated Indian law as the curial law is also curious, and there is not enough discussion in the judgment on the possible alternative constructions of the sentence, “The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply”. It can be read as referring simply to Part II of the Indian 1996 Act, that is, the enforcement provisions, which is something international arbitration clauses often have to clarify.

On separability

One of the issues in dispute was whether the IPLA was a valid and enforceable contract. Enercon India argued that the IPLA had not been executed properly and on this basis, argued that the arbitration agreement, which was contained in Clause 18 of the IPLA, was also not valid or enforceable.

The Supreme Court dismissed this argument and rightly so. The Court discussed how Enercon India’s argument was not that the arbitration agreement was “null and void, inoperative and incapable of being performed” (Section 45) but that “ the matter cannot be referred to arbitration as the IPLA, containing the arbitration clause/agreement, is not a concluded contract.” (Para 75)

FUND-Legal-Writing-and-Professional-Communication-PLThe logical leap Enercon Indian made in making that submission was incorrect as the arbitration agreement is a separate agreement (‘separate’ from the underlying contract) that is not affected by the lack of validity of the underlying contract. Here, there was absolutely no question that the arbitration agreement alone (that is, Clause 18) was agreed to by the parties (Para 76). Accordingly, the arbitration agreement in this case was valid, and unaffected by any ruling to the contrary in relation to the IPLA.

Since the validity of the IPLA was a substantive issue in dispute and formed part of the parties’ reference to arbitration, the Court left this issue to be decided by the arbitral tribunal in accordance with this arbitration agreement.

Drafting lessons

The drafting lessons from Enercon are fairly simple and easy to implement, but, as this dispute reflects, it is very important to get them right.

– One, specify the seat. And use the word, “seat”. This case, as well as the Shashoua case, highlights the confusion that can be caused by calling the “seat” by some other name.

– Secondly, think through the arbitral process that you spell out in your agreement. What is the appointment mechanism? Who appoints the chairman? Ensure that you don’t have an unworkable mechanism like under Clause 18.1 in this case — you don’t want to have to depend on a court to make sense of your drafting.

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

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Supreme Court of India

The Supreme Court of India – A tip of the hat and much to look forward to in 2014

NoticeAndStayAdityaVerma_SupremeCourtcolumn2014 promises to be a year of transformation for the Supreme Court of India. Far-reaching changes are expected on fundamental issues such as the appointment of judges and the reform of the procedure of the Court. The Gender Sensitisation and Internal Complaints Committee (“GSICC”) is also functional. How effective will it be in tackling sexual harassment at the highest court? Ten sitting judges will retire during the year. What impact will this have on lawyers and litigants?

These themes are expected to dominate discussion about the Supreme Court in 2014.

Appointment of judges

JudicialAppointmentsCommission_Composition.jpgPolitical parties appear to be unanimous in their dissatisfaction with the current ‘collegium’ system, in which judges are appointed by senior judges of the Supreme Court. The proposed Judicial Appointments Commission (“JAC”) will take views from outside the judiciary into account. The outcome of the upcoming general elections is unlikely to affect the broad political support for the proposal.

In a welcome move, the Parliamentary Standing Committee recommended the inclusion the JAC’s composition in the Constitution through an amendment, instead of it being part of a legislation. This reduces the possibility of a parliamentary majority exercising excessive control over the composition of the judiciary. This recommendation has been accepted by the government.

Of course, the standards applied for the selection of judges will be critical in assessing whether the JAC performs better than the collegium. Currently, the only standard stipulated is the ambiguous requirement that the person recommended should be “of ability, integrity and standing in the legal profession”.

Procedural reform

The E-committee of the Supreme Court, headed by Justice Madan Lokur, has initiated a number of steps to rationalise the process of filing and documentation at the Supreme Court. Highlights disclosed at a seminar at the Indian Law Institute late in 2013 include the electronic archiving of documents related to past and current litigation, a court-linked email address for each Advocate-on-Record for official communication with the Registry, and electronic filing of pleadings (‘curing defects’ may be done electronically – goodbye, white correction fluid!). Watch this space for updates on when these changes are formally notified.

Gender Sensitisation and Internal Complaints Committee

The GSICC was created last year, and has since been chaired by Justice Ranjana Prakash Desai. Part of its mandate is to address complaints of sexual harassment within the “Supreme Court of India precincts”. An internal sub-committee of three members has also been set up, comprising Ms. Indu Malhotra (Senior Advocate), Mr. L. Nageshwar Rao (Senior Advocate), and Ms. Bharti Ali (Co-director, HAQ: Centre for Child Rights).

According to the Annual Report of the GSICC, proceedings are underway in two complaints. Plans are also being made for sensitisation and publicity exercises. The next few months will provide a clearer indication of the GSICC’s efficacy, and whether the parent regulations need strengthening.

Retiring judges and new appointments

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Ten (out of a maximum capacity of thirty-one) sitting judges are due to retire in 2014, and the office the Chief Justice of India will change hands twice during the year. The date of retirement acts as a kind of deadline for judges — they must deliver any pending judgments by that date. In view of the impending multiple retirements, it is possible that there will be a greater than usual output of judicial opinions in decided cases over the course of the year. New appointments will also be followed with interest, especially if the JAC starts functioning during the year.

And a tip of the hat

Delivering judgments is the most important function of the Supreme Court. No discussion today would be complete without a tip of the hat for the January 21, 2014 judgment in Shatrughan Chauhan and Another v. Union of India and Others, where unreasonable delay in the execution of a death sentence has been held to be in violation of Article 21, and a ground for commutation of the sentence. Apart from the direct impact the judgment has had on the cases of the fifteen writ petitioners before it and on death penalty jurisprudence in particular, the general observation of the Supreme Court that “retribution has no Constitutional value” in India deserves to be applauded wholeheartedly. “Punishment is not payback” should be a value that resonates throughout the criminal justice system.

P.S. Last week, review petitions were dismissed without an oral hearing against the December 11, 2013 judgement in Suresh Kumar Koushal and Another v. NAZ Foundation and Others (analysed previously on this blog here, here, and here). Will Parliament set this right?

(Aditya Verma practices as an Advocate at the Supreme Court of India. He is an alumnus of NLSIU, Bangalore, and is on the roll of solicitors in England and Wales.)