Keywords: Kleros, Smart Contracts, Blockchain Arbitration, Arbitration, Blockchain Arbitral Order.

Introduction

A is a decentralised digital ledger of accounts maintained by its users rather than by a third party and stored on a network of computers. Blockchain transactions are completely transparent and do not have a central data storage administrator. This ensures the validity and security of the data fed to it since every transaction is encrypted and so can be traced. on the blockchain allow for the self-enforcement of automated legal obligations without the involvement of third-party intermediaries. As it stands, the problem faced by traditional dispute resolution mechanisms is that they cannot effectively authenticate large numbers of cross-border small-value claims. To alleviate this problem, arbitrators have introduced the concept of ‘blockchain arbitration’, which seeks to utilise blockchain technology to authenticate smart contracts and automate their execution by invoking the arbitration clause contained within the contract in the case of a dispute.

This harmonious interaction between blockchain technology and arbitration seeks to fulfil the speedy, efficient, and cost-effective resolution of disputes. However, the legal recognition and enforceability of blockchain arbitration is contentious and has been discussed across various jurisdictions worldwide. Therefore, through this article, the authors argue that reading the Kleros precedent with the principle of ex aequo et bono into the Indian legal framework under Section 28 of the Arbitration and Conciliation Act could be a possible remedy for solving the procedural hurdles which might be encountered in a blockchain arbitration.

The Methodologies of Blockchain Arbitration

The involvement of intermediaries in smart contracts might hinder the immutability and automated nature of these contracts. Hence, if intermediaries would indulge in , such as in arbitration or judicial intervention, it might the basis of these contracts obsolete. However, this can be avoided if the software is used for the automation of only deterministic clauses of an agreement. All non-trivial transactions might have some non-deterministic clauses, such as good faith and reasonableness, which cannot be incorporated through languages like unless technological progress allows artificial intelligence to learn human reasoning. Hence, this makes the role of human arbitrators essential for the of legal principles.

In order to inculcate the applicability of arbitration in smart contracts and blockchain-based transactions, clause-based consequences can be referred to an Oracle.[1] For example, if a person buys a flight ticket, which is encoded in a smart contract, it will have encoded data regarding the time of arrival and departure, and the feedback received from an Oracle can determine the chain of events and itinerary compliance. Hence, if the feedback received prompts towards a delay or flight cancellation, compensation could be automatically to the traveller’s account. This mechanism can also be utilised while conducting arbitration through an Oracle. When a clause postulates the deferring of a dispute to the arbitrator, the determination of the dispute could be done, and the award can be uploaded on an Oracle. Hence, the external input provided by Oracle will stimulate the software script to enforce the outcome of the award. This would also avoid extra litigation and decrease judicial burden as the execution of awards would be automated.

In the case of , the High Court of Delhi relied on the decision delivered in while stating that the territorial jurisdiction for the execution of an award is determined by the place where the property or money is located as the Award itself is executable as a decree. Similarly, many other have reflected the same view. However, with the adoption of an Oracle-based arbitration mechanism, such instances could be resolved without hassle and time-lapse, thus fulfilling the aim of the arbitration laws as well, which is the speedy redressal of conflict. For further discussion on risks associated with Oracle, helps understand how placing reliance on one Oracle could also pose a credibility issue alongside security risks stemming from a singular point of failure.

Such a procedure would also uphold the already embedded ‘routine escrow mechanisms’ first theorised by and could be in a variety of business transactions as the translation of clauses into codes progresses. This would also evolve the manner in which arbitral proceedings are conducted during the COVID-19 era. As the arbitral mechanisms evolve beyond the restrictive bitcoin protocols, it might also encourage legislative action. Hence, it might also help in developing a for drafting arbitral Awards so that Oracles can facilitate the stimulation of a smart contract. Additionally, blockchain-based technologies like EOSIO40 and have already created solutions for the inculcation of arbitration within smart contract execution protocols.

The inclusion of arbitration mechanisms within the smart contract architecture might also cause issues related to the self-enforceability of arbitral awards. This is because automated execution might marginalise recognition procedures, which has already been noticed in bitcoin adjudication based on multi-signature addresses.[2] But this does not bolster the need to have highly restrictive regulations, as public policy would always mandate to an extent. Further, there might also be other procedures that the state might follow, such as the deduction of money due to a smart contract being refunded . Hence, the usage of smart contracts for mediation would not mandate state control via technological means only. Another problem that arises is the incompatibility that exists with state-mandated arbitration frameworks. This with conventional arbitration frameworks compounds in two ways: first, the decentralised, cryptographic mode of the arbitration agreement, and second, the lack of a seat of arbitration, given its distributed nature. However, a dystopian argument can be made regarding the automated asset circulation which could happen on technological platforms, rendering off-chain transaction reversal extremely complicated or impracticable. But such a case would only occur in an economy where smart contracts have gained paramountcy.

The Carrera Report and the Standardisation of Blockchain Arbitration

As of 28th May 2021, the discussion surrounding the enforceability of Blockchain Arbitral Awards ceased to be mere conjecture when an arbitral award by way of incorporating it into the existing traditional arbitration framework, thereby treading a step closer towards ensuring the compatibility of blockchain arbitral orders within the framework of state control. The case concerned Kleros, a decentralised application (“Dapp”) that utilises blockchain technology to create fast and automated modes of online dispute resolution. The issue at hand was related to a rental estate leasing agreement between the two parties, whose arbitration clause prescribed a hybrid mode of arbitration, stating that the Arbitrator must draft a Procedural Order containing the executive summary of the dispute along with supporting evidence, addressed to Kleros, which would then issue its decision on a strictly objective legal basis, upon which the Arbitrator would be required to incorporate Kleros’ decision into his Arbitral Award to govern the substance of the ruling and issue it in writing. As per the clause, since this Award would contain a definitive resolution to the dispute, the parties would renounce any recourse to revoke or modify the award.[3]

However, the blockchain arbitration process and the involvement of Kleros are not adequately detailed in the Award since it is indicated that the Award is only in the name of the Arbitrator, without accounting for the automated dispute-resolution role that Kleros plays. Since the dispute arose from a rental agreement whose terms were stipulated in Mexican currency, it was entirely off-chain. However, given that the arbitration clause contained a blockchain protocol, the subsequent Blockchain Arbitral Award devised by Kleros was enforced in consonance with the traditional arbitration paradigm adopted by Mexico.

