INDIA
Aditya Vikram Bhat and Adoksh Shastry
A. LEGISLATION AND RULES
A.1 Legislation
Arbitration in India is governed by the Indian Arbitration and Conciliation Act 1996 (Act). The Act has undergone a series of amendments since 2015. 2019 saw the introduction of the Arbitration and Conciliation (Amendment) Act 2019 (“Amendment Act 2019),” which focussed on improving the eco-system for commercial arbitration in India and developing an institutional arbitration program that can benefit both domestic and international market participants.
A.1.1 Establishment of the Arbitration Council of India (ACI)
The Amendment Act, 2019 has introduced the ACI, a statutory body that is to be established by way of a notification by the Government of India.[1]
The ACI has been tasked with the objective of promoting and encouraging arbitration, mediation, conciliation and other alternative dispute resolution mechanisms in India. The ACI has been vested with the power to frame guidelines for the establishment, operation and maintenance of professional standards in relation to the conduct of arbitration in India. The ACI has also been vested with the power to frame policies governing the grading of arbitral institutions and arbitrators and recognize professional institutes providing accreditation of arbitrators. The intent of the legislature in establishing the ACI as the nodal agency for promotion and development of arbitration in India is clear from section 43D(2) of the Amendment Act, 2019, which states that the ACI may act as a forum for an exchange of views and techniques to be adopted for creating a platform to make India a robust center for domestic and international arbitration and conciliation. The ACI is also tasked with making recommendations to the Government of India on various measures to be adopted to make provision for easy resolution of commercial disputes in India.
The ACI will comprise a chairperson, who has been either a judge of the Supreme Court of India, a Chief Justice of a high court of a State in India, a Judge of a high court of a State in India, or an eminent person having special knowledge and experience in the conduct or administration of arbitration. The chairperson of the ACI will be appointed by the Government of India in consultation with the Chief Justice of the Supreme Court of India.
The ACI will also comprise other members, including:
(a) An eminent arbitration practitioner who has substantial knowledge and experience in domestic and international institutional arbitration (who will be nominated by the Government of India).
(b) An eminent academic who has experience in research and teaching in the field of arbitration and alternative dispute resolution laws (who will be nominated by the Government of India in consultation with the chairperson of the ACI).
(c) The secretary to the Government of India in the Department of Legal Affairs, Ministry of Law and Justice or their representative not below the rank of Joint Secretary (nominated by the Government of India in consultation with the chairperson of the ACI).
(d) The secretary to the Government of India in the Department of Expenditure, Ministry of Finance or their representative not below the rank of Joint Secretary.
(e) One representative of a recognized body of commerce and industry, chosen on a rotational basis by the Government of India.
Given that the Government of India will have representation in the ACI and will play a critical role in the appointment of several members, including the chairperson, it will be interesting to observe the functioning of the ACI and how it is perceived by market participants.
A.1.2 Appointment of Arbitrators
Prior to the Amendment Act, 2019, parties used to approach the Supreme Court of India or the jurisdictional high court in the event parties to the dispute could not agree on the composition of an arbitral tribunal. The relevant court would then appoint the arbitrator(s) in the exercise of its powers under section 11 of the Act.
The Supreme Court of India and the high courts in India have now been empowered by the Arbitration Amendment Act 2019 to delegate to arbitral institutions, the appointment of arbitrators. The arbitral institutions will be graded by the ACI and in the event, a graded institution is not available, the Chief Justice of the concerned high court is permitted to retain a panel of arbitrators to discharge the functions and duties of the arbitral institution.[2]
Similarly, in the event the relevant agreement executed between the parties does not contain a specific provision on the process for appointment of an arbitrator, the arbitrators will be appointed by the arbitral institution designated by the Supreme Court of India or the jurisdictional high court. The appointment is to be made within 30 days from the date on which an application seeking the appointment is made.
A.1.3 Qualification of Arbitrators
The Amendment Act 2019 prescribes the minimum qualifications that must be met by a person proposed to be appointed as an arbitrator under the Act.[3] Accordingly, the Amendment Act 2019 provides that a person will not be qualified to be an arbitrator unless such person is or has been:
(a) An advocate within the meaning of the Advocates Act 1961, having ten years of practice.
(b) A chartered accountant within the meaning of the Chartered Accountants Act 1949 having ten years of experience.
(c) A cost accountant within the meaning of the Cost and Works Accountants Act 1959 having ten years of experience.
(d) A company secretary within the meaning of the Company Secretaries Act 1980 having ten years of experience.
(e) An officer of the Indian Legal Service.
(f) An officer with a law degree having ten years of experience in the legal matters of the government, an autonomous body, public sector undertaking or at a senior level managerial position in the private sector.
