ARBITRATION IN INDIA 2020

Justice Fali S. Nariman has stated in a speech at the inauguration function of the Indian Study Centre at the George Washington University Law School in 2009 that,“ Indian sentiment (encouraged by the fraternity of lawyers) simply abhors the finality attaching to arbitral awards! Asubstantial volume of case law in India bears testimony to the long and arduous struggle to be freed from binding arbitral decisions. Try to win if you can; if you cannot, do your best to see that the other side cannot enforce the domestic or foreign award in India for as long as possible”. Eleven years hence, Indian Arbitration has certainly evolved to cope up with dynamic international standards of practice.

Arbitration Law and Amendments:

Since, its enactment in 1996, the Indian Arbitration and Conciliation Act (#ArbitrationAct) has gone through a number of #amendments to make India more international-arbitration-friendly. The most recent being the Arbitration and Conciliation Ordinance, 2020 that came into force on 4^th November, 2020. It introduced the following major changes:

1. Proviso to Section 36 (3):

Section 36 (3) provides that the court may grant stay of the operation of arbitral award.

The new Proviso to sub-section (3) provides that the court may grant an unconditional stay on the enforcement of arbitral awards, if a prima facie case is made out that there is fraud or corruption in making such award or in the arbitration agreement/contract, which forms the basis of the award.

2. Section 43J:

Section 43J provides that the norms for accreditation of arbitrators would henceforth be governed by the criteria laid down in the Regulations.

The issues that may arise pertaining to the first Amendment listed above are:

• As per Section 34 (2) (b) Explanation (ii) of the Act, the only ground (in cases involving allegations of fraud or corruption) to refuse enforcement is where “the making of the award” is induced or affected by fraud or corruption. It does not include the ground where the basis of the award itself is induced by fraud or corruption. Therefore, one might argue that if the new ground is not available for setting aside an award under Section 34, then how can it be available to an applicant seeking a stay of its enforcement under Section 36 (3).

• Another interesting point to note is that if any agreement or contract is affected by fraud or corruption, it is a matter that will be brought up by the parties before the arbitral tribunal itself and in most cases the tribunal will look into it in great detail. Therefore, a situation may arise where second guessing a tribunal’s reasoning maybe contrary to 34 (2A) proviso which states that “an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence”.

The Explanation to the new Proviso to Section 36(3) of the Act makes it abundantly clear that the said Proviso shall apply to all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after 23^rd October 2015. This is in conformity with the decisions in BCCI v Kochi Cricket Pvt. Ltd. (2018) 6 SCC 287 andHindustan Construction Co. Ltd v UoI 2019 SCC OnLine SC 1520, where Section 36 of the Act was held to be retrospective in its applicability. Hence, the 2020 Amendment, settles the debate from a procedural aspect by formally acknowledging the maintainability of an application for stay of enforcement on the grounds mentioned in the newly added Proviso to Section 36(3) of the Act, irrespective of when that application was filed.

Here an issue may arise thatwhere an application under Section 36(2) of the Act is already pending adjudication before a court, the applicants will now have to make fresh applications based on the grounds listed in the new Proviso. This is likely to involve delays and increased costs unless the courts can sua sponte take notice of this new Proviso and dispense with the filing of fresh submissions.

Judgments:

The year 2020 witnessed some very interesting judgements in the field of arbitration law in India, few of which are stated below:

1- Arbitrability of dispute

a) The Supreme Court in the case of Vidya Drolia Vs Durga Trading Corporation (CA 2402 of 2019), while overruling the Delhi High Court Judgement in HDFC Bank Ltd vs. Satpal Singh Bakshi, 2012 held that disputes which are to be adjudicated by the Debt Recovery Tribunal under the DRT Act is non arbitrable.

Referring to the case of Transcore Vs UOI, 2006 SCthe Apex Court held that as far as recovery of debt is concerned, the DRT Act is a complete code in itself. Therefore, where a statute does not create a special right or liability and provides for the determination of such rights and liabilities by a specified court or public forum, then in such a case the dispute shall not be arbitrable.