Thus, the question that arises is whether the enforcement of blockchain arbitration through traditional arbitration as envisaged by national legal orders is counterintuitive to the self-enforceable and decentralised nature of blockchain technology and its ability to trigger smart contracts as an Oracle. However, given the relative novelty of blockchain arbitration, could be an extremely effective tool to standardise and enforce blockchain awards.

The Enforceability of Blockchain Arbitration in India

The paradigm adopted by Mexico in adopting an off-chain arbitrator to incorporate Kleros’ decision into the traditional arbitral award allows for the convergence of national legal orders with blockchain arbitration, thereby ensuring that the prevailing lex arbitri is not contravened. Article stipulates such a protocol. Part I of the Arbitration and Conciliation Act (hereinafter “the Act”) has been enacted to mirror the Model Law in stipulating that an application for the enforcement of an arbitral award shall be accompanied by an original arbitral award. Further, Section 34 of the Act stipulates that a party aggrieved by an arbitral award may file an application for modifying or setting aside the award, keeping in mind the margin of error within traditional arbitration frameworks and the scope for allegations of fraud or procedural lapses by the tribunals. The blockchain arbitration paradigm is so meticulous that it does not require external scrutiny from experts. This is because the blockchain ensures that the award has all the necessary ingredients, including the date, place, and digital signature of the arbitrator, and further ensures that these documents are tamper-proofed and auto-linked, thereby minimising the probability of an award being set aside.

stipulates that a valid arbitration agreement should be in “writing”, with the clarification that an agreement would be considered having been in “writing” even if it has been communicated through “electronic means” – which is loosely defined. However, in light of the Kleros decision, it could be argued that Blockchain Arbitration Award can fall within the definition of an ‘electronic record’ under .

The Regulation of Blockchain Arbitration and its Legal Recognition Worldwide

Blockchain arbitration sets out to eliminate human error that persists within the practice of traditional arbitration by eliminating human subjectivity within disputes that involve the complex interpretation of clauses or statutes. Additionally, the blockchain system enables efficient document management by swiftly providing briefs and transcriptions of the case records. Blockchain tools like Kleros assist tribunals in preparing awards by ensuring that the preconditions required to make the award are met. This is done by crowdsourcing the decisions of a variety of jurors in order to decide the merits of the case. These decisions are then incorporated by the arbitrators and subsequently enforced as awards.

However, this approach is the main consideration that obstructs the enforceability of blockchain arbitration. This is because the blockchain “Dapp” exists entirely digitally, owing to which they are generally not considered a part of any State territory. solely recognises the enforceability of foreign arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought. Additionally, by virtue of the guidelines set by the UNCITRAL as well as of the Arbitration and Conciliation Act (hereinafter “the Act”), national legal orders operating within traditional arbitration frameworks act as the bridge towards achieving the enforceability of blockchain arbitration. Specifically, of the Act requires the arbitral award to mention the seat of the arbitration in order for it to be considered enforceable. Given that blockchain awards are not localised, since the award is generated on a blockchain and circulated to the parties before the Arbitrator, they do not meet this requirement. However, ensuring the enforceability of such revolutionary technology is imperative in order to facilitate the continuous evolution of dispute resolution mechanisms. The Kleros decision must therefore be used as the governing precedent for the same. Reading this precedent with Section 28 of the Act, founded on the principle of ex aequo et bono (Latin for “according to the right and good”), which is an approach that enables party autonomy and the ability to decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute, could therefore be the key to a robust regulatory system that enables the enforcement of blockchain arbitration.

Conclusion

Blockchain technology undoubtedly allows for inexpensive, speedy, and transparent dispute resolution mechanisms, particularly within fields of real estate (as seen in the Kleros case), investments, e-commerce, and other high-volume and low-value ventures. At a time when the Indian Government is displaying palpable scepticism towards the utilisation of decentralised technology such as blockchain, as evidenced by its Virtual Digital Asset taxation policy proposed in the , it is of paramount importance for the Indian legal system to mirror the precedent set by Kleros as well as the approaches taken in jurisdictions such as Mexico and Hong Kong. The authors suggest that this can be done by integrating the same into the Courts’ interpretation of Section 28 of the Act, which would, in turn, aid the development of a robust dispute resolution framework that allows for the efficient enforcement of hybrid arbitral awards. The usage of blockchain technology in the procedural enforcement of pre-determined smart contracts would eliminate procedural shortcomings; inculcated with a human intervention-based interpretation regime, the hybrid model of dispute resolution would insulate arbitral awards from enforceability hurdles faced by parties undertaking cross-border disputes.

[1] Primavera de Filippi and Aaron Wright, Blockchain and the Law: The Rule of Code (HUP, Cambridge 2018) 75.

[2] Electronic Platforms and Networks, in The Cambridge Handbook of Smart Contracts, Blockchain Technology and Digital Platforms (2019) 141-210.

[3] ANNEX-1 (Original Arbitration Agreement).

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[This article has been authored by Varda Saxena, a third year law student at JGLS, Sonipat.]

Keywords: Cross Examination, Arbitration, Section 27, Evidence, Natural Justice

Introduction

The examination of witnesses has been a common practice in arbitration in India. While (“Arbitration Act”) dissociates itself from statutes like the Civil Procedure Code (“CPC”) and the Indian Evidence Act, it has been pronounced that when the procedure in the Arbitration Act seems lacking, the principles of CPC will to apply. The Indian arbitration regime has followed the common law methodology by allowing cross examination of witnesses to reduce the impact of the witness’s testimony on the case at hand. The usage of this practice has resulted in the evolution of the right to cross-examine and has created precedent regarding the same. There are times when the other party does not summon a relevant witness, which the defendant wishes to cross examine. In this case, the party wishing to cross examine, can request the arbitrator or file an application under Section 27 of the Arbitration Act to take the court’s assistance and summon a witness who was not summoned earlier.