(g) An officer with an engineering degree having ten years of experience as an engineer in the government, an autonomous body, public sector undertaking or at a senior level managerial position in the private sector, or being self-employed.
(h) An officer having senior-level experience of administration in the Government of India or any State Government in India or having experience of senior-level management of a public sector undertaking or a government company or a private company of repute.
(i) A person having educational qualification at degree level with ten years of experience in a scientific or technical stream in the fields of telecom, information technology, intellectual property rights or other specialized areas in the government, an autonomous body, public sector undertaking, or a senior-level managerial position in a private sector undertaking, as the case may be.
While the criteria prescribed under the Amendment Act 2019 is fairly broad and should meet the requirements of parties seeking to appoint an arbitrator for an Indian seated arbitration, foreign lawyers of international repute may not qualify as arbitrators in India since the Amendment Act 2019 only permits advocates within the meaning of the Advocates Act 1961. Therefore, international clients may be wary of selecting India as a destination for international commercial arbitration given this restriction.
A.1.4 Prospective Applicability of the Arbitration and Conciliation (Amendment) Act 2015
The Amendment Act 2019 has clarified that the Arbitration and Conciliation (Amendment) Act 2015 will not apply to arbitral proceedings which commenced before the commencement of the Arbitration and Conciliation (Amendment) Act 2015.[4] Through this clarification, the Government of India has negated the position laid down by the Supreme Court of India in Board of Control for Cricket in India v. Kochi Cricket Private Limited. [5]
A.2 Institutions, Rules and Infrastructure
The New Delhi International Arbitration Centre Act, 2019 (NDIAC Act) was introduced in the Lower House of the Indian Parliament for establishing the New Delhi International Arbitration Centre (NDIAC) in place of the existing International Centre for Alternative Dispute Resolution (ICADR) which was set up in 1995.
The NDIAC Act states that the objective of the NDIAC will be to bring targeted reforms to develop itself as a flagship institution for conducting international and domestic arbitration.[6] The NDIAC has also been vested with the authority to:
(a) Promote research and study, providing teaching and training and organizing conferences and seminars in arbitration, conciliation, mediation and other alternative dispute resolution matters.
(b) To provide facilities and administrative assistance for conciliation, mediation and arbitral proceedings.
(c) To maintain panels of accredited arbitrators, conciliators and mediators both at national and international level or specialists such as surveyors and investigators.
(d) To collaborate with other national and international institutions and organizations for ensuring the credibility of the center as a specialized institution in arbitration and conciliation.
(e)To set up facilities in India and abroad to promote the activities of the NDIAC.
(f) To lay down parameters for different modes of alternative dispute resolution mechanisms being adopted by the NDIAC.[7]
In addition to this, as mentioned in part A1 above, the Amendment Act 2019 has established the ACI, which will act as a nodal agency for arbitration in India.
Lastly, the International and Domestic Arbitration Centre India (“IDAC India”) has revised its rules of procedure for both international and domestic arbitrations, with effect from 2019. IDAC India has been functioning since January 2016 and reportedly has over 170 arbitrators enlisted on its panel to handle both domestic and international arbitrations in India.
B. CASES
B.1 Investment Treaty Arbitrations
It is clear to most observers that 2017 witnessed a radical shift in the policy of the Government of India towards BITs. While a number of BITs were terminated over the past couple of years, India signed a new BIT with Kyrgyzstan on 14 June 2019.[8]
2019 also provided courts in India the opportunity to evaluate the standards of protection available under the BIT. Khaitan Holdings (Mauritius) Limited had initiated a claim against India under the BIT executed between India and Mauritius. The basis for the claim rested on a 2012 decision of the Supreme Court of India, wherein a license granted to a shareholder entity of Khaitan Holdings (Mauritius) Limited, in India was canceled. Upon constitution of the tribunal, the Government of India applied for an anti-arbitration injunction on the ground that Khaitan Holdings (Mauritius) Limited did not satisfy the definition of an “investor” under the BIT executed between India and Mauritius. The Delhi High Court by way of an order dated 29 January 2019, dismissed the application and held that the matter was to be decided by the arbitral tribunal. The Delhi High Court also held that Khaitan Holdings (Mauritius) Limited was purely an economic entity and that the concerned BIT did not exclude indirect investments from protection under such BIT.[9]
Further, a tribunal has been constituted in relation to a claim made by an Indian investor against Macedonia under the BIT executed between India and Macedonia. It has been reported that the President of the International Court of Justice has appointed Nigerian arbitrator Funke Adekoya SAN to sit alongside Robert Volterra (Indian investors’ nominee) and Brigitte Stern (Macedonia’s nominee).