The Supreme Court also overruled the Judgement in Radha Krishnan vs Maestro Engineers and held that the allegations of fraud can be arbitrable when they relate to a civil dispute. The Supreme Court while upholding the sanctity of arbitration as a dispute resolution mechanism held that “The possibility of failure to abide by public policy considerations in a legislation, which does not expressly or by necessary implications exclude arbitration, cannot form the basis to overwrite and nullify the arbitration agreement.”

b) Similarly, in the case of Avitel Post Studioz Ltd & Ors vs HSBC PI Holdings (Mauritius) Limited  (CA No. 5145 of 2016), the Supreme Court held that, for fraud to make a dispute non arbitrable must be of a very serious nature and will have to pass the twin test –it must be of such nature so as to caste a serious doubt upon the existence of an arbitration clause i.e. the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all and secondly, it must have a public law element for example allegations made against the State or its instrumentalities relating arbitrary, fraudulent, or malafide conduct. 

c) In the case of Vidya Darola and Ors vs Durga Trading Corporation (CA 2402 of 2019), the Supreme Court in its Judgement dated 14^th December 2020 overruled Himangni Enterprises vs Kamaljeet Singh Ahluwalia to hold that landlord-tenant disputes under the Transfer of Property Act are arbitrable, except when they are covered by specific forums created by rent control laws.

2- The Vodafone Case, September 2020

The Vodafone Group won an International Arbitration against the Indian Government in a tax dispute of Rs 20,000 crores. The Permanent Court of Arbitration at the Hague ruled that the Indian Government’s tax demand on Vodafone is in breach of the Investment Treaty Agreement between India and the Netherlands.

Background:

The Bombay High Court upheld the tax demand of the Indian Government against the Vodafone Group which was ultimately reversed by the Supreme Court, in 2012, which absolved Vodafone of the tax liability. To overcome the verdict, the Central Government had brought an amendment to the Income Tax Act with retrospective effect. Following a fresh tax demand on the basis of the amended law, Vodafone moved the Arbitration Tribunal in 2014, invoking the India-Netherlands Bilateral Investment Treaty of 2013.

3- Seat is important

The Supreme Court in the case of Mankastu Implex Private ltd. vs Air Visual Limited, Judgement dated March 5, 2020 (AP No. 32 of 2018) held that since the arbitration was seated in Hong Kong, the petition cannot be maintainable under S 11(6) of the Arbitration Act. While reiterating that seat is an important aspect of any arbitral proceeding, the Apex Court held seat is significant as it determines the applicable law while deciding the arbitration proceedings, arbitration procedure as well as judicial review over the arbitration award.

4- Setting aside of a foreign award

In Vijay Karia v. Prysmian Cavi E Sistemi SRL & Ors., Judgement dated 13^th February 2020 (C APP No 1544 of 2020) the court held that the foreign awards that fail to determine the material issues which go into the root of the matter may be set aside if it “shakes the conscience “of the court. However, the award has to read as a whole and if it addresses the basic issues and decides claims and counter claims of the parties, it must be enforced.

5- Waiver of arbitration clause

In SSIPL Lifestyle Pvt. Ltd. v. Vama Apparels (India) Private Limited & Anr. [Judgment dated February 19, 2020 in CS (COMM) 735/2018], the Delhi High Court held that the arbitration clause can be waived by a party under two circumstances – one by filing a statement of defence or submitting to the jurisdiction of a judicial authority and secondly, by unduly delaying the filing of the application under Section 8 (Power to refer parties to arbitration where there is an arbitration agreement) and not filing the same till the date by which the statement of defence could have been filed. Owing to the recent amendments in the Code of Civil Procedure 1908 (CPC) and the Commercial Courts Act, 2015, the High Court held that the limitation period for filing of written statement as prescribed in the CPC as well as Commercial Courts Act would be applicable for filing of an application under Section 8 of the Arbitration Act.

Arbitration in India has slowly but surely gained momentum with changing times. The year 2020 saw some interesting judgements and fresh perspective by the Indian judiciary with respect to arbitration. We may expect to see many more interesting developments in 2021 especially owing to the latest developments in the Arbitration Act.

Pooja Singh

Student at National University of Singapore

Intern at The Indian Lawyer & Allied Services