This article establishes that despite the absence of an affirmative provision allowing parties to summon witnesses and cross examining them instead of conducting examination-in-chief, the author argues that a party has the right to cross-examine a person not summoned as a witness by the other party for corroborating the veracity of the evidentiary matrix, due to the principles of natural justice. The analysis undertakes to establish that for the fulfilment of the right to cross-examine a witness, even people who had not been summoned as witnesses at the adequate stage can be summoned later for cross-examination.

Right to Cross Examine a Witness

There has been precedent that summoning key witnesses to corroborate evidence and establish relevant facts has been a common practice. In the case of , a relevant witness of the petitioner disagreed to visit India due to fear of prosecution. The Bombay High Court adjudicated on a Section 27 application and stated that the testimony of the said witness was crucial for the arbitral proceedings. The Court appointed an arbitrator as the Court Commissioner and directed him and the team of lawyers to travel to Singapore and record the testimony of the witness. The authenticity of taking evidence through the Court Commissioner was emphasised as such a person was the agent of the court. The precedent established in this case reiterates the importance of key witnesses and is a pro-arbitration step which further upholds the right to cross examination.

There have been multiple cases where the courts have upheld the right to cross-examination. In , the Court, on being presented with documentary evidence opined that an essential documentary evidence, such as the company quotations presented in this case, cannot be relied upon unless the same is corroborated by an employer who was a witness to it, through . Otherwise, an opportunity should be given to workmen to contest the validity of the evidence through cross-examination. This highlights how courts are cognizant of the importance of cross-examination and its ability to check the veracity of evidence presented by a party.

Due to this cognizance, courts were also instrumental in upholding the right to cross examination in where it was stated that, “if a Tribunal unreasonably fetters a party from cross-examining a witness or fixes an un-reasonable time limit, it would cause irreparable injury and hardship.” The hardships and irreparable injury could be the genesis of the lack of sufficient opportunity allotted to the adverse party in proving their case. In cases where an oral hearing is allowed, such delimiting could have severe repercussions because even the tribunal recognises that the same could not be adjudicated on documentary evidence alone.

Further, in , the Respondents were denied the right to cross examine the author of the documentary evidence presented by the Petitioner, as the person was not summoned as a witness. Examining the author of the document is one of the . The cross examination could include asking the person about transfer of the document from himself to another, context of the document and whether there was any response before confronting the witness about the inconsistencies. These factors can be incorporated while framing scripts to effectively point out inconsistencies in the testimonies of witnesses, enabling the effectiveness of the practice.

The Court highlighted the breach of the principles of natural justice in the , by elucidating the illegality in admission of such documents. The fair chance of cross-checking the veracity of evidence presented has emerged as a principal of natural justice. Courts have even that deciding the dispute solely on the written submissions and not taking oral evidence or giving a formal hearing, defies the model of natural justice. Such a model where oral evidence is mandated to not be taken has been unless parties voluntarily agree to choose. When a case invokes these rules, overriding the contractual agreement, it fosters an illusionary idea of justice. Hence, to avoid such an illusion, the importance of examining all relevant witnesses has been highlighted by multiple courts. There may be instances when an important witness has not been summoned, but cross-examination of such a witness could be vital for the party. The following section explores the judicial approach towards summoning a new witnesses and procedure involved with the same.

Summoning a Witness for Cross Examination

The right to cross- examination cannot be exercised without the person being summoned for testifying. Therefore, for valid enforcement of the right, the courts have established mechanisms for summoning unwilling witnesses or forcing parties to examine a key witness by summoning them, if the arbitrator deems fit. The need to present oral evidence has been highlighted in many judgments. However, in cases where the witness has not been summoned, to support the claim, just as in the , the party is allowed to seek assistance from the court under Section 27 of the Arbitration Act. In , the Bombay High Court stated that even documentary evidence can be procured, alongside oral evidence, through the assistance of Civil Courts under the CPC. However, if a person defies the order of summons or is unwilling to examine the evidence presented, they could be liable for disadvantages, penalties and punishments by order of the Court on the representation of the arbitral tribunal as per Section 27(5) of the Arbitration Act.

When a document is presented in a Tribunal, the questions to be addressed are whether the document is genuine, whether the contents of the document are relevant to the case and whether the statements contained therein are true. Even in , the relevance of the witnesses’ testimony is checked for the possibility of avoiding dangerous situations. The tribunals use the ‘’ to determine the witnesses which are critical for the dispute. The method is an advanced time-management strategy which enables resolution of the dispute in a particular amount of time decided by the parties. The method the tribunal to sort through the evidence and even question witnesses while analysing the criticality of the same. Considering the method is applicable through an agreement between the parties, it could become effective in even domestic arbitrations, acting as both a time management technique and a tool to present the critical aspects of the case.

The Supreme Court in stated that the evidence presented cannot be relied upon unless the contested facts are relayed by people who are competent to speak about them and the witnesses are cross-examined too. When a party refuses to summon a person as a witness, but the arbitrators think that the person’s testimony could be relevant for the case, they have the powers to summon the person as witnesses, even if they weren’t summoned at an earlier stage. This approach can be construed as one which bolsters the right to cross examination. There has also been precedent, wherethe UK Commercial Court stated that when arbitrators exercise this power of summoning witnesses, which weren’t originally summoned, it is well within the principles of natural justice. Hence, if those summons are not effectuated, the arbitrators are entitled to draw adverse inferences from the materials available and the refusal to present such witnesses. However, such a summon should not have merely speculative relevance to the case and should not be for the sake of causing embarrassment. So, the courts have provided a mechanism to summon witnesses and enforce the right to cross-examination for reaching an outcome through a rigorous and valid process, giving each party a fair chance to present its case.