The Indian investors have claimed that Macedonia has, allegedly, illegally expropriated certain concessions that were awarded to a company in which the Indian investors were the sole shareholders. The Indian investors have claimed that this was subsequently auctioned to a third party. The arbitration is to be governed by the UNCITRAL Rules.
On the other hand, the Korea Western Power Company has sent a notice of dispute under the BIT executed between India and South Korea and the Comprehensive Economic Partnership Agreement, between India and South Korea. The notice is in relation to a gas-based power plant in the State of Maharashtra, in which Korea Western Power Company has claimed that India failed to honor several fuel-supply commitments to the extent of USD 400 million.
Nissan Motor Co. Ltd., Japan (“Nissan”), secured a win against India’s jurisdictional objection in an investment treaty arbitration instituted under the 2011 Comprehensive Economic Partnership Agreement between Japan and India (CEPA). Nissan had initiated UNCITRAL arbitration proceedings under CEPA against India, in respect of disputes arising out of a memorandum of understanding entered into among the Government of Tamil Nadu (“GoTN”), Nissan and Renault S.A.S. (“Renault”) on 22 February 2008 (“2008 MoU”).
Under the 2008 MoU, the GoTN promised the R&N Consortium (i.e., Renault and Nissan and their subsidiaries, affiliates and joint ventures) certain fiscal incentives as an inducement to attract Nissan’s investment in the State of Tamil Nadu by way of a refund of value-added tax and sales tax paid on input purchases, and a refund of gross output value-added tax (VAT) and central sales tax (CST). The aforestated refunds were to be provided in the form of an investment promotion subsidy.
Nissan claimed that the GoTN had failed to make timely payment of investment incentives amounting to approximately USD 34 million[10] and that GoTN’s actions, (which were attributable to India) were violative of the “fair and equitable” obligation and the “umbrella clause” under the CEPA.
The Government of India denied any liability and filed a counter-memorial on jurisdiction stating that Nissan’s claims fell outside its jurisdiction and were inadmissible. The Government of India stated that both CEPA and UNCITRAL laid down a procedure for appointment of the presiding arbitrator respectively and India challenged the appointment of the presiding arbitrator for not being in accordance with CEPA read with the UNCITRAL Rules. It was held that the procedure under CEPA notably differs in several respects from the default procedures of the UNCITRAL Rules. In such circumstances, the CEPA procedures for tribunal’s constitution took precedence over the conflicting UNCITRAL Rules, which become relevant only to “fill a gap” in the CEPA provisions. It was held that the fact that a party has the right under CEPA to elect to proceed under the UNCITRAL Rules does not mean that such rules thereby supplant other provisions of CEPA. Since the Secretary-General of the PCA, acted consistently with the procedure under CEPA, India’s jurisdictional objection on this issue was denied.
The Government of India also argued that the pendency of writ petitions filed by Nissan Motor India Private Limited and Renault India Private Limited, before the Madras High Court barred the CEPA claim against India. However, it was held that the writ proceedings had been initiated by separate parties challenging the constitutional validity of Tamil Nadu’s amendment of certain tax laws. Therefore, the “fork in the road” clause in CEPA was not triggered and India’s objection was rejected.
B.2 Unilateral Appointment of Arbitrators in India
It isn’t uncommon for contracts in India, particularly those executed with public sector undertakings and governmental bodies, to provide for a dispute resolution mechanism, whereby the sole arbitrator is to be nominated by a senior official employed with the public sector undertaking.
While the practice has been challenged in several courts in the past, the Supreme Court of India has, by way of its order dated 26 November 2019, in Perkins Eastman Architects DPC v. HSCC (India) Limited,[11] put the matter to rest. Here, the matter involved a contract executed between the parties to the dispute, wherein the Chairman and Managing Director of HSCC (India) Limited (“HSCC”) was authorized to appoint the single arbitrator on receipt of a notice invoking arbitration, under the contract from Perkins Eastman Architects DPC (“Perkins”). Perkins argued that such an arbitration clause did not provide for an independent and impartial arbitrator since the Chairman and Managing Director of HSCC would be an interested party to the dispute.
The Supreme Court of India (while analyzing this case) referenced its own judgment in TRF Limited v. Energo Projects Limited[12], wherein it had had the opportunity to analyze the validity of an arbitration clause that permitted the managing director of a party to the dispute to be appointed as an arbitrator and empowered such a managing director to nominate an arbitrator. The Supreme Court of India held that such a practice cannot be permitted and that the managing director of a party to the dispute, being an interested party, cannot act or nominate an arbitrator to the dispute involving his own company.