Conclusion

The article locates the examination of witnesses in an arbitral proceeding, who had not been summoned originally. The examination of such witnesses has been mandated in various precedents while upholding the right to cross examination. It is necessary to summon an unwilling but relevant witness to enforce the right to cross examination. However, one could also contend that not summoning such a witness by exercising the arbitrator’s discretion possibly infringes on such a right. The recognition of this right has been highlighted while reiterating the importance of oral testimony for corroboration of documentary evidence. Hence, the judicial discourse provides a remedy if a party has not summoned a witness which could be relevant for a case at hand. Further, the oral testimony could also have the potential to change the outcome of the case. Therefore, the essence of the right to cross-examine should be realised as the reliance on lack of cross-examination could be an essential defect in hearsay testimonies.

Kaj Hobér, ‘Chapter 3: Cross-Examination in International Arbitration’ in Axel Calissendorff and Patrik Schöldstrom (eds), Stockholm Arbitration Yearbook 2019, 43 (Kluwer Law International 2019). D.L. Miller and Co. Ltd. v. Daluram Goganmull, AIR 1956 Cal 361. Brandeis (Brokers) Ltd v. Black and Ors. [2001] Arb.LR 15. Hobér, ‘Chapter 3: Cross-Examination in International Arbitration’ (n i) 46-47.

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This case is a part of our Annual Arbitration Review 2019.

Judgement Name: d.

Citation: (2020) 4 SCC 234

Court: Supreme Court of India

Coram: Rohinton Fali Nariman, J.

Date: 10th December 2019

Keywords: Seat, Venue, BALCO, Section 37.

Overview and Ratio

The Supreme Court used the infamous case to rule that when parties have chosen a seat of arbitration or a tribunal has determined a seat, it means that the courts at such seat have the jurisdiction for the purposes of interim orders and challenges to an award. In the absence to the contrary, the designation of ‘venue’ can indicate ‘seat’.

Facts

The Petitioners and Respondents entered into a contract concerning the construction of hydropower projects in the state of Assam and Arunachal Pradesh. The said contracts contained an arbitration clause for settlement of disputes that stated that proceedings will take place in Delhi/Faridabad in case of disputes. From 2011 to 2016, an arbitral tribunal consisting of three arbitrators was set up and had passed an award in favour of the petitioners in Delhi. Aggrieved by the award, the Respondents challenged it under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”) before the District Court of Faridabad, Haryana. Due to the constitution of Special Commercial Court in Haryana, the matter was transferred to the commercial court of Gurgaon, Haryana. In the interim, the petitioners challenged the same so as to change the jurisdiction to an appropriate court i.e., New Delhi or Assam. In furtherance of the same, the Gurgaon Commercial Court held in the favour of the Petitioners.

The Respondents then filed an appeal under Section 37 of the Act read with Section 13(1) of Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, at the Punjab and Haryana High Court. The Court held that the Court of Faridabad had the appropriate jurisdiction and that the respondents appeal was maintainable under Section 37, as Delhi was only a convenient forum. Aggrieved, the Petitioners approached the Supreme Court.

Issues

1. Whether the High Court of Punjab and Haryana erred in Law to grant an appeal under Section 37?
2. What is the effect of designating “Seat” in an arbitration?
3. Whether Delhi was the seat of the Arbitration?

Analysis

The Supreme Court observed that Section 13(1) of the Commercial Courts Act did not give rise to an independent right to an appeal but provided an alternative forum for appeal. As Section 37 contains certain appeal, they are appealable under Section 13(1) Section 37 clearly sets that appeals should lie within sub-clauses (a), (b) and (c) only . The apex court observed that the impugned judgement had missed the words “under [S]ection 34” which meant that refusal to set aside arbitral award must be after the grounds set out in Section 34 have been adhered to the award in question and only then can the appeal fall under the ambit of Section 37(c).

The Supreme Court further referred to the infamous International case which set the precedence and stated that when a party selects a particular seat of arbitration, it confers an exclusive jurisdiction clause to all courts at the seat of arbitration for the purposes of interim orders and challenges to award. This would mean that choosing a seat gives the courts exclusive jurisdiction over the entire arbitration process. Secondly, it was held that the ratio of BALCO does not hold that two courts have concurrent jurisdiction and it is quite clear that choosing a seat amounts to choosing the exclusive jurisdiction of the courts at which the seat is located. Further, The Supreme Court observed that Section 42 of the Act has been inserted so as to avoid conflicts in jurisdiction of courts by placing the supervisory jurisdiction over all arbitral proceedings in one court exclusively. An application must be made to a court which has the jurisdiction to decide such an application. If a seat is not designated, the courts at the seat alone would have jurisdiction and in furtherance of the same, applications are to be made under Section 42. Lastly, a seat is not designated by the arbitration agreement alone; a convenient venue can be designated, giving several other courts the power to have a part in the cause of action. Section 9 allows interim relief before the commencement of arbitration (if the seat has not been determined by then) which can then be preferred in any court where a part of the cause of action has arisen. Such a case, allows the earliest court which has been approached, to have exclusive jurisdiction as per Section 42.

The Court also held that whenever there is no explicit designation given to the venue, the expression “arbitration proceeding” would imply automatic jurisdiction to the seat of arbitration. Further, the expression “shall be held” at a particular venue would anchor the arbitral proceedings to a particular place and signify that such a place is the seat of the proceeding.

After applying the facts of the case, the Court finally noted that the venue of the arbitration had been designated to be Faridabad. However, there is no contrary indication, that either Delhi or Faridabad is the designated seat under the arbitration agreement. It is therefore up to the party to select which of the two places would have jurisdiction.

Conclusion

The Court in this case set aside the award of the High Court and finally stated that – designating a seat amounts to exclusive jurisdiction of the courts at the seat and designating a ‘venue’ of the arbitration proceedings amounts to designating a seat, in absence of indicators to the contrary.

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Judgment Name:

Citation: AIR 2020 SC 59

Court: Supreme Court of India

Coram: Uday Umesh Lalit & Indu Malhotra, JJ.

Date: 26th November 2019

Keywords: Appointment of Arbitrator, Impartiality, Independence, Section 11, Section 12.

Overview

This decision clarifies, that a person who is ineligible to act as an arbitrator also cannot appoint an arbitrator. Secondly, the Court has the power to intervene under unless the appointment on the face of it is valid. Lastly, an unincorporated consortium with the lead member or the member with the determining voice being controlled and managed in a country other than India would come within the scope of of the Arbitration and Conciliation Act (“A&C Act”) and will thus, be an International Arbitration.

Facts

The Applicants in this case, namely, Perkins Eastman and Edifice Consultants are architectural firms based in New York and Mumbai. They were declared successful bidders for the Respondent, HSCC. Thereafter, a contract was commissioned for the same that contained Clause 24 that provided that the chairman and managing director of the Respondent company shall appoint a sole arbitrator to adjudicate the dispute between the parties.

Within 6 days of the contract, the Respondent alleged failure on part of the Applicants which followed a notice to stop construction work. Later a termination notice was issued as well, alleging noncompliance with the contractual obligations which the Applicants denied. Thereafter, a notice was issued by the Advocate for the Applicants invoking the dispute resolution clause. As per , a prior notice was to be taken within one month, but communication was issued by the Respondent after a period of 30 days intimating that a reply to the notice would be sent within 30 days.

An appeal was filed by the Applicants to the director of engineering in terms of Clause 24, however, the director refused to discharge the obligations under the same. Soon after, a letter was addressed to the Applicants and the chief managing director of the Respondents was called upon to appoint a sole arbitrator. The same was not adhered to for 30 days, but after a month the chief general manager of the Respondent appointed one Major General K.T Gajria as the sole arbitrator.

Aggrieved by the same, the Applicants filed an application under Section 11(6) read with Section 11(12)(a) of the A&C Act, before the honorable Supreme Court (“Court”) seeking the appointment of a sole arbitrator in accordance with terms of the contract.

Issues

Whether the arbitration in the present case is an International Commercial Arbitration? And whether a case had been made out for the exercise of power by the court to appoint an arbitrator?

Analysis

The arbitration was held to be an international commercial arbitration as one of the Applicants was a foreign party having registered office in New York. This made them suitable for the requirements under Section 2(1)(f) of A&C Act. The Court also held that it could not have dealt with the application under Section 11(6) read with Section 11(12)(1) of the A&C Act if the arbitration was not an International Commercial Arbitration.

Relying on TRF Limited v. Energo Engineering Projects Ltd. (“TRF Limited”) the Court said that 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. Further, the person who has an interest in the outcome of the decision of the dispute must not have the power to appoint a sole arbitrator and that must be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognized by the decision of this Court in TRF Limited.

Using the case of , the Court ruled that if there are justifiable doubts as to the independence and impartiality of the person nominated as an arbitrator, and if other circumstances warrant the appointment of an independent arbitrator by ignoring the procedure prescribed, such appointment can be made by the competent court in order to necessitate the impartiality and independence of an arbitrator.

It was held that unless the appointment of an arbitrator is ex facie valid and such appointment satisfies the court exercising jurisdiction under Section 11(6) of the A&C Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be accepted.

Appointment of an arbitrator is supposed to be subject to mandatory declaration under the amended of the A&C Act with respect to independence and impartiality and the ability to devote sufficient time to complete the arbitration within the period as per of the A&C Act.

Conclusion

Appeal was allowed and letters by Respondent for appointment of arbitrator were annulled. The Court appointed Dr. Justice A.K Sikri, former judge of this Court as the sole arbitrator to settle all disputes arising from the contract.

(2017) 8 SCC 377.

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Judgment Name- .

Citation: (2019) SCC OnLine SC 1102

Court: Supreme Court of India

Coram: N.V. Ramana, Mohan M. Shantanagoudar, Ajay Rastogi, JJ.

Date: 27th August 2019

Keywords: Appointment of Arbitrators, National Highways Act, Section 11.

Overview and Ratio

The Supreme Court held that Highways Act, being a special law, has an overriding effect on the general law of arbitration and dismissed application for appointment of the arbitrator.

Facts

Sayedabad Tea Estate was acquired by the Appellant, National Highways Authority of India for the purpose of construction of highways. The Appellant awarded the Respondent with compensation under the (“”). Dissatisfied by the compensation determined by the competent authority under Sub-Section(1) of of the NH Act, the Respondent filed an application for appointment of an arbitrator as per Section 3G(5), to the Central Government.

The Central Government did not respond within the requisite period of 30 days from receipt of the request, following which the respondent filed an application to the Chief Justice/ his designate for the appointment of an arbitrator invoking of (“1996 Act”). Following this, the Central Government appointed an arbitrator a few months after.

Meanwhile the Calcutta High Court (“HC”) also appointed the sole arbitrator under Section 11 of the 1996 Act. The Respondent sent the letter of his recusal to the HC before the initiation of the proceedings. This stopped the arbitrator appointed by the central government to proceed, once the intervention by the Calcutta HC was made.

The Calcutta HC passed an order in favor of the Respondent taking note of the fact that the arbitrator had been appointed by the Central Government under Section 3G(5) of the NH Act, after the Respondent had moved an application to the Chief Justice of India, invoking his power under Section 11(6). The Court held that the right of appointment of the arbitrator by the Central Government stands forfeited as it failed to appoint the arbitrator until the filing of the application under Section 11(6) of the 1996 Act, before the Calcutta HC and therefore, the appointment of arbitrator during the pendency of proceedings, cannot be said to be a valid appointment.

Issue

Does the provision of appointment of arbitrators in the NH Act override the one present in the 1996 Act?