While the Perkins case was slightly different (in that the Chairman and Managing Director of HSCC could not act as an arbitrator himself but only had the power to nominate an arbitrator) the Supreme Court of India held that the principle it had established in the TRF judgment would continue to apply. The Supreme Court of India held that in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution and that the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. To conclude, the Supreme Court, while relying on Indian Oil Corporation Limited v. Raja Transport (P) Limited[13], held that if circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may for reasons to be recorded, ignore the designated arbitrator and appoint someone else.
The TRF and Perkins decision must also be read in light of the 17 December 2019 decision of the Supreme Court of India, in Central Organisation for Railway Electrification v. M/S ECI-SPIC-SMO-MCML (JV)[14], whereby it was held that if the agreement specifically provides for the appointment of an arbitral tribunal consisting of three arbitrators from out of the panel serving or retired railway officers, the appointment of the arbitrators should be in terms of the agreement as agreed by the parties. In this case, the Supreme Court of India held that since the appellant was vested with the power to select two names from out of four names of the panel, the power available with a party to nominate an arbitrator was counter-balanced by the power of choice given to the other party to select such an arbitrator.
B.3 Automatic Stay of an Arbitral Award
The Arbitration and Conciliation (Amendment) Act 2015 had introduced section 26 which provided that the Act would not apply to arbitral proceedings that were commenced before the commencement of the Arbitration and Conciliation (Amendment) Act 2015 unless the parties otherwise agreed. The Amendment Act 2019 deleted section 26 and introduced section 87 which provided that the amendments made to the Act by the Arbitration and Conciliation (Amendment) Act 2015 will not apply to court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act 2015.
The Supreme Court of India, through its judgment in Board of Control for Cricket in India v. Kochi Cricket Private Limited,[15] had in the context of section 26 already clarified that the Arbitration and Conciliation (Amendment) Act, 2015 was to apply prospectively to arbitral proceedings. On 27 November 2019, the Supreme Court through its order in Hindustan Construction Company Limited & Anr. v. Union of India & Ors.[16] struck down section 87, introduced through the Amendment Act 2019 as being unconstitutional. The Supreme Court of India held that the resultant position was that section 36 even as originally enacted, was not meant to do away with article 36(2) of the UNCITRAL Model Law, but was really meant to do away with the two bites at the cherry doctrine in the context of awards made in India.
The Supreme Court of India further held that an arbitral award holder was deprived of the fruits of its award usually obtained after several years of litigating as a result of the automatic stay. Accordingly, the Supreme Court of India held that the deletion of section 26 of the Arbitration and Conciliation (Amendment) Act 2015, together with the insertion of section 87 into the Act by the Amendment Act 2019, should be struck down as being manifestly arbitrary under article 14 of the Constitution of India. The Supreme Court of India also stated that its earlier decision in Board of Control for Cricket in India v. Kochi Cricket Private Limited would continue to apply so as to give effect to the amendments made by the Arbitration and Conciliation (Amendment) Act 2015 to all court proceedings initiated after 23 October 2015.
[1] Section 10 of the Amendment Act, 2019.
[2] Section 3 of the Amendment Act 2019.
[3] Eighth schedule of the Amendment Act 2019.
[4] Section 13 of the Amendment Act 2019.
[5] Board of Control for Cricket in India v. Kochi Cricket Private Limited, (2018) 6 SCC 287.
[6] Section 13 of the NDIAC Act.
[7] Section 14 of the NDIAC Act.
[8] https://investmentpolicy.unctad.org/international-investment-agreements/treaties/bilateral-investment-treaties/4909/india—kyrgyzstan-bit-2019- last accessed on January 27, 2020 at 10:09 A.M. IST.
[9] Union of India v Khaitan Holdings (Mauritius) Limited & Others., CS (OS) 46/2019, I.As. 1235/2019 and 1238/2019, dated January 29, 2019.
[10] Approximately INR 2.5 billion.
[11] Perkins Eastman Architects DPC v. HSCC (India) Limited, AIR 2020 SC 59.
[12] TRF Limited v. Energo Projects Limited, (2017) 8 SCC 377.
[13] Indian Oil Corporation Limited v. Raja Transport (P) Limited, (2009) 8 SCC 520.
[14] Central Organisation for Railway Electrification v. M/S ECI-SPIC-SMO-MCML (JV), 2019 SCC OnLine SC 1635.
[15] Board of Control for Cricket in India v. Kochi Cricket Private Limited, (2018) 6 SCC 287.
[16] Hindustan Construction Company Limited & Anr. v. Union of India & Ors, Writ Petition (Civil) No. 1074 of 2019.