Rules

Section 11 Arbitration and Conciliation Act, 1996.

National Highways Act, 1956, Section 3G and H.

Analysis

The Supreme Court observed that the usage of the term “subject to” in Section 3G (5) of the NH Act clearly indicates that the provisions of the NH Act will have an overriding effect vis-à-vis the 1996 Act in relation to land compensation matters arising under the NH Act.

The Supreme Court relied on the case of National Highways and Infrastructure Development Corporation Ltd. v. Prakash Chand Pradhan & Ors. to say that the NH Act has been enacted under Entry 23 of the Union List of the 7th Schedule of the Constitution, that gives central government the ambit to govern matters related to the national highways. It is a special enactment which provides an inbuilt mechanism, not only in initiating acquisition until culmination of the proceedings in determining the compensation and its adjudication by the arbitrator to be appointed by the Central Government, but also by the court of law. Further, the Court assumed that the legislature intended the NH Act to be a complete code in itself, which eliminates the application of the Land Acquisition Act, 1894 as it contains the culmination of disbursement and settlement of disputes that is further strengthened under Section 3J of the Act.

The Supreme Court noted that Section 3G (6) of the NH Act clearly stipulated that the provisions of the 1996 Act would apply, subject to the provisions of the NH Act by the usage of the expression, “subject to”, which clearly indicates that the legislature intended to give an overriding effect to the provisions of the NH Act, wherein it relates to the disputes pertaining to determination of the amount of compensation of the Act. The conclusion that can be derived from reading the act is that the legislature in its wisdom intended to abrogate the power for appointment of an arbitrator under the provisions of the 1996 Act. It is also a well-settled principle of law that when a special law sets out a self-contained code, the application of a general law would impliedly be excluded.

The Court held that right of appointment of an arbitrator by the central government does not get forfeited within 30 days since there is no statutory limitation provided under Sub-Section (5) of Section 3G of the NH Act. This does not give an unguided discretion to the authority and in the absence of any statutory limitation, it must be within the reasonable time and if in fact the central government fails to discharge its statutory duty by failing to appoint an arbitrator on request of the party aggrieved. It will then be open to the party to invoke either the writ jurisdiction of the High Court under Article 226 of the constitution of India or the Civil Court.

Conclusion:

As Section 3G (5) of the NH Act is a special enactment that gives the Central Government an exclusive power to appoint an arbitrator. The application filed under Section 11(6) of the Arbitration Act for appointment of an arbitrator is not maintainable and the provisions of the same can, therefore, not be invoked. The Supreme Court ordered the Central Government to appoint an arbitrator and quashed all orders passed by the Calcutta HC. The Court ordered the arbitrator so appointed by the Central Government to adjudicate and decided the dispute within a reasonable time.

(2018) SCC OnLine SC 3245.

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Judgement Name:

Citation: AIR 2019 SC 3658

Court: Supreme Court of India

Coram: R. Banumathi & A.S Bopanna, JJ.

Date: 25th July 2019

Keywords: Brahmani River Pellets, Kamachi Industries, Seat, Venue.

Facts

The Appellant entered into an agreement with Respondent for the sale of 40,000 wet metric tonne of iron ore pellets. The iron pellets had to be delivered from Odisha to Chennai. The dispute arose between the parties with respect to goods and the Appellants did not deliver the goods due to the dispute.

The Respondent claimed damages later as they had to procure the iron pellets at a higher price. The Appellants denied paying any such damages and contented that the contract had been modified and the respondents had also breached the material substance of the contract. The Respondents invoked the arbitration clause (clause 18) of the contract and moved to the Madras High Court for the appointment of sole Arbitrator. Clause 18 of the contract reads as follows: “Arbitration shall be under Indian Arbitration and Conciliation Act, 1996 and the venue shall be Bhubaneshwar”.

The Appellants contested the petition by arguing that parties have agreed the seat of arbitration to be Bhubaneshwar and only Orissa High Court can exercise its jurisdiction in the present case. The Madras High Court appointed a retired High Court Judge to be the sole Arbitrator and also held that mere designation of ‘seat’ by the parties does not oust the jurisdiction of other courts other than the seat of arbitrator. It further went on to hold that unless there is an express clause ousting the jurisdiction of all the courts, both Madras and Orissa High court shall have jurisdiction over such a case. The Appellants filed an appeal to the Supreme Court against the above-mentioned order passed by the Madras High Court.

Issue

Whether the Madras High Court could exercise its jurisdiction under Section 11(6) of the Arbitration & Conciliation Act, 1996 despite the fact that the agreement contains the clause and venue of arbitration shall be Bhubaneshwar?

Analysis and Conclusion

The Court held that where the contract specifies the jurisdiction of a place, only such court would have jurisdiction to deal with the matter and the parties intended to exclude all the other courts. Since the parties had identified Bhubaneshwar as the ‘venue’ of arbitration, Madras High Court had wrongly assumed jurisdiction under Section 11(6) of the Act.

An important point to note here is that the Court did not apply the distinction that it drew between ‘seat and venue’. The seat of arbitration was not specified in the arbitration clause. The Court assumed that the seat of arbitration will be the same as the venue of arbitration and therefore, by deciding so it reignited the issue of seat versus venue. The issue that was supposed to be answered in this context has already been decided by the Court in

In Enercon, the Court held that when the ‘seat’ of arbitration has not been specified in the contract, the courts must apply the ‘closest connection’ test to determine the same. If the Court applied the ‘closest connection test’, it would arrive at the conclusion that it reached by applying the incorrect rationale. This case only reaffirms the importance of drafting clear and precise arbitral clauses to nullify the scope of any ambiguity.

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Judgment Name:

Citation: 2018 SCC OnLine Del 12688

Court: High Court of Delhi

Coram: Navin Chawla, J.

Date: 28th November 2018

Keywords: foreign award, original jurisdiction, investors, commercial arbitration, Section 47, Section 26.

Overview

This case deals with the effect of an amendment to the procedural law of the High Court of Delhi on a petition for enforcement of a foreign award.

Factual Background

The present enforcement petition was filed in the high court of Delhi seeking enforcement of the . When the present petition was filed, the High Court had the pecuniary jurisdiction to entertain the same.

The learned Senior Counsel for the Respondent has urged that with the promulgation of the Delhi High Court (Amendment) Act, 2015 (hereinafter referred to as the “Delhi High Court Act”), read with the Notification/Office Order dated 24th November 2015, this Court would lack pecuniary jurisdiction to further entertain the present petition and, therefore, the same should be transferred to the District Court.

The learned Counsel for the Petitioner on the other hand, contended that under Explanation to (hereinafter referred to as “the Act”), as amended by the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as the “Amendment Act”), only the High Court with original jurisdiction can hear the petition.

Issue

Whether this petition should be transferred to a jurisdictional subordinate Court or continue to be heard by this Court following the passage of the Delhi High Court (Amendment) Act, 2015?

Analysis

A comparative reading of the pre-amendment and post-amendment explanation to Section 47 of the Act clearly shows that prior to the amendment, the petition seeking enforcement of a Foreign Award had to be filed before the Principal Civil Court of original jurisdiction. Whereas post the amendment, the petition could only be heard by the High Court having original jurisdiction.

The Court referred to the , which documented the object and purpose of the amendment. The amendment intended those international commercial arbitrations, involving foreign parties would be heard expeditiously to provide confidence to foreign investors as well as mitigate the risk faced by the Government of India from claims by foreign investors under the relevant Investment Treaty negotiated by the Government of India with other countries.

The Court stated that the enforcement petition was rightly instituted before the High Court of Delhi under the pre-amended Act. However, under the Delhi High Court Act, as amended with effect from 26th October 2015, read with the Notification/Office order dated 24th November 2015, based on the pecuniary value, the petition was to be transferred to the District Court. The only question, therefore, was whether the Amendment Act, which came into effect on 23rd October 2015, would affect such a transfer of the petition.

The Court held that despite the coming into force of the Amendment Act, the present petition could not be transferred to the District Court. It referred to the cases of Jogendra Lal Saha v. State of Bihar and Others [i], and . Both the cases uphold the principles expressed in the maxims which state that a special provision made on a certain matter would prevail over the general provision in its application. The Court noted that the Act is a special statute as compared to the Delhi High Court Act, which would be a general statute dealing with the jurisdiction and procedure of the High Court. Hence, the provisions of the Delhi High Court Act cannot be made applicable to the petitions seeking enforcement of the Foreign Awards. The court cited the case of to support its conclusion.

The Court also stated that the Explanation to Section 47 of the amended Act was merely procedural in nature and thus would apply retroactively unless the amending statute provided otherwise. Section 26 of the Amendment Act does not exclude the application of the amended Explanation to Section 47 of the Act to proceedings pending in the High Court on that date.

Conclusion

The Court held that the petition would continue before the High Court of Delhi while upholding two main principles of law. First, a specific law prevails over a general law. Second, a procedural amendment has a retrospective effect unless otherwise stated in the statute.

[i] Jogendra Lal Saha v. State of Bihar and Others, 1991 Supp (2) SCC 654.

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Judgment Name: .

Citation: CS (OS) 383/2017

Coram: Justice Manmohan

Date: 7th May, 2018

Overview

With respect to arbitration proceedings, this case was with regards to anti-arbitration injunctions and whether they should be allowed. The Court held that in this instance two separate claims could not be made by the parties under two different Bilateral Investment Protection Agreements (BIPA) as this would be unjust and would lead to an abuse of legal rights by the entity. This was also held because the parties were identified to be a single entity by relying on the group of companies doctrine.

Facts

Vodafone Group PLC is the parent company of several subsidiaries of which Vodafone International Holdings BV (‘VIHBV’) is one and this subsidiary initiated arbitration proceedings against the Republic of India under the India-Netherlands BIPA. The claim challenged the retrospective amendment of of the Indian Income Tax Act by the Indian government, to bring the subsidiary under the ambit of tax liability for the acquisition of a stake in an Indian company. Vodafone Group initiated arbitration against India under the India-United Kingdom BIPA for the same proceedings aforementioned

Based on this, India filed a suit before the Delhi High Court seeking an anti-arbitration injunction against the Defendants for the initiation of proceedings under the India-UK BIPA.

Issues

1. Whether the courts in India can restrain Bilateral Investment Treaty Arbitrations, which are oppressive, vexatious, inequitable or an abuse of the legal process?

2. Whether filing of multiple claims by entities in the same vertical corporate chain with regard to the same measure is per se an abuse of the legal process or vexatious?

Judgment

The Court first observed the fact that a vertical chain of entities can exist which is controlled by a single investor and that the investor through multiple treaties has the ability to bring several claims against the host state in case of any violative measures taken by the host state. The Court observed that this is an abuse of legal rights by the investor since this would result in multiple proceedings and lead to a waste of resources. The Court then relied upon the group of companies doctrine to establish the identity of the parties in the claims and held that Vodafone Group PLC and VIHBV would constitute a single entity.

The Court then established that the parallel claims brought by Vodafone Group PLC and VIBHV were of the same nature and that the relief sought was also identical. In this manner, the Court held that both the identity of the parties and the nature of the claims and relief sought were identical.

In the present case, the Court held that anti-injunction suits could be passed by a court of natural jurisdiction which in this case was India, in order to restrain the party from initiating proceedings in a foreign forum. Lastly, the Court held that the initiation of two parallel and independent proceedings by the same entity under two different bilateral agreements would constitute an abuse of the process of law by the defendants.

Conclusion

The Court held that the Defendant, i.e., Vodafone could not initiate arbitration proceedings under the India-UK BIPA for the reason that this would lead to an abuse of the process of law since it was the same entity bringing two separate claims. It would be unjust and inequitable if the defendants were allowed to pursue the claim against India under the India-UK BIPA when their subsidiary had the identical claim under the India-Netherlands BIPA.

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Judgment Name:

Citation: 248 (2018) DLT 499

Court: The High Court of Delhi

Coram: Navin Chawla, J.

Date: 21st February 2018

Keywords: Section 11, Appointment, Arbitrator, challenge, disclosure, Section 12, Unilateral Appointment.

Overview

The mandate of the Sole Arbitrator was challenged in this case under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) on two grounds. First, the unilateral appointment of the Arbitrator by the Respondent. Second, that the Arbitrator had not given proper disclosure as required under Section 12(1) of the Act.

Issue

1. Whether the unilateral appointment of the sole Arbitrator by a party is invalid?
2. Whether the improper disclosure would render the Sole Arbitrator so appointed ineligible or de jure incapable of proceeding with the arbitration proceedings?
3. Whether the Court has jurisdiction to interfere in this case?

Facts

An arbitration agreement was entered into by the parties according to which the Respondent unilaterally appointed the sole Arbitrator to adjudicate upon the disputes that arose between them. The Arbitrator made a disclosure with regard to independence and impartiality under Section 12(1) of the Act, albeit not in the form prescribed in the Sixth Schedule. It was the contention of the petitioner that the arbitration agreement, so far as it vested the power in the Respondent to unilaterally appoint the Sole Arbitrator, was invalid. The Petitioner further contended that the mandate of the Arbitrator should be terminated as the disclosure made by him was not in the prescribed format. Hence, this petition was filed under Section 11 of the Act to terminate the mandate of the Arbitrator.

Analysis

The Court relied on the judgment of . to hold that the appointment of the Arbitrator cannot be challenged on the ground that he was unilaterally appointed by the respondent, as the appointment was made in accordance with the agreement between the parties.

The Court took note of the to appreciate and re-emphasize the importance of disclosure by an arbitrator under Section 12(1) of the Act. It inferred that the legislature did not state that the consequence of non-disclosure would result in automatic termination of the mandate of the Arbitrator. Hence, the Court held that in the facts of the present case, an improper disclosure would not render the arbitrator ineligible or de jure incapable of proceeding with the arbitration.

The Court also cited the case of . which held that when no circumstances existed so as to give rise to justifiable doubts to the independence or impartiality of an arbitrator, mere failure to make a disclosure or in a format different from the one provided in the Sixth Schedule of the Act, would not nullify the appointment of the Arbitrator. The court further relied on the case of . which held that an incomplete disclosure would not render the appointment of an arbitrator invalid.

The Court remarked that the petitioner’s reliance on . was misplaced. In the said judgment, the Arbitrator’s disclosure was ex-facie misleading as opposed to the present case where the disclosure was not in the prescribed format. Thus, the court held that though the disclosure given by the arbitrator was not in the prescribed format, it disclosed the vital aspect of independence and impartiality.

The Court analyzed the scope of Section 11 of the Act as described by the Supreme Court in the case of . which held that “…unless the cause of action for invoking jurisdiction Under Clauses (a), (b) or (c) of Sub-section (6) of Section 11 of 1996 Act arises, there is no question of the Chief Justice or his designate exercising power Under Sub-section (6) of Section 11”. As no such circumstance existed, the Court did not have jurisdiction to exercise its power under Section 11 of the Act.

Conclusion

The judgment clarified that an improper disclosure would not render the arbitrator ineligible or de jure incapable of proceeding with the arbitration. Hence, the mandate of the Arbitrator could not be terminated merely on the ground that the disclosure required under Section 12(1) of the Act was not in the format prescribed under the Sixth Schedule.

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Citation: 2017 SCC OnLine SC 1362

Court: Supreme Court of India

Coram: Rohinton Fali Nariman, Sanjay Kishan Kaul JJ.

Date: 23rd October 2017

Keywords: Moratorium, Non-Est, Insolvency and Bankruptcy Code.

Overview

This judgment is relevant to understand the relationship between the Arbitration and Conciliation Act, 1996 and the newly framed Insolvency & Bankruptcy Code, 2016 (“the Code”).

Facts

Respondent has invoked arbitration proceedings against Appellant after moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 has been imposed on the Appellant.

Issue

Whether arbitration proceedings can be instituted against an entity after a moratorium under has been imposed on that entity?

Analysis

The Supreme Court, in this decision, unequivocally reiterated the mandate of the Insolvency and Bankruptcy Code, 2016, that, upon imposition of a moratorium under Section 14 (1)(a) of the Code, no new suit or arbitration proceedings could be initiated against the entity under moratorium. Furthermore, the continuation of any suit or legal proceeding is prohibited.

Accordingly, the Supreme Court declared the arbitration proceedings in question ‘non est’ in law. The rationale for the Court’s holding is that a moratorium provides a period of calm where creditors cannot resort to individual enforcement action, which may frustrate the object of the corporate insolvency resolution process. Also, a prohibition on the disposal of the corporate debtor’s assets would ensure that the corporate debtor or its management is not able to transfer its assets, thereby stripping the corporate debtor of value during the corporate insolvency resolution process.

Similar legal rulings can be found in the law of other countries. The UK Insolvency Act, 1986 prohibits any legal proceedings (inclusive of arbitration proceedings) against the company or property of the company except with the consent of the administrator or with the permission of the Court.[i] Maritime Electric Company v. United Jersey Bank has emphasized that the purpose of the ‘automatic stay’ is to grant the debtor a breathing spell, to consider ways of reviving business by stopping all creditor action, foreclosure, enforcement, and arbitration proceedings.[ii]

Conclusion

Any arbitration proceeding initiated after imposition of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 is non-est in law.

[i] Vinod Kothari & Sikha Bansal, ‘Law Relating to Insolvency and Bankruptcy Code 2016’ (2016) Taxmann.

[ii] 959 F.2d 1194, 1204 (3d Cir. 1991).

